Talking to preforeclosure sellers to offer lease option.

Hi. I’m new to the forum. I have a list of pre-foreclosure sellers that I’m going to contact by phone as the first contact to pitch lease-optioning their home–as a way of keeping them from going into foreclosure. I imagine that having a stranger call you and discuss your financial problems might be a little off-putting. I’m wondering if anyone has any thoughts on an approach to set them at ease and help me build rapport quickly so that I will hopefully be able to help them, me, and my TBs. Thanks for any input.

As far as pre-FC’s for a lease option, that presents it’s own challenges…not to discourage you, but I don’t work with houses that are behind in payments. In TX, a mortgage must be in good standing to do a LO. Besides that, even if it wasn’t a law in TX, you don’t want to put someone in a house that is in foreclosure.
You would have to get enough upfront from the T/B to get the mortgage current, and still put money in your pocket.
That could be a challenge.
If other people have LO’s pre-foreclosures, hopefully they will comment on how they got enough to take care of the bank and put $$ in their pocket.
a few weeks ago at the auction an investor I work with and help at the auction got a house that was still occupied, because the owner was still getting loan mod docs sent to her Fedx.
She had been making partial payments according to an agreement, and even after the FC she got a package from B of A with the new loan mod docs…
Imagine trying to LO that house and get $6k down, $1695 a month, then 1 month later the house is foreclosed on…guess who is not going to be very happy that you took their money?
The T/B.

Thank you for your response, Pilot. Do you mind if I ask you a couple of lease option questions? You sound like you’re fairly knowledgeable on the subject. How well (or do you) qualify Tenant Buyers before you put them into a lease option property? If you do screen them, do you do it yourself or through a mortgage broker? I have someone wanting very much to purchase through a lease option, but they had a foreclosure a bit less than a year ago. I’m assuming that someone in that situation wouldn’t have much chance of qualifying for a loan in a couple of years. It seems like it would be a losing situation to even put them in there to begin with, as I would be setting them up for failure. Any thoughts on that?

I do the screening and qualifying myself, even though we work directly with a mortgage broker.
I’m looking at DTI, scores, public records etc.
Since I’m really looking for people that can qualify in 1 year, our guidelines may be more strict than others.
With a FC, the borrower will need 3 years from the date of the FC.
One of the big things that I see hurt potential T/B’s is DTI.
They think they can afford more than they can actually qualify for.

Let’s take a look at this from a Realtor’s and an investor’s point of view (I’m: both! LOL!)

  1. Try to find listed properties that have been on the MLS for ages. Look for nice homes that have little or no equity. (In other words, the seller will not lower their selling price because they do not to “lay-out” lots of cash" at a closing. (Also seller MUST be current for me to consider getting involved!).

  2. Try to offer “market or listing” price to the seller (and their Realtor, who will love to see that! (Because their listing may be expiring very soon!).

  3. If the seller/and listing are interested, tell the seller that, you will pay “market rent” for 2 years and then through an option to purchase, close the deal in 24 months, at their asking price!@@@.

  4. The Realtor will get paid, per his or her listing agreement, for leasing the property (usually 1 month rent will be split between agents). Plus in 24 months, the listing agent will receive 3% (or so) upon the excersize of the option.

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  1. The agreement needs to be assignable, and you will need 30 days (more or less) to find a real tenant/buyer.

  2. Make sure you find a worthy tenant buyer who will be willing to put up around 5% of the option price and agree to specific affirmative clauses in the lease, as to defaulting on rent payments (very strict language here.)

If you negotiated a very small upfront option fee with the seller (as I would!), well guess who may be able to keep the option/assignment fee of 5% from the tenant buyer? (well not the listing agent, LOL!).

You then return to the seller/landlord, and sell them on the “great tenant buyer” you want to assign the lease option to. Explain you “screened the buyer” and he will be paying me an assignment fee for the privilege of buying your home in 24 months via you lease option. And seems very excited and motivated to purchase you home in 24 months!!!

Further explain, that out of the assignment fee also I collected from this new tenant/buyer, the commission for your real estate agent, that normally you would have to pay!!!

This is only a “taste” of this type of transaction. A sophisticated lease agreement needs to be drawn-up by a good real estate lawyer, who knows eviction law backwards and forwards in your state. I pay a good lawyer $60 to customize a good lease-option agreement.

There is a hundred ways of dividing-up the assignment fee of 5% to make the deal work.

Do your homework in your respective state to see what you can or cannot do.

Have good morals, and try to find the best tenant buyer you can!@


This is just a rough preliminary rendering of a strategy that can work wonders.!! Just do your homework!!!

Thank you rbdjr for not answering his question…if the house is in foreclosure, you better not LO it…
Again…if someone has DONE an LO on a house in FC, I would like to hear the story, as I am always willing to listen…

Hi rbdjr - I’m interested in what you are doing - I done 1 transaction with a LO but there was no agent involved and I actually assigned it back to the seller , not the buyer . This was done through a release form and seller paid me what I got as a DP from tenant/buyer. I want to try looking at homes that are listed but I just see those as a big headache.

First the house would have to meet some qualifications such as the property has to be vacant and hope the seller can wait 1/2 years for their money. Very few sellers living in their home are willing to move out just to wait two years to sell their home. The 2nd issue being the biggest is that agents are not easy to deal with and you being one know that . They don’t understand how we work and if they see a transaction that they have no clue about , they won’t do it for fear of losing license or reputation. It’s a shame b/c the way the market is right now, is the perfect time for sellers to sell their home in this matter. (those that are motivated.

I would like to know how you present this to the listing agent? How do they react when you tell them you have a 3rd party doing the LO? This is creative real estate at its finest .

BTW - I"m sorry if I hijacked original thread but here is my take on that issue. I agree with pilot that is not a good idea to LO if owner is behind on payments. I think in that case is better to do “subect to” and get the deed. If your deal is to flip it to a buyer , then let them know that they can take the house as well as make the payments but there’s a chance the bank could call the loan due and foreclose. This is something I been thinking about doing but just have to approach this carefully. I think some buyers who have no shot of owning a home soon will not mind. In some cases their monthly payments maybe better than a rental. As always consult your attorney for advise.