Sat, Jul 04, 2009
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Pre-foreclosure Deal - Need Advice |
makeitsimple
8 Posts
Member Since: 07/02/2003
Randolph, NJ
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Posted: 10:55 on 09-01-2003
I have a deal that I am working on . . . the couple has a townhouse in foreclosure process that is six months in arears, total payout currently at 180,000. The total PITI for the townhouse (including assoc. fee) is 1800/month.
I have been talking to the couple to make a deal that would be a win-win.
I am thinking of proposing the following deal to them . . . can the knowledgeable veterans please comment on my thinking.
I buy the house from them for an amount of say 220K (they also have about 15K of debts), of which 24K would be put in escrow to make sure that they pay rent for one year. And I have a lease-option agreeement with them that lets them rent the house for 1 year at 2K/month with option to buy at the end of 1 yr at market value ( Comps today are at 270K). I could offer to apply 50% of rent paid towards the purchase to sweeten the deal.
Staying in the house would be of value to them as they have stated (it would certainly save the costs of moving etc.). Now I recognize that they would most likely NOT be able to buy the house in a year's time . . . but it provides them with one year to get back on their feet.
What do you guys think . . . what are the pitfalls in this proposal.
I have tried to compare this option with the proposal to have a contract to purchase with the assignment clause and sell it in the market . . . but I tend to think that they could just as well sell it themselves . . .what would I bring to the table to make it a win-win. Please let me know what I am missing.
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makeitsimple
8 Posts
Member Since: 07/02/2003
Randolph, NJ
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Posted: 12:29 on 09-01-2003
I just read in one of posts here that Lease Option to the owner is NOT legal in all states. Does somebody know if it is NJ . . .thats where this house is located?
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donanddenise
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Member Since: 07/18/2003
Snell, VA
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Posted: 14:47 on 09-01-2003
if i am reading this correctly then there appears to be about 90,000 dollars in equity in this deal. Letting the owners stay in the house is a noble gesture but may be a mistake, also letting them rebuy the house in one year ( option to buy) when you know they cannot afford it may be illegal in NJ. why not just buy the house and resell it, take the profit ( approx: 75,000 and share that with the current owners and keep the rest for yourself or rent the prop for 1 year then sell it with the same deal. you could offer the current owners money upfront and then more upon resell, whenever that may be.
Good luck,
Don
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makeitsimple
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Member Since: 07/02/2003
Randolph, NJ
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Posted: 20:15 on 09-01-2003
Thanks for your advice, Don. But as I said in my post, in purchasing the house outright from them and selling it in the market, what value is added by me that would make them bite on the deal.
Also, their pesonal situation makes them want to stay in the house . . . thus letting them stay in the house IS VALUE as they see it.
I have also toyed with the idea of not having a lease purchase but letting them stay as tenants . . .is there anything wrong with that - as a REI concept or from a legal standpoint?
Any advise is much appreciated. I have to get back to them tomorrow . . . so any helpful advice would be great.
Bill
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LynLinz
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Jupiter, FL
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Posted: 22:13 on 09-01-2003
Makeitsimnple,
I only know from reading the posts the last several weeks that for one ,
you should probably never let the owners stay on. Could be legalities if the owners decide not to go after you've bailed them out . If you don't get a response from one of the more knowledgables here then go to the forum and read all you can You will get your answer
Also If they can sell on their own why haven't they? It has been 6 months , sounds like they need you, they may end up with nothing
[ Edited by LynLinz on Date 09/01/2003 ]
[ Edited by LynLinz on Date 09/01/2003 ]
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MrsMeltzer
297 Posts
Member Since: 07/30/2003
Roswell, GA
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Posted: 21:50 on 09-02-2003
The reason that lease optioning or renting back to a person after you have purchased the home from them is illegial in some states is because ....
it can be construed as a loan.
See, if the people never give up posession of the property, they may think they are signing loan documents instead of selling documents.
So, why don't you give them a loan? Make up their back payments. You'll get a great rate of interest on your $15 K and if they don't make payments to you, you can foreclose and get the property!
If you want to purchase the property from them, saving their credit, not having a foreclosure on their record, paying for their moving, paying for their packing, getting a fresh start, being in control again, doing things in their time frame and a little cash does make it a win/win situation. Once the house is foreclosed, they will get a BIG ZERO and evicted.
Hope This Helps,
Mrs. Meltzer
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makeitsimple
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Randolph, NJ
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Posted: 22:48 on 09-02-2003
Thanks all. I really appreciate the responses. I have been reading up at this site and knew that letting the owner stay is risky. I also realize that I was getting swayed by their unfortunate situation.
I have a face-to-face with the couple set for tomorrow. I am going to talk in terms of buying from them and see how it goes. The way things are, they are not in an immediate danger of foreclosure though the bank would soon be proceeding in that direction since they are six months in arrears.
May be I should turn this over to a seasoned investor on this board for a fee.
Thanks everybody again.
Mrs. Meltzer, I am truly thankful for your insight. I remember your words in reply to some other post where you said "they (the owners who are facing foreclosure) all want to stay on . . .". That made me realize that this is not any different, and for sure while I want to help the folks, it cant be at the risk of my efforts and money. Thanks again.
Bill
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MrsMeltzer
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Roswell, GA
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Posted: 23:26 on 09-02-2003
You are welcome!
I'm glad I could help 
Mrs. Meltzer
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