Help me out with this deal, what would you do

I have the following deal:

Level of motivation: very very motivated, willing to even file bankruptcy kind of motivated.

ARV: 174 000 condo.

Loan balance: 1st mortgage 141 000
PITI: 1090

There is a personal loan secured by the property for 20 000$. This is not a 2nd mortgage nor is it a home equity line of credit.

payments: 430

Market rent for a condo like this is about 1000$ a month.

I am not quite sure what to do with this lead.

  1. I can’t take it subject to because the payments are way above market rent / owner financing payments

  2. I am not sure if I am able to take it subject to the first mortgage and leave the 20 000 personal loan for him to pay off. What happens if he stops making the payments for this personal loan?

What would you do.

Well if he stops paying that second you’re screwed. And you won’t be able to sell it until he pays that off, since he is teetering on the BK cliff that’s probably not going to happen. If you have to pay both notes off you’re looking at $161k with a property value of $174k. If you include both payments you are $520 over market rent in monthly costs wtihout even factoring in $400-500 a month in expenses. Maybe a shortsale but I have no idea how a personal loan secured by property would treat it.

What would I do? Run, don’t walk, away from this one.

Yeah I am walking.

I just found out that he has a personal loan of 10 000$ that he is 2000$ behind upon.

They are about to sue him for the amount and he will be forced to be put in bankruptcy.

I don’t think I can even short sale this property because the 1st mortgage holder is insured by the CMHC which insures mortgages that are above 75% LTV. This is in Canada btw.

Oh well, thanks a lot Rich for your input.

Well I do not know Canada, but here in the US, dealing with a short sale that has PMI can actually be rewarding since the bank will get money from the insurance company still.

Have you looked into short saling the 1st for about 80K if he is behind (you didnt mention it in your post) and since the second is behind and the if the seller files BK, the person with the private 2nd for 10K will get nothing probably. Offer them 2K (the back amount) and let them walk and give you a release. If you can get into this property at 85K, you can probably rent for cashflow since it seems the condos rent is not strong cashflow even if bought at 75% ARV…

That is reassuring to know because I am currently working on a short sale where the first mortgage is insured by the CMHC as well.

Basically how it works here is that if the principle mortgage lender takes the home back and sells it, they bill the CMHC for whatever losses they incur in the money they lent out.

Or, the banks can hand over the property to CMHC if there is way too many repairs to be done and CMHC sends them a check for the amounts they have loss. CMHC then goes after the homeowners with a deficiency judgement.

I know short sales are quite popular in United States even with homeowners themselves. I am still trying to figure out how much banks in Canada are comfortable with the act of loan discounting.