Single Family Home with Second Mortgage They Can't Afford

[Matt Morgan]

I have a question regarding a real estate transaction. I have came across a home in northeast Ohio. They can barely afford the home and it has nearly gone into foreclosure.

The home was built in 2000 for $750k; however, it is only valued at $400-450k. They paid for the home nearly all in cash except for a mortgage of $125k. When their business was doing poorly they borrowed $225k in a second mortgage.

I was listening to a podcast about how it's possible to offer the second mortgage company a very small amount of the actual loan, because they would likely receive nothing in foreclosure. Then you would do a transaction where you would receive the first mortgage for a certain value and receive the house. This would help out the seller, yourself, and the mortgage company through the process. 

Do you have any ideas of how I could possibly structure a deal in a situation like this? I would love to buy their house from them, or help structure a deal to help them.

Please let me know if you have any suggestions. Would love to hear them!

[Dion DePaoli]

From the information you posted the property is worth $450k and has a debt of $350k.  There is $100k in equity.  Neither lender is going to give a discount at this point.  They do not have to.

These people need to simply sell the property if they can not afford it and if for some reason the price comes in closer to the $400k then maybe one of the two loans will take a short.  They will not contemplate that short payoff until something actionable occurs.  

The plan that you are describing is not really reality.  Lots of details missing.  Too many to really dig into it here nor does this description seem to warrant any such ideas.