You really push note servicing companies… Who are some good companies and what are their typical fees?
Also, on an Option to Sub2, how do you prevent owner from going into foreclosure during the option period? I am assuming you are just paying rent to them and not transferring deed, etc until you find a buyer but how does that take care of their late payments?
Also, what is the reason for maintaining seller’s existing insurance and getting a second policy?
I use notecollection.com. However, you want someone close so that your buyers have somewhere to sign up. Otherwise, YOU ARE going to have to babysit the set-ups and do everything by mail.
Google “note servicing.” Costs about $150 for set-up and $10/mo to accept payments, escrow funds, and write checks.
There’s a couple of reasons I don’t deal in defaults. First, too much money goes to make up back payments, instead of my back pocket UNLESS THE SELLER ENTICES ME TO DO THE DEAL ANYWAY, which I’ll explain more about in a moment. Second, the bank is now sniffing for title details. No thanks.
To answer your “rent” question, “I don’t pay sellers rent while I find a buyer.” If I need to ‘option the property’ while I find a buyer (for some reason), that means I pay them about ten bucks for my option (which goes about 60 days with the right to extend under a certain circumstance).
Frankly, as long as the property is extra attractive, and I don’t have some extraordinarily high financing terms to hurdle (like making up several payments, high interest, or ARM loans, etc), I can attract buyers with enough cash to make a deal work for me in a matter of a few days. The problem with default deals, again, is that I only get so much in down payments despite marketing to those who need financing, and giving away say 90% of it to bring the loan current is really not interesting to me.
Meanwhile, I’m only willing to deal with anxious, desperate, motivated sellers who are ready to deal and work with my solution. If a seller can’t maintain the note on a high end deal, any rent I pay won’t cover the payment anyway. So what’s the point?
The buyers I bring to the table will bring everything current in the end, and since I’m optioning the right to find a buyer and t.h.e.n. Sub2 the house, the seller can wait for me to exercise my option like any Optionor might …or he can sell for cash… which evidently is not an option.
BTW, it’s a good negotiation gambit to offer the sellers the right to sell for cash, at the same time we maintain our option. It gives the seller some mental and emotional security, but something they’ll never use. So…
If you believe there is significant money to be made in a default situation, and the seller’s credit is already screwed, then it’s just a matter of finding a buyer with a down payment that will cover the past due amounts, plus fees, and pocket the difference. Again the issue is, how much money is actually left over to make it worth your long term commitment? Now, this is where I want the seller to entice me to do this rotten deal… The seller has either cars, motor homes, man-toys or furniture he can give me in return for saving his butt. Of course I don’t get these until I perform (for this discussion).
But…I’m quite happy to take on a default situation, make a minimal amount up front for finding a buyer, and babysitting the deal, after the seller gives me his late model Mercedes free and clear. Or I can contemplate the years I must wait for the buyer to refinance while I vacation in my Class A motor home the seller gave to me in return for saving his butt.
Meantime, I am opposed to putting a buyer together with a defaulted seller and walking away with a fee (aka 'mortgage assignment), and letting the chips fall where the will. If the buyer stops paying, the seller won’t have the tools or experience to do anything more than get an attorney, spends tons of money, and try to foreclose (or be foreclosed upon himself in the meantime) and perhaps screw his credit six ways from Sunday. Nice.
Notwithstanding, eventually the seller and buyer will need advice and direction on how to get out of each other’s hair with new financing. Sellers won’t have any idea either how to help a buyer do this, and buyers won’t have clue on where to start.
So, I say we need to stay in the loop (and hold title until the buyer successfully pays off the seller’s loan). Well, nobody babysits even a short term contract for free. I sure won’t. That’s why there needs to be some extras in the deal for me to deal with a zero equity, or negative equity, default situations. I want cars, toys and furniture, or I’m not interested. This isn’t a ministry. Again, forget paying rent…!
That said, defaulted, upscale sellers will deal like Monty Hall’s evil step-sister to get what they need from you.
The reason I do the insurance the way I do is to maintain a low profile.
Okay, that’s a lot of posting…
Hope that helps…
Hello Javipa:
I posted this in the forum. However after 22 views, there was zero responses thus far. I also posted thin on your webpage.
Reading your response in this post, it seems pretty close to what I am looking to exercise. So, I would appreciate your response, feedback/input to my question.
Sub2 on Preforeclosures - any suggestion
« on: August 05, 2011, 12:26:02 PM »
Hello Fellow Financial Freedom Seekers:
I took some time off the RE mobile. However, I’m gearing to return. So I have some questions:
What are some of the effective techniques currently being utilized in this market–particularly in relation to upside down mortgages and those in preforeclosure? How would you go about handling a sub2 on upside down properties, or properties in arrear/or in foreclosure?
I am considering the following strategy, and I would like inputs, critique and advise.
I looking to target upside down and preforeclosure for sub2; and hire a proven/efficient loan modification firm to handle the loan mod. So for instance, let say, a home’s in foreclosure with a loan of 200k (with CMV - current market value of 90K). I would take it under sub2, then have the loan mod to something close to or under the CMV; then do a lease option or seller finance above the 90k; or even hold as rental for cash flow as an exit. what do you think about this strategy?
Is this currently being done by others?
Thanks to all who contribute to this discussion.
MB
Icebergtec,
I read your post on my blog, and I responded to it… “How do you find “good” deals without any competition?”
Jay