Help on potential 1st deal!

[Jay S.]

Hi, BP 

I need some guidance on this lead that my mom got thrown her way at work. Her client's mother has her house paid off with a second mortgage of $50k on it, which she now owes $45k on still. The bank keeps calling them to see what they are going to do about the mortgage owed to avoid foreclosure on the home this Friday. I talked to her son & he says that he really doesn't want this foreclosure to happen because this may affect his mother's medicare she receives (I'm not sure about if it will or not). I really genuinely want to help them avoid this headache while at the same time getting my feet wet in the REI field by learning from this situation. He also told me that the inside of the house needs NO repairs, because they just got the home updated (but I will be finding out tomorrow or Friday when I go to walk the property), also said that the back deck patio might need some touching up & one piece of siding that has not been replaced.

Sqft: 1416

bdrms/bths: 2/2

1 car garage with another one 480 sqft behind the house

wood floors

built 1962

large driveway 

in a good neighborhood 

2nd mortgage payment $673/mo 

property taxes $1842/ yr

He mentioned to me that the tax assessment is $67k, so I'm assuming he wants around this price for the house. He mentioned he believes the house is worth more & ask me about what was FMV because the banker told him that's what the house is worth & should sell for. I really couldn't get a word in to ask more detailed questions to get the real information needed to structure options / an offer. I should got the official asking price from him but it's him (the son) & his uncle helping her through this situation.

So my question is where should I go from here? What more information should I be getting? & What are my potential strategies to use to acquire the property & use to my advantage? 

[Mike Hartzog]

You will need to put an as-is value on the property.  If you are not familiar with the market you could contact an RE agent for help.  The other thing you need to find out is cost to cure the foreclosure.  There are arrears owing above and beyond the unpaid balance.  These consist of back payments, late fees, and legal fees that the lender has incurred which will need to be paid to keep the property out of foreclosure.  The owner should have this information from notifications received from the servicer, but keep in mind that this grows month to month so you need a recent statement to get in the ballpark of the real number.  From there you can determine if there is enough equity there to bother with.  If there is, the two primary options are buy it with cash  (unpaid balance + arrears + whatever you want to give the owner) or you could take the property subject to the existing financing.  This involves curing the foreclosure and having the owner quit claim the deed to you, and you continue to make the payments on the existing financing.  This is a bit trickier and there is a risk that the lender will call the loan due. There is also risk that there could be other liens on the property so you would need to get a title search.  There is plenty of discussion on sub-to deals on BP for reference.  I would not recommend sub-to for a first deal.  Best to buy with cash IMO and put some financing on afterward.  Remember that you need to get the property well below market value for it to be a good flip.  Doing the analysis on it will be good practice even if you end up walking away in the end.