Rights to sell home as the buyer under Contract for Deed?

Question

Hello,

I was recently approached by another Real Estate agent / investor wanting me to help fund this (somewhat confusing scenario).

*This is in Minnesota*

The owner of the home has left his property and has not been making payments on the property for several months. He is married and left his home. The bank has gone into his house, winterized it, and locked it up. The Real Estate agent called the bank and confirmed that the owner still has rights to the property until Feb 6th (only a few days from this posting), unless he makes a lump sum of the mortgage payments that have been missed for the past 6 months (about $9,500, which he cannot pay).

We would like to do the following:

(1) Write a contract for deed on the home, which the owner still owes $133k to the bank, and offer him $10,000 cash

(2) Pay off that lump sum of $9,500 back to the bank, so he can retain the title and rights to the home.

So overall, the Real Estate agent would like me to pay the $10,000 for the contract for deed, and $9,500 to the bank, equaling near $20,000. We estimate the house value to be near $200,000, netting about $50,000 in potential profits (assuming no remodeling is required). As a buyer for the contract for deed, do I have rights to sell the home immediately? I was able to confirm that the math works out from the agent, but I'm concerned with the laws regarding rights to sell immediately.

This seems like a strange scenario that requires me to act fast since the deadline is on monday, and I wasn't able to find many resources online, nor am I familiar with the Contract for deed.

Is the Agent's logic sound or is he trying to slip one past me? I'm planning on seeing a Real estate lawyer and having him draft the proposal tomorrow. Would s/he be able to answer these questions as well?

Thanks in advanced!

Jeff Rabinowitz · Answer

So many questions come to mind. "netting about $50,000 in potential profits (assuming no remodeling is required)". You don't know if any remodeling is required? Have you been inside this house? Seen photos? You state the house was winterized. When? Last month, or before the temperature dropped below freezing? Have you turned on the water? Did the pipes burst before it was winterized? ARV~ $200K - $10K for contract - $9,500 to catch up loan - $133K balance remaining (did you verify this with the bank?) = $47,500 not $50K. Now add in $15K-$20K sales expenses (title insurance, transfer taxes, commissions, etc.) and you are down to $27K. Are the property taxes current? What are the chances the owner paid the property taxes if they didn't pay the mortgage? Plan on turning the utilities on after you buy the house (after you check to make sure the pipes don't have to be repaired)? That costs money. What will that visit with the lawyer cost? $200, $500. I think the margin is down to ~$20K now. The owner walked away from this and you think this house is ready for sale now? You are either going to be putting some money into prepping it or discounting your estimated sale price (did you even see comps?). Take 10% off the price. Now where are we? Oh yeah, I think we are zeroed out.

You are in a hurry and I suspect you are excited by the possibilities. Will you have time to do a thorough title search to find other possible liens? Will you check with the City to see if there are unpaid fines or assessments? Have you done this before? You may be about to take an expensive seminar. Do yourself a favor? Take a breath? Take the time to find out the answers to all of the potential issues I raised before you write any check to anyone. If it can't be done before the deadline don't worry about it. You will have taken an inexpensive seminar--it will cost mostly some of your time and it will be worth the exercise. You will be better prepared to jump on the next possible deal that comes by--if you keep looking there will be another. Don't bury yourself in a transaction that may cost you tens of thousands of dollars to recover from your first time out.

Mag Norce · Answer

Update, 3 weeks later: Got the keys to the home.

After talking to several other agents in the area, we decided that the value of the home in decent condition is roughly $240,000, which gives us some room for improvement. General consensus is that this is still a great deal.

We got the owners to sign a Contact for Deed about a week ago, and got the keys to finally walk into the home today.

The home seems to be in great condition. Upon walking in; Literally trash everywhere! The homeowners literally abandoned the home and left so many things from the couch, pots & pans, canned foods, clothing, and a litterbox full of poop. This home basically seems like something you'd see out of Rehab Addict on HGTV!

Next step for me is to be renting a giant dumpster, throwing out everything, and then getting some contractors to estimate the place. Nothing else seems too crazy broken, but will be bringing in an inspector eventually to check out the place.

It's been a great learning experience so far, even if I end up zero'ing out. But short term I'll end up getting room mates in this location since it's near a technical college.

Mag Norce · Answer

Hey Jeff,

Thanks for the detailed response, really. That's probably exactly what I needed, a chance to catch my breath and re-evaluate.

To answer some of the questions you listed:

You don't know if any remodeling is required? Have you been inside this house? Seen photos?

We're not sure of the condition of the home. However, walking outside and peeking through the windows, everything seems great. We cannot confirm anything about the internals of the house, nor can we guesstimate the costs to fix any damages. (Added edit: RE agent responded stating we can ask the bank for the keys to the home. I'll do this and walk through the home tomorrow)

You state the house was winterized. When? Last month, or before the temperature dropped below freezing?

I will check and confirm this tomorrow with the RE agent (added edit: A note on the front door states it has been winterized since 1-2-2016, so it's been quite a while since the owner has walked away from the home)

Will you check with the City to see if there are unpaid fines or assessments? What are the chances the owner paid the property taxes if they didn't pay the mortgage?

I will do this tomorrow as well to check

Have you done this before?

I have not.

The current owner walked away from this home because he is a gambling addict who could no longer afford the payments. So the RE and I thought this would be an opportunity for us both. Although this does seem like a rush, I'll re-evaluate and answer everything you listed above as soon as possible before making my decision. I'll update this thread again when I can!

Thanks!

Rights to sell home as the buyer under Contract for Deed?

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