Here is the deal. Just had my first conversation with my first motivated seller. It was a brief discussion but here is what I learned (was very nervous so missed gettting a lot of important info):
FMV ~ 220K
As is = ? (haven’t seen the place yet)
Owner Claims 90K in equity
Owner claims outstanding mortgage amt. ~ 100K
Owner has a disabled wife, 2K in medical bills, a second note from another person of 18K and has filed for Bankruptcy (Ch.11) but I couldn’t understand if he is still protected under it. In my excited state, i didn’t get the mortgage monthly payment amount and how many months past due!
Auction is in 17 days. From the information above, can someone please chime in as to my next steps, how bankruptcy effects the process and what my workout options are. My initial thoughts were to do a sub2
As you can see, I am still a bit green at this but think this can be a great deal (pay him 110K: assuming no other liens) and take over deed.
It needs to be a win win deals for all parties. You should offer enough to the seller to help with the medical bills and help them get settled in another home. Try to find their bottom dollar and satisfy their need to relocate.
Are you sure it was a chapter 11 as this is for businesses trying to reorganize. Actually if the property is being sold at a foreclosure sale the BK more than likely is over and dismissed for lack of payment. A lift of stay should have been granted so the lender can proceed with the foreclosure.
Sounds like your seller may be 10 to 12 months behind or even more which would be at least $12,000 to cure the default plus attorney fees. Once behind this much most folks kind of give up and get depressed and just do not care what happens to them or the property.
Be sure to get a title company involve and buy a policy as this will insure that you have taken all the correct steps and will make sure their are not several other liens and judgements against the property.
You have a lot to do in a very short time. Why 17 days from today. Most foreclosure sales I am familar with happen on the first Tue of each month. What is different in your case?
Can’t thank you enough for your input. I think you are right on with your analysis. The sherriff sale is in NJ and is listed for this date. The owner sounded very depressed and could have been easily confused regarding his BK situation. So, from what you are telling me, I should not worry about the BK and proceed as if it is a non-issue. I will find out first thing when I speak with him again (hopefully tomorrow morning) and find out about the mortgage payment situation. I have sooo many questions…
Assuming that there is another 12K in late mortgage payments, it’s still only 132K in outstanding debt. (90+18+2+12). If the house is worth 220K, could this be a good sub2 deal?
Is 17 days even enough time to get this deal done? Should I get an attorney involved who can walk me through this process and do the title search as well? (BTW. if anyone knows a good RE attorney in NJ, please let me know.)
When I see the owner, should i have him sign the “authorization to release information” and talk to the bank regarding a workout between myself and the owner?
Sounds like a very good deal. Get the second lien holder info too. If you have the cash offer them a lot less for their position as they will lose if the sale occurs. They can still sue in court but not against the property or you and the seller probably will not be able to pay a judgement.
I believe attorneys do closings there and not title companies. I would wait until you get all the info from the lenders involved and have seen the property before hiring an attorney but would get one as soon as you know you have a deal.
Depending on your exit strategy decide the max you can pay for the property and set a firm number. Keep in mind all the fees to resell including commission and holding costs, the two biggest. Try risk as little as possible as late as possible. Do you have the funds lined up or will you need another lender or partner. You may need an appraisal if this is the case.
The attorney should be able to tell you about the BK too but it does sound like a nonissue as you put it.
You do have enough time but double check your comps and the numbers for repairs and the costs of doing the deal. It does take some time but you have plenty. Keep pushing all the folks involved to get the stuff done that you need done. Banks require several days to get reinstatement figures together and they need to communicate with their attorneys as well.
Would you do a sub2 here and just take over the mortgage payments to save time? Also, I think you might be right as far as RE attorneys go here in NJ (probably do the title search as well for us and should be able to provide the needed policy i suppose).
What kind of questions would you pose to the seller at the meeting? Do I need to make copies of all relevant paperwork that they show me? What forms would he need to fill out to move forward?
If anyone has an authorization to release information form handy, can you please send it this way?
Sorry for the barage of questions but I want to get this right the first time! (or as close to it as can be
I think the exit strategy would be to just turn around and resell it but I am getting ahead of myself here.
Sub2 for sure if you have the funds to cure. Quicker and cheaper. No appraisal needed and fewer closing costs.
If you can get a deed from the seller that would be the best document to get signed. If not at least get a sales contract. Do not give any money to seller until you have title checked. Some investors get this done in days.
There are some fancy forms available but all you need is a one sentance letter from the seller giving you permission to obtain the information. Be sure it has all the ss#s and loan #'s.
Again get the second discounted or an agreement to do so from the note holder. If you can not pay now they may still take another note at a discount at a later date in the near future say upon resale or 6 to 8 months.
It is best to know your exit before going in. This dictates what you can pay and how much cash you are willing to tie up and for how long. You may not want to spend $30,000 for a long term hold if you can find the same equity and cash flow for zero down.
What would happen if the property went to Trustee Sale and sold to an investor? Obviously the balance on the mortgage would be paid out…but will the current owner get any of the money from the sale? I was under the impression that the only way that would happen is if the lender bought the house for more than they were owed and the difference would go to the current owner. But I do not see why a bank would bid more money on a property when they know that they will be getting the balance back from the buyer investor. A bit confused. Thanks in advance.
The bank will only bid what they are owed including taxes they may have paid, interest, late fees, attorney fees and other collection and misc fees they charge for the foreclosure. If an investor or homeowner were to bid more then the owner would get the amount over the banks bid.
If the property were to sell for less than the amount owed then the lender could sue the owner for the loss. How this works is the bank bids the loan amount and then sell thru a Realtor after the sale for a loss. A lot of loans are insured either by HUD or VA or private insurance that will cover a certain % of the banks loss or just pay the bank and take the property and sell it themselves.
A lot of property is bought before the sale occurs if there is equity and if the sellers can be found.
Hope this helps some. I am kind of rambling as I have had a long day working.