1st) I would get the owner to agree on taking 5K for the house, he’s late on his mtg. payments thus he is or will be in foreclosure very soon, depending on the laws in your state.
I would offer the bank 275K, if they foreclose on the property, it will cost them more than the discount they’re extending to you just on attorney fees and court fees for the foreclosure process.
Since the house is not selling, you have the upper hand in the negotiation, be smart about dealing with all the parties and I’m sure you’ll come out with a good deal.
Finally, make sure the house is in decent condition prior to making your offer and going all the way on this deal. You don’t want to the owner to blow a gasket and put cement in the plumbing system, thus creating a less profitable situation for you.
Follow question: The owner needs 27,000 to pay off debts and such. That part is not really negotiable due to ethics in part on my behalf. At the same time, what leverage do I have over the price offered to the bank.
In other words, before reaching the point of diminishing returns, how low of a price can I offer and expect to be awarded the house? (How much would it cost for lawyers/forclosure?)
Second question is: do I assume the existing loan or do I have to get my own loan?
First, the $27K (or whatever amount a seller wants) is ALWAYS negotiable. I’m not sure what your ethics has to do with negotiating the deal, but what they want and what they get are two completely different things. I’m pretty sure that if the bank foreclosures, that they aren’t going to get $27K, so $5K would be better, right?
Second, if you do a Short sale, then the homeowners cannot receive ANY money (at least on paper), so you will not be able to offer then any money and do a short sale.
Third, why is the house not selling? Is it really worth $370K? Does it need work? Slow market? What? You don’t simply want to trade places with the sellers. If you don’t know why it isn’t selling now, then how will you know what to do to make it sell when you have it?
Fourth, there are no hard and fast rules concerning shortsales and price %'s, etc. Make a fair, reasonable offer based off of the property’s condition and see what happens.
Fifth, If you take the prop Sub2, then you informally ‘assume’ the existing loan. If you do a successful SS, then you will need your own funds to close the deal.
And finally, sixth, no offense, but you’re not ready to do this deal. If you really want to help these people, the best option is for you to put them into contact with a more experienced investor that may be able to help them. You can get a finder’s fee and probably a paid education by asking the investor to let you sit in own what he does so that you can learn this firsthand.