No Mortgage but 95K plus in judgements? Is it doable???

Foreclosures, Short Sales, Tax Foreclosures
1

Hi everyone,

Sorry for my ignorance but I need help from you guys because I am a newbie to short sales and want to use this one as practice. I need help from you experts.

I found a guy and his wife that have some pretty serious hardship. They are disabled and have around 87K in judgments plus interest, which include medical bills primarily and some various things like a bank not related to the houses, credit cards, etc. Most is medical related but there are about 25 or so judgments starting in 1992.

They also have about 5K in tax liens and the tax office said they will be selling their property at the upcoming sale in 2 weeks if it is not paid in full. I think they are bluffing because I have checked the tax sale list and their property is not on it. I have never seen them add property to the list. Only take it off when someone comes up with the cash.

He also said he owes the IRS around 3K which I do not see in a title search.

They own 3 houses, two of which are paid off, one has a loan on it and they live in that house. They have told me they will sell me the 2 houses for 10K. Both of them are paid off. Both are owned outright. He wants me to pay him as a “gift” for some reason where it is not reported. Possibly for the disability thing where he can’t show too much income. He wants the 10K to fix his truck and pay off the IRS.

He originally said he wants to file bankruptcy because he knows he will never be able to pay his debts. I told him to hold off and lets see if we can settle his debts.

One house is presently rented for $600 a month. I typically buy property at rent times 30 minus repairs. That house is in decent shape so normally I would pay full boat, $18,000 for it.

The other house has been vacant for a few years and needs about 8K in repairs and I could rent it fixed for $650 so it is worth $11,500 to me.

I would be willing to pay no more than $29,500 for both including any payment to him and all creditors.

Is this doable??? Is it typical to talk down medical bills that far? How about credit cards? How about the bank loan or whatever it was that he owes 13K for? The bank loan was not for any of the houses, I don’t know what it was for.

What positioning would be best considering that he owns both of the houses that I am interested in outright? Many of the judgments are from the same hospital but there are about 12 total different companies he owes.

Please advise :smile

2

Since judgments are also liens on real estate owned by the debtor, I don’t quite see how you can receive clear title without a satisfaction of judgment(s).

In most states, judgments expire after 10 years and can be renewed once for an additional ten years. If your state also has a ten year statute of limitations for judgments, many of those judgments dated 1998 and earlier may have already expired and the creditors may not have renewed them.

If the judgments are still active, and if the owner transfers his property to you in a way that conceals the transfer from his creditors (I am guessing that is what the “gift” is all about), then the owner has engaged in a fraudulent transfer.

Best to have a title search done for the properties and have your attorney investigate any active judgments to see whether they can be satisfied at a deep discount. You may not be able to get title insurance until the judgments are satisfied.

3

Hi Dave,

Thanks for the response. I already did a title search myself at the courthouse and am sure of all of those judgments. I realize that the title insurance company will not give me title insurance unless I have the title search done professionally. My objective was to try to clear the judgments up for a drastically reduced rate, myself. I don’t need a lawyer for anything. Basically I would have to turn 100,000K into 10K to make it work. Lawyers are not better negotiators than me as that what I do for a living purchasing wholesale property, fixing it up and renting it.

I would directly negotiate with the lien holders (judgments) on his properties but wasn’t sure if anyone had experience getting them down that much when the person owns the house outright. It isn’t difficult when the person has a mortgage on it because your bargaining tool is that the mortgage holder will foreclose on the property effectively “wiping out all liens and judgments” and you are trying to buy it before the foreclosure and are willing to offer a “somethings better than nothing” agreement with them. You then approach the mortgage holder and offer 35¢ on the dollar.

The only bargaining tool I can think of to use in this situation is bankruptcy. The guy owns the houses outright and that is my problem. I don’t know how strong the bankruptcy bargaining tool will be since he owns the houses because the people who hold the judgments may think in this case bankruptcy will be great and they will be able to divvy up the property without having the interference of a mortgage holder.

Anyone have any ideas on this?

4

Foreclosure does not wipe out judgments, just the lien on the property being foreclosed. The judgment survives foreclosure and can still be enforced if the debtor has other assets that can be attached.

If the judgments are quite old, suggest you first offer to purchase them for 5¢ to 10¢ on the dollar, rather than offer a discounted payoff. Once you own the lien, then your attorney can issue a satisfaction of judgment to remove the judgment liens on the property. If you are not successful with a direct purchase, make the discounted payoff your backup strategy in a second round of negotiation.

If the debtor has a positive net worth, then Chapter 7 bankruptcy is not really an option. Bankruptcy law generally forces debtors to first attempt to workout a settlement plan with all creditors (Chapter 13). The workout may take three to five years to complete. So, judgment creditors who know the bankruptcy law may welcome a bankruptcy filing and take their chances with a court ordered settlement plan because they may eventually be paid something.

5

Good stuff. I didn’t know you could purchase the lien and for some reason thought my only option was to offer a discounted payoff on it.

Regarding the bankruptcy, the guy doesn’t have a positive net worth but isn’t too far off of having one. I would bet he is upside down by 20 to 30K considering the 95K plus interest in judgments he has. And my offer would have to be quite a bit lower than what they could end up getting from his bankruptcy so It doesn’t look like my bargaining power is strong enough.

Thanks for the advise on this! I think this one I will pass on due to too many possibilities that I will end up wasting my time.