Pre-Foreclosure Subject To--Bad Idea?

Question

Hello BP Nation, I am a rehabber/buy-and-hold investor. A possible wholesale deal has fallen into my lap, and I would really like some help from the talented and insightful BP populace. I am a fish out of water in this arena.

Property is a condo in a hot area of Los Angeles with a loan balance of $230K. ARV is $450K. Market rent is $3200-$3600.  HOA/taxes/insurance are $1000/month.

The condo is in foreclosure with Ocwen. Reinstatement is ~$25K. Seller wants/needs $30K walking-away money.

Rehab is minimal--paint and cleaning--$5K max.

Finally, seller's loan is 2%--payment is $750/month. Goes up to 3% in 3 years, and 4% in 7 years.

Do I dare take this property on as a rental by reinstating the loan and doing a subject-to? (One fear is Ocwen. They have treated this seller very very badly. I'm very afraid of them.)

Is there enough spread to wholesale it?

I'd appreciate any insights BP Nation has.

Wayne Brooks · Answer

All in, you've still got $160k of spread, IF the ARV is really $450k.  The seller is foolish to not just do a straight sale on the market.  If you can reinstate, it looks like a good flip....reinstate, pay the seller, rehab, and resell.  One thought, this is obviously a loan modification structure the seller has, and does that loan get more scrutiny than most loans.....I don't know, but perhaps.

Account Closed · Answer

@Melanie M.

If you're using the standard CAR forms it's form "NODPA", not the standard "RPA-CA", not all agents know this, in fact probably most don't.  If you don't have access to CAR forms there are others like form "156 Equity purchase Agreement" from firstuesday.us.  I know this will sound weird and don't let it scare you, and I don't think it's ever actually happened but CA statute provides for criminal penalties for using the wrong form under these circumstance ... I know, hard to believe.  I'm not an attorney and this is not legal advice.

Account Closed · Answer

You may already know this, but if you do buy it make sure to use the correct purchase forms, there is the possibility of harsh penalties if you don't.  This only applies if you don't intend to live in the property, it's currently owner occupied and it's in foreclosure, which sounds like the case.  Looks like a super deal by the way...rare for LA.  I wouldn't let this slip by.

Melanie M. · Answer

Wayne,

Thanks for the excellent insights. Seller is getting very close to auction date, and Ocwen won't extend. Seller doesn't have the money to reinstate. So yes, reinstate, pay seller, rehab and resell seems like the best approach. ARV at $450K is a no-brainer in this market. We are in another bubble over here in SoCal. It's crazy.

As for a "loan modification" loan getting more scrutiny than most loans, that is a great question. Maybe someone on BP will know the answer….

Eldar M. · Answer

Rick H.

GREAT advices guys, very informative, I might use it in the near future.

Thank you !

Melanie M. · Answer

@David C. and @Rick Harmon

Thank you for all the great information…I had no idea about any of the subtleties you mention. I will definitely look for the NODPA form and/or the similar ones you mention.

@Rick Harmon Can you tell me what ROR stands for? Would you elaborate on how to use Ocwen's ineptitude to my advantage? Their trustee is equally inept and crooked--Les Ziev. They don't even answer the phone half the time. For this reason, I am leaning toward wholesaling this deal.

Thank you again for your input and insights. I very much appreciate it!

Rick H. · Answer

As David reminds you, if it's an owner occupied 1-4 residential units, it's subject CC 1695.

Either get the Equity Purchase Book and forms from First Tuesday or try Ward Hanigan's ForeclosureForum (dot) com for more info. Yes, I know your under a deadline.

Ocwen has, in my experience, the dubious reputation as the worst servicer in the U.S. and they are horribly difficult to work with. That being said, you can use their ineptitude to your advantage after purchasing. Your effort ought to be directed largely at dealing with the trustee and hope it's one of the majors, like Trustee Corps.

Subject-to? Should not be a problem for you. I don't think this is as attractive for a buy-and-hold deal as it is an equity deal. Be sure about your numbers. If you have any doubt, stagger your release of fund to seller in following stages:

>Money for signing (after 5 day ROR has expired)

>Money for possession

>Money for insured, marketable title

Melanie M. · Answer

David, Thanks for your reply. I actually did not realize that I needed special purchase forms. Can you provide further information? I would greatly appreciate it.

Pre-Foreclosure Subject To--Bad Idea?

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