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Owner in foreclosure - buy and l/o back to seller? |
dmb
15 Posts
Member Since: 01/08/2003
Elk Grove Village, IL
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Posted: 12:10 on 02-11-2003
What advise or comments does anyone have about this scenario:
Owner is in foreclosure but does not want to move. I buy property and split equity. L/O back to same person who can try and clean up credit and apply for loan in 3-5 years. Comments please !!!
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InActive_Account
-5 Posts
Member Since: 02/26/2002
AnyTown, NY
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Posted: 12:20 on 02-11-2003
Welcome aboard DMB!
I posed the same question you did a month or so ago...
The answer: If THAT Individual hasn't made payments to the bank, why would they make payments to you?
Equity split or no. Don't let them stay. Period.
Good Luck.
Clint
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JeffLaw
12 Posts
Member Since: 11/19/2002
West Jordan, UT
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Posted: 12:21 on 02-11-2003
What happens if the seller stops making rent/lease
payments. You (of course) start eviction. Seller
declares bankruptcy, which puts a stay on your
eviction proceedings. While it's not terribly difficult
to get the stay lifted, it does delay getting them out
of the house so that you can re-rent or sell it.
(during which time you're bleeding money)
Note if they've already declared bankruptcy, then
you've got a little protection as there are limits as
to how often one can declare bankruptcy (I forget
how long from one to the next).
You also have to be very careful of IRS issues anytime
you do a lease-option (you do not want it reclassified
as an installment sale).
Jeff
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Nexus
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Posted: 12:25 on 02-11-2003
dmb,
I have read this same question on this board several times and I'm pretty sure the answer was:
Ask yourself, why these people are in their current situation (Foreclosure)? There's a big chance that they will continue to skip payments and this time you are going to be the one suffering the financial burden. 
If I was in your situation I would buy and help them move somewhere else. Offer U-haul money or some type of incentive.
Let’s see what the Guru’s have to say.
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dmb
15 Posts
Member Since: 01/08/2003
Elk Grove Village, IL
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Posted: 12:48 on 02-11-2003
Jefflaw,
I was unaware that a renter/leaser who files bancruptcy gets to "squat" on my dime. Anymore info or direction to info on what you called l/o being reclassified or called installment sale?
thanks,
dmb
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Eric_MA
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Posted: 13:49 on 02-11-2003
I get ask that question a lot by friends who don't understand the process.
You should ask yourself, since you make money by being the middle man between two parties, because you provide a service...
exactly what service do you provide if both parties are the same person?
All you do is make the financing even more expensive to a seller who is behind.
It doesn't work.
All you could really do if you want to risk it is get the seller to be a t/b on a lower valued property.
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JeffLaw
12 Posts
Member Since: 11/19/2002
West Jordan, UT
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Posted: 14:12 on 02-12-2003
Yup. They get to squat for a while. Basically if you're
in the process of evicting them and they file bankruptcy
the bankruptcy automatically stays the eviction process.
You then have to go to court and get the stay lifted so
that you can continue eviction. It's not terribly complicated but during the "stay" you continue to fork
out money (mortgage, utilities, court costs, etc) with no
money coming in.
Lease options being reclassified as an installment
sale is a little more complex (it's tax code and
interpretation of that code).
Think about it in these terms -- the more the lease
option looks like an installment sale, the more danger
you are in. For example:
* Option strike price declines over time.
* Large portions of lease payments are credited
towards downpayment if option exercised. You're
allowed to credit lease payments over current
market prices to the down payment, but no more
than that.
* Rentor pays property taxes & insurance
* Rentor pays utilities normally paid by owner
(in my area water and sewer must be paid by
owner, not rentors).
* Others I'm sure I've forgotten.
To avoid this you (of course) structure the l/o so that
it doesn't look like an installment sale if you choose
to go that route.
Also don't forget that lease-options have various other
risks as well. Buyer claims equitable interest in the
property and similar stuff.
Use google, it's your friend.
Jeff
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