I am fairly new to this site, and am looking for some advice. Here’s my situation:
I helped a guy in pre-foreclosure. I paid $3900 to make his mortgage current, and he, in exchange, signed the house over to me (Warranty Deed prepared by Lawyer). I then had him sign a 6-month lease (until he could repair his credit, refinance the house and take it back from me). It’s been 6 months and he hasn’t refinanced yet, and now he’s missed a payment. Can I slap him with a 7 day eviction notice and put the house up for sale? What are my options, as this was my first time working a deal this way??
Incidentally, 68k is owed on the house, and it recently appraised at 90k.
It depends upon the laws in your state. If you are in California or Illinois, I’d be very careful to read the laws carefully before you take any step that would remove him from the house.
This is a prime example of why investors should never rent or lease/option back a house to the previous owner after taking it Sub2.
Everything always goes back to the lease agreement. What does your agreement say regarding late payments? Also, be wary that the owner-turned-tenant may be in denial now and will try to get his house back if pushed. You may want to seek competent legal advice from a local RE attorney.
I wouldn’t say, “never”. It really depends upon the reason they are in default. I make exceptions for a temporary setback such as a medical emergency or a temporary loss of job where the owner is now back at work and just needs a helping hand. As a rule, however, you are correct.
First off, if he signed a quit-claim deed and deeded the house over to you he can’t refinance the house. You cannot refinance a house you do not own. So he’d have to purchase the house from you. If he just added you to the title then you can’t evict him because you can’t evict someone who has ownership of the house, you have to foreclose (and even then you can’t foreclose, the lender has to start proceedings).
With a house that is appraised at 90k and the homeowner owes you 68k. That is called equity stripping and if challenged is illegal.
You can equity share, but if you are taking that much equity, the homeowner can go to court, and all you will get back is what you loaned plus interest, of maybe 12%, plus legal fees.
If you do get the equity you better have some cya disclosures, cuz that could really land you in club fed.
One more thing, i am almost certain that the homeowner payments are pretty much low now. How if they refinance can they afford to pay the higher payments?
Do you think a lender will really refinance them if they show that they can’t afford the place now? You should have been making the payment for them, so they credit would look better.
In this situation, the homeowner had a temporary setback and is working full time now with a good paying job (I got pay stubs, etc). He also has taken the necessary steps to repair his credit. I did get proof of this from him. Another thing is that I am making the payment to the bank directly, and he is paying me the same amount (and a little extra) in rent so it did help his credit.
Although he did sign the house over to me (via a Warranty Deed), I didn’t record it because I knew he wouldn’t be able to refinance if I had (probably my first mistake).
In any event, I believe this may turn out good after all (fortunately for me). Tenant called soon after this posting and is in the process of getting refinanced. I’ll hope for the best…
Any advice as to how to work it better the next time I try this route would be greatly appreciated.
Tenant called soon after this posting and is in the process of getting refinanced.
So, the owner signed his deed over to you, but you haven’t recorded the deed yet? You do know the owner can turn right around and quit claim the deed to an entity he controls or to another person and the house would not be yours, don’t you? As soon as you can RECORD THE DEED!
I agree with the statement below. Recently I had a gentleman try to convince me that his home was in foreclosure (when it was not) and that I could purchase it at full price and he would give me $50K at closing. I would purchase the home from him and he would lease it back from me for a period of 1 year (and then he would purchase it back from me). Well, come to find out that the house had gone down in value about $200,000 from what he thought he could pawn it off to me at. He was trying to set me up with an old appraisal and hope that the bank would give me a loan based on that. After further research, I found out that this “gentleman” had 401K’s and otherwise of nearly 3/4 of a million including liquid stocks and treasuries.
Buyer beware. Do your research. The past does not equal the future but learn your lessons along the way.