1st Pre-foreclosure/ Rehab deal

I purchased a pre-foreclosure from a family friend via quit claim deed. She wanted $3500 to move and was behind $5000 in payments. I now have this house that has a mortgage still in the owners name. I am rehabbing the property as we speak and plan on refinancing and renting it out. The payoff amount is $65K. She lived in the property for 20 years. Comps are between $135K-$145K. Having all repairs done from business credit cards. Is this a good deal? What can I realistically expect after refinancing? Should I have taken the deed via Land Trust? My last question is will this be a seasoning issue since my QCD is not even a month old? Someone please tell me what route to take…

Thanks in advance…

so you picked up a property thats worth 135 for about 75 on a sub 2? How much does the property need in repairs? Did the seller move out?

I think you will be OK with the seasoning. You should be able to re-fi but I dont know at what LTV. I imagine you could go at least 80%LTV which will pay the old loan off and put a few bucks in your pocket

I think you did ok depending on the rehab.

Good job

You have a great deal…most lenders will lend 80% LTV no seasoning at a slightly higher interest rate.

I think you lucked out and have a pretty good deal. Maybe next time you might put some figures together so you’ll KNOW if its a good deal or not before you buy it. I personally would have gotten a Warranty Deed - with gives you title. A Quit Claim deed only conveys interest in the property - you don’t own it.

To find out if you have a good deal use this formula:

(.70 x ARV) -rehab costs - sales costs -profit = max purch price

Simple Example-

.70 x 125K=87.5K
87.5K - 10K - 7.5K -10K=60K

I assumed your profit was 10K and that your rehab costs was 10K, but it could be any variable you plug in. So to answer your question, I think you did OK, but try to use this or any type of similar formula before you commit to anything. Try to factor in holding costs and any other type of costs as well.

. . . remember too, add in the profit killing - “holding costs” too! LOL

Heres the situation, 60K is actually still owed on the house to be exact. The house goes appraises for 145K-155K. I was assuming that after the house is sold, besides whats still owed on the house, closing costs and additional fees, my profit will be around 50K. Is this accurate? This is my first deal.

Try the formula -

ARV - 145,000

Less: mortgage
Less: real estate commissions to sell
Less: holding costs, mort. pymts., interest, taxes, etc.
Less: rehab costs - realistic
Less: mortgage reinstatement amounts, fees and interest
Less: judgements, tax and/or IRS liens, if any
Less: monies paid to owner
Less: any other fees

Equals - your profit

Did I forget something?

Most rehab lender will do 65 to 80 ARV( After Repair Value)

Here is the calculation:Plug in your own numbers

Offer= (ARV x 72%) - ( Repairs + Holding + Closing cost )
Note: if you want low closing or no closing cost will require higher rate.

530,000( ARV) X 72%= 381,600 is enough to buy $380,000 short sale but not enough to do repair of 38,000. ( see below) That 38,000 down is your repair.

10,000+18,000( example: 386,000@ 10% = 38,600 divide by 12 months. Hold for 6 months $3216 IO X 6 months =$ 19,299) +Closing cost $10,000 = 38,0000

What if the property sit longer. Where is your reserve to cover your ass.

381,600 - 38,000 (10,000+18,000+ 10,000) = 343,600 Offer

Some lender max at 80% due to borrower cash. If you had gotten a higher % of ARV, you would not have to put the cash.That is leverage. the 38,000 I would keep just as emergency to cover my ass if the property will not move. Pad the repair alittle.You pull the wall, sudddenly you have water damage behind the wall.

530,000 -418,000( 380,000 to buy short sale + 38,000- Repairs ) = $112,000 profit

Thanks for the valuable advice. I have corporate credit and thats how I pay for the repairs. The house comps for 145-150K. What should I expect. Also, If the mortgage is still in the owners name, how would I go about sellng it and shes in a Chapter 13. Will she need permission from the Trustee to sell the house. I did a QCD on it.

For the Legal OWNER to sell a house that is currently involved in a chapter 13, that person must go to the trustee and they must get the judge to approve the sale of the house. Then when the sale is made the creditors named in the court papers, will be able to be repayed. Where you come in at this point is anybodies guess. I would consult an attorney ASAP.

If you can not make a quick $25,000 0r $50,000. Move on .Time is money.She is still under the protection of Ch 13. Pass on the deal. To much time. There are other deals.

If you did a QCD then should have got it notarized and walked the paper work thur at the court house in that county my family did a deal earlier this year with the same issue the house is ours we did refinance we took a lot of money out didn’t use any lawyers and we were fine “lawyers don’t make your money they take it” 8) 8) 8)

I love it when people say stuff like “we were fine” , in refernce to taking money that is under federal control. As long as the feds don’t catch up to you. Thats what “Real Money” meant when he said “lawyers don’t make your money they take it” reffering to the Federal Gov’t’s lawyers.

Just because you could get away with the money, doen’t mean you should try getting away. The people in the court house probably had no idea of what was going on and if they did know, they don’t understand the Federal laws relating to this issue.

Even if you don’t want to pay a lawyer, do some research and you will see that this Deal creates some real problems for you and the Family Friend. I took the time to speak to a judge about your post, they would not do this deal.

I agree with the many posters - but didn’t want to open a can of worms just in case my feeling was incorrect. I would not do this deal either - just to complicated and lengthy.
There’s just too many EASY deals to do than to get tangled in something like this.

well we know title companies and they checked for liens on the property and there was none other than a 1st and the people didn’t file a 13 either so there were no fed lawyers so what are you taking about my uncle is a lawyer so what are you talking about we do theses all the time the right way and we have people we work with all the time so the judge might be right in cases involving filing a 13 but these was not a transaction that involved a chapter 13 8) 8) 8)

We were talking to KARON about Chap. 13 - not you. :slight_smile:

OK now i’m confused. I spend too much money in rehabs already. New windows, concrete, etc. She’s still in a 13. Should I stop paying the mortgage and let the house automatically be released from the 13 or should I hurry and sell the house. I wanted to do a re-fi and keep the house. Perhaps rent it out. I do have a QCD. I didn’t file it because I feared the DOS clause. I didn’t want the lender calling the loan due. I’m confused and have been wasting too much time on this house. Is it better if I did a land trust? Will that avoid the DOS clause and allow me to sell or re-fi the house? Please someone tell me what to do. I’m stuck with this house and need to pull this money out so I can move on…

Since you see that some of us are still learning our numbers you can see that the advice hear is free flowing, some good some bad.

Let me say this, I plan on buying a house that is currently under “CHAPTER 13” protection (like yours). I will get a copy of the judge’s order (from the court house) allowing the sale of the house and I will make the check out to the “Trustee” as the judge stated. After all the only reason the sale is occuring is because the owner of the house swindled $40 million dollars out of investors like you and me.

If you would like more help and to see federally regulated chapter 13 sale is conducted please send me a pm or post your request here with a personel contact method (IE email).

At this point I would contact the trustee, if you don’t want to hire a lawyer.After all, now you have the idea that this sale MAY be fradulent and you COULD get into trouble, if you try to get “away” with money from another sale.

Did you know that a mortgage company cannot even force the sale of a home under federal protection? The mortgage company must get approval for the sale from the judge/trustee.

Good Luck and choose your next move carefully.

I’m still confused. I have put money in this house. The owner has moved. She did just recently do another emergency homestay. How can I get legal ownership at this time and flip or re-fi this property. Please someone help. I’m in the Chicagoland area. I need a real exit strategy. I have put to date over 10K in rehabs in this house. I need to sell this house. What are my options. Can I let the house face foreclosure again and have the trustee throw it out of the chapter 13?