I got a call today from a lady who is 30 days away from the foreclosure sale. She now lives in another state with a family member in the home. She bought the house last May for 240k on a 100% financed 80/20 deal. Her arrears are 15k and 6k respectfully. Well thats what she tells me. She says please “get me out of this before this goes on my credit and I can’t even buy a car”.
What I want to do is short the second (48k) and assume the first(192k@7%). The problem might come from the fact that the home is worth just about what she paid, based on MLS comps. Hopefully I can convince the second to short for 1k.
Exit strategy for me is to lease option or rent to own, BTW are these the same thing? Monthly payments would be $1550. I could get $1600-1800 per month. Yes know it’s tight but it’s in an area of Chicago where the property values have been escalating faster than rents. With this place I would be able to cover the mortgage, but just barely.
I’m looking for any and all suggestions as to what would be the best way to maximize profits while limiting risks, yeah I know aren’t we all, ha ha. Thanks for all intelligent replies.
I had a very similar scenario where the homeowner had a house paid off, but took out multiple home equity loans (HEL), all from the same lender, that equaled $1,000 less than a solid CMA. Seems the lender gave her an iflated appraisal so she could get more money out of the HEL. I told her that she’d be better off selling the house, as it was in very good shape with no repairs needed. I gave her the number of my real estate agent, gave her some tips on increasing her curb appeal, and wished her luck.
Rent-to-own or lease/option is the same thing. As for the second taking a discount I wouldn’t give up but it sounds like its a really tight deal since this lender has them over financed. The bottom line is you will never know what they would take unless you make an offer. Right? So make the offer and don’t sweat it. Who cares if they say no. Its not your problem.
I thought I would bring up a very important topic to remember about the policy that almost every Lender abides by…
If a Short Sale is involved… the homeowner CANNOT benefit from the transaction in any way, either through the sale of the home or by staying in the home (ie: lease-back).
The Lender is doing everyone a favor by forgiving a certain amount of debt that the homeowner had already “promised” the Lender to pay back to them when they took out the loan, and the main reason the Lender will ever consider a Short Sale is to minimize their own costs and other liabilites. They do not want to simply allow the homeowner to get out of their debt obligation. If there was a hardship involved, consider Loss Mitigation techniques with the Lender instead.
BE CAUTIOUS
Creative (and highly lucrative) R/E investing strategies that allow the homeowner to stay in the home or take equity out of a Short Sale negotiation if the home is sold can turn around and burn you later. Trying to circumvent this stipulation or policy the Lender will very likely result in you losing your privileges of negotiation with that Lender if they find out your strategies and they will “blackball” you from future S/S or Loss Mitigation discussions. Lenders have a lot of ways to track this (ie: sending letters to the homeowner at a later time to the address of the property to see if the homeowner is still living there) and are getting more agressive about this the more often R/E Investors are getting involved with the foreclosure market.
Also, think about learning a little more abut recourse and non-recourse policies whereby the Lender can go after a homeowner at a later time for the difference in the Short Sale if they discover the homeowner benefitted from the transaction.
Your input to the topic at hand illustrates your insight into the mitigation process.
As I am looking to enter this field (also in Soutern California - Inland Empire), could you provide any recommendations for online educational resources?
Anyone else have any insight on my original question. That is, if the first and second are the same would they short the home if its in decent condition just overvalued. Any insight? Thanks