Got my first deal in work, but need some help closing it

Foreclosures
12yFollow

Got my first deal in work, but need some help closing it

Jonathan Kulak
Clovis, NM · Member since 2013 · 4 posts · 0 votes

I'd love to hear any ideas, suggestions, and direction from all the experienced pre-foreclosure investors out there regarding my first deal which is in work. I'm really excited about it and know I can close this deal. Thank you for your time and help in advance!

Story: I found this property by researching back owed property taxes. The owner has two homes, 1 condo and 1 primary home. He owes back taxes on his condo, but in my research I found that his primary home just had a final judgement issued on it at the beginning of Oct. The primary home is to be auctioned on 30 Jan 14 with a final judgement of $216K. He also has a junior lien for a HELOC but I don't know how much he used or didn't use. The house is custom built and amazing with all the upgrades out there. It's fair market would range anywhere from $350K-$425K. I left a note for the owner and he contacted me 3hrs later. From all my research and speaking with him, they are an older couple who is in a very tough situation and is very motivated to get out of it. I am meeting with him this Sunday (11/3) to see the house and learn more about his situation so I can try to find a solution to his problem that is a win for both of us.

My plan: I will build a relationship and learn more about their situation while be compassionate and not just trying to get his home. While learning more, I'll have him give me a tour of the house so I can take some pictures and gather some numbers. I also need to determine if he has any additional liens and how much the junior lien for the HELOC is worth. Once I've got all the info I can, I'll make an offer either that day or the next day. I'd then ask them to sign an authorization to release so I could start contacting their lenders to gather info. I have a cash buyer and also a hard money lender ready to act if I can solve their problems and get the house under contract.

Questions:

1) How does the deal sound and my plan?

2) How much power would the junior lien have over the sale and should I be concerned about their interest?

3) If the junior lien holder has to be satisfied could I work a reduction or possibly transfer the lien to their condo? What options are out there? (The condo will be becoming their primary home after they lose or sell the big house)

4) Should I make an offer at our first meeting or get back to them? What options can I present to them to solve their problem? I'd love to get the home for just the final judgement of $216+interest and help them by paying off their back due property taxes on the condo.

5) What am I not thinking of or could do better?

0Reply
7 views

Most Popular Reply

Edward Burns
Rockford, IL · Member since 2013 · 330 posts · 62 votes
12y

Check for HOA fees if any. I doubt the junior lender will consider releasing their lien on the house especially if they feel there is better chance of getting their money from you than the home-owner. If the house is worth what you believe and they only owe half that the junior lien holder has the right to pay off the primary lien holder to protect their interest.

1Reply
See this reply in the discussion

5 Replies

Jump to latestLatest
  • Edward Burns
    Rockford, IL · Member since 2013 · 330 posts · 62 votes
    12y

    Check for HOA fees if any. I doubt the junior lender will consider releasing their lien on the house especially if they feel there is better chance of getting their money from you than the home-owner. If the house is worth what you believe and they only owe half that the junior lien holder has the right to pay off the primary lien holder to protect their interest.

    1Reply
  • Jonathan Kulak
    OP
    Clovis, NM · Member since 2013 · 4 posts · 0 votes
    12y

    Thanks Ed! No HOA fees on this one. The final judgement has already been issued and the junior lien holder hasn't filed any paperwork. It is my understanding that when/if the property going to public auction then the senior lien holder will be paid off first and then if it sells for higher the rest of the money will go to the junior lien holder. It seems as though the junior lien holder has the potential to lose a lot if it goes to auction and could be willing to reduce the money owed so they at least get something. While I realize this could be difficult, I'm looking for solutions. Any thoughts about how to approach the junior lien holder or options I could have?

    0Reply
  • Account Closed
    Investor · Atlanta, GA · Member since 2013 · 212 posts · 107 votes
    12y

    You said that the home has a "final judgment" on it for $216k. Is that judgment related to the defaulted first mortgage or something else? It sounds to me like you are thinking of structuring this as a pre-auction payoff of the owner's first mortgage debt subject to the second lien and past due taxes. Not knowing any other details, the sale will almost certainly be subject to the HELOC lien, i.e. you should definitely be concerned about the 2nd. I know of no creative way around the second lien - you can either pay it off in full, attempt to negotiate a discounted payoff, or buy subject to the lien.

    Using your numbers, if the house sells at auction at a discount to FMV around $300-350k, the second lienholder will be getting somewhere around $80-$135k. Given the equity in the property, they have no incentive to discount the lien payoff below that range for a sale to you. But, depending on the amount of the second, if it's low enough, you might be able to simply negotiate a close to full payoff and still come out ahead. Of course, you are most likely going to have to come up with cash to payoff both the first and second because traditional lenders won't usually mess with these types of title issues.

    This is a very complicated structure with a lot of moving parts for your first deal...good luck!

    0Reply
  • Jonathan Kulak
    OP
    Clovis, NM · Member since 2013 · 4 posts · 0 votes
    12y

    Thanks Adam! I realize this one has a lot of moving parts, but that might be to my benefit since not too many people would want to take it on. To be fair, this is my first deal, but I am working with a very experienced, successful investor who is mentoring me so I'm not alone. It would be a pre-auction buy out and the 216K is the senior lien from Wells Fargo. I have the cash to make the deal happen but obviously the HELOC makes this complicated. Once I meet with the seller, I will let everyone know how much the HELOC is for. I'd love to hear from anyone who has experience buying out a junior lien holder.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y

    This is actually pretty simple -- either it goes to auction and you have no opportunity to purchase from the owners or you purchase from the owners by at least paying off all liens. Short sale is another option, but it doesn't sound like you're considering that.

    Given that it doesn't sound like you want it to go to auction, you'll need to pay off all liens to purchase the house -- this includes the mortgage, the HELOC and anything else that might be out there. The sellers may want something in addition to walk away.

    The first big questions are:

    - What are the total liens on the property?

    - How much would the rehab cost to get the property to its ARV?

    - What is the ARV?

    - Do the sellers have any cash to contribute at closing?

    Once you know those details, you can decide if the deal is possibly a good one. If you determine that it's possibly a good deal, then you can negotiate with the sellers.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free