Ok folks here is the scenario.
Upper/Lower Duplex in pre-foreclosure. 3 payments behind.
Two mortgages. 1st mortgage has a balance of 41K with payments of 550.00 at 6% and held with M&I Bank. 2nd mortgage has a balance of 20K with payments of 450.00 at 11% interest with Chase.
The duplex is in pretty good shape. Needs soffit, fascia, drywall work, carpet in a couple of rooms, some of the roof needs repaired, and some painting. Probably in the 5-8K range and it would look really good. The property is vacant but I did see the last two leases to verify rents and they were at 375.00 for the upper and 575.00 for the lower so the rents are decent.
Property is assessed at 95K. She “said” it appraised at 95K two years ago. All in all I was suprised at how decent the property was.
Question is where do I go from here? They want to get 65K for it to clear up back payments. I really don’t want to do that. Is there a wholesale opportunity here? Think there’s a chance to work out a buyout for the second? The owners have been talking to the first lien holder and are calling them tomorrow to see if it can be assumed. That would be great except for the second lien that would have to come along with it. Looking for ideas and suggestions as time is of the essence!
Nate-WI
Maybe work out a SS with the first and second lien holder? If I do that would I need two offer to purchases, one for each lender? Say the first lien holder owes 41K. Offer 30K on their OTP. Maybe offer 3-5K on the OTP for the second lien holder?
Nate-WI
First talk to the lenders and see if you can assume the mortgages. If not, you can still buy it and your agreement with the seller will specify you will take over the mortgages. Most banks won’t care as long as the payments keep coming in, though often they have the right to terminate on sale. You need to have plan b in case that happens. Ideally you want to hold on to the 6% mortgage and replace the 11% with better terms.
Also make sure you know what the real FMV is. Assessed means nothing. Appraisals can be slippery too. Do your own comps, See recent topic “Question on if I am going the right direction on this?” for more insight.
I have a BPO that was done yesterday for 89K so it seems that the value is there. Even if I assume both mortgages its not a decent deal. I need to wipe that second lien away. Anyone done a short sale on a second lien? Do I need two offer to purchases, one for the first and one for the second?
Nate-WI
Who ordered the BPO, the first or the second lien-holder? I am hoping that you will say you ordered a BPO with your own funds just to get an idea of comps. Barring that, if one of the lenders ordered the BPO, you might have a fight on your hands if you want a short sale. Confirming that the property may be worth $89k with a BPO may be good to validate what you think it is worth, but it is not good in trying to negotiate a short sale. You want to influence down the BPO as much as possible. $89k - $65k is still a good amount of equity, and the lender(s) may be hesitant to approve a short sale, only to let you “strip” the equity that the home-owner has.
Regarding purchase contracts: you are buying from the homeowner, not the lenders. Use one purchase contract. Each lender will have separate NET numbers but it is one offer and one contract.
I ordered the BPO to confirm the value. If both mortages total 61K and I write an offer for say 45K do I send that offer along with the sales package to both lenders? I really don’t want to screw around with the first. It has good terms and the seller is looking to see if its assumable. How do I handle the second?
Nate-WI
Don’t hold your breath that it will be assumable. Unless it is a govie loan (FHA/VA), most modern loans are not assumable, and it’s been that way for about 15 years, I believe.
Posted by gordo2417 “I ordered the BPO to confirm the value. If both mortages total 61K and I write an offer for say 45K do I send that offer along with the sales package to both lenders?”
For the first lien-holder, it depends on whether you are assuming it or not. If you are assuming, they don’t need a sales package. They will walk you through the process, which will mean that you fill out a bunch of their forms, etc., to get approved.
The second lien-holder will want to know the payoff of the first, whether it is a short or full payoff or assumption. Give them a sales package along with the payoff of the superior lien, and probably a net sheet. Your job then is to convince them to do a BPO. Then your job will be to influence the BPO as much as possible. You have to get that BPO as close to the $45k figure as possible.
Hope that helps.
How do I find out who is doing the BPO? I’m guessing its hard to track down the realtor or firm that is doing it?
Nate-WI
Not hard at all. When you are talking to the lender, tell them that you are the contact person. I meet with 100% of the BPO agents on all my potential deals. One of the biggest jobs of a pre-foreclosure investor is to influence the BPO.
There are at least a few good articles on this site about influencing the BPO. Check’em out.