Problems w/owner financing back to original owners?

Foreclosures, Short Sales, Tax Foreclosures
1

A local real estate investor is buying-up pre-foreclosures for .40-.50 cents on the dollar and then immediately owner financing the house back to the original owner at a mark up as long as they can prove they can “Pay-to-Stay”. He says as long as they have a 550 credit score or better, can make monthly PITI (Principle,Interest,Taxes & Insurance) payments on a 100% mark up at 9+% APR he’ll “reifynet” them (I never heard that real estate term before). He simply cashes the real estate note out to some note buyers for .80cents on the dollar. It sounds to good to be true!

I don’t know what “reifynet” means.
Is this an actual real estate procedure used to conquer foreclosures?

Now he’s encouraging me to try it with this deal I got. The owners are a young 33yr old couple who have live there for 11yrs, had gotten two brand new cars, already had two kids and unexpectantly got hit with a third. During which she suffered a hard pregnancy, was bed-ridden for 4mos and almost lost the baby. During the exact period it just so happened that the Naval Base where he worked cut back on his hours. Despite their finally having the new kid last Feb and both being back to work fulltime they haven’t been able to catch up.

Subsequently, they got behind 5mos, the only payment arrangment the bank is willing to offer is like $3,000 down and raising their payments to something like $1700 a month for a few months, so now they’re facing foreclosure. They gave me a copy of a credit report they got last month when they were trying to refinance. Of course they’ve been turned down but their credit history looks good before the end of last year and they’ve been good since March, with the exception of not being able to catch up.

Their house has now appreciated to $130k (comps). Their payoff is approximately $52k plus $5,000 outstanding escrow. Their original PITI payment was $945mo. They did a voluntary repo on one of there SUVs a few months ago and so now they have an additional $450 free. They said in order to save their home they can comfortably pay a PITI payment of $1400 a month.

Since the house is in excellent condition and I would be selling it back to them “AS IS” in the same condition anyway I might do it. I ran the numbers in the mortgage calculator and figure after closing I’ll be into it about $60k. I can sell it back to them for $115,000 (with no money down they could never live on that same street for that much) at 9% with a PITI payment a little over $1300 a monthly. I have the cash so I won’t need a loan and if they pay good I might just hold on to it, but if I flip the note in 6mos (thats how much seasoning this guy says his note buyer needs) when the principle balance will be $114,214.32 I’ll get $91,371.45 which is a 100% ANNUAL YIELD on my investment! :deal

Worse case scenerio if my pre-designated trustee holding the deed has to foreclose on them in the future… IT’S A $130,000 house appreciating nicely that I picked up for only $60k. Here in Texas I know I can get the house back and then flip it for full price. Then what would my yield be! :shocked

PLEEEASE HELP!!! I’m so excited thinking about all this process I can’t help be wonder if I’m walking into a bear trap! Someone verify “reifynet” or show me diferrent, otherwise I’m doing it. :help

Sorry this was so long. Thanks

2

This sounds interesting but how solid is this deal? If the bank is willing to work with the current owner for only $3k plus $1,700 per month for a few months to bring them current then why in the world would they give away $50k in equity to you? Likewise if the property is worth $130k why don’t they just sell themselves, collect their equity and move-on. Like you said it sounds too good to be true.

3

:cool WHAT this person is doing it sounds like is ::::

A twist of some kind on a simultaneous close

4

Since they can’t currently squeeze anymore out of their budget and even with their excess $450 repoed SUV payment now in their pocket it would take them 6months just to come up with the $3000 down and then even if the bank delayed the foreclosure (which they aren’t willing to do without the full $3000 up-front) they wouldn’t be able to make the payment so it would be a fruitless exercise.

Besides here in the great state of Texas the lender can foreclose within 21days and these people are already on the list for November 6th, 2007. Therefore, they beleive they really don’t have enough time for the traditional MLS/RE Agent scenerio.

Regardless, I’ve noticed over this last year dealing with pre-foreclosures that most people that have lived in their home this long and still having school-age children suffer from the deep-seeded sentimental attachment to their “Stick-n-Stone”. So for them its not a matter of the equity.

5

First, probably someone isn’t getting the whole story here. If they are currently making a payment AND they were only 5 months behind in pymts to begin with, then I find it hard to believe that the bank is unwilling to work with them any better. Who is the bank, OCWEN? Banks aren’t in the business of owning RE. If the borrowers have the ability to pay at this point, there is usually a workout available.

Second, with that much equity AND if your market is appreciating, then they shouldn’t have ANY problem whatsoever with selling this house quickly. Pop it on the market for $100K and they will likely get more than that in a matter of days. I guarantee you that the bank will not foreclose on a home that has a contract to sell on it, even if the seller isn’t making payments.

Third, is there problems with what you’re considering? BUNCHES!!! At least a bunch of potential problems.
BIG ONE, the potential for getting sued for usury lending practices AND defrauding this seller. From what I’ve heard about Texas, you stand a better chance than most of this happening. Exactly how could you say that this is a win-win type scenerio? If you were brought into court, where is it that you actually “helped” these people? This is VERY important.

Your proposed method should be the LAST resort for these people. If you want to work this market, what you should do is first try to work out a solution with the lender for them to keep their home (yes, you could charge for this). Second, form a way to sell it quick, probably through a RE agent (which should be a team member of yours). Finally, offer your solution. The better that you can afford to make that deal, the less of a chance of a (successful) lawsuit against you.

Raj