Found motivated seller via pre-foreclosure mailing. What do I say to get the deal?

Question

I'm looking for my first deal for my family - we need to move into a good school district in a zip where home values avg $500K+. I mailed about 60 hand written letters to people who are listed as late on their mortgage payments per zillow. I got around 10 letters back as un-deliverable, 7 calls, & 4 seemed motivated. 1 lady is underwater & said she's just riding the wave until the bank kicks her out. Her Mom passed away & she's having trouble paying bills after that. She'll call the bank &get back to me on the amount owed, & a Realtor was trying to work out a short sale. 2nd person is seperated ^ asked me to write to her husband. 3rd guy is out of state, had renters in both apartments, none were paying, now the property is vacant. The taxes are about $13K /year & said he owes over $400K. He also asked the bank if they are willing to short sale it, says the bank will probably get back to him after the holidays. 4th guy is going through a divorce & sounds like the best prospect. I happened to send him a different letter- noting that his house was listed unsold for over a year. Only after I sent him that letter did his house show up as a pre-foreclosure, so I sent hmi a follow-up letter indicating my interest in buying his house. He called back today today & so I asked if he'd be willing to hold the mtg. He said a loan mod attorney is meeting with him on Monday & would like to work wit me but would need to clear it with an attorney. He thanked me for trying to help him. I have most of the funds in my 401K (about $360K) & would consider investing it into a self directed IRA to buy the house cash, but would rather buy it subject to the existing mortgage. He said the bank sent him a payoff letter of $392K. The house is worth about $490K.

What should my next steps be with him to convince him to sell me the house for my family? I can pull out $10 to $20K as consideration if needed, but Im afraid the loan mod attorney will advise him against selling & try to convince him to keep the house. He did say he was ready to move out & move on, that his wife is still in the house & he stays there sometimes. Please help me!

Christine L. · Answer

Thanks, Morry. I stressed to him that I want to be fair, & since its my first deal would inisit on everything being ligit, including letting his wife know everything. I asked to see the house & he said tomorrow would be better, since she would not be at the house, & that at this point he did not want to get her involved. I dont want to take advantage of the situation, but at the same time I'd like to buy the house for a fair amount under the ARV.

Morry Eghbal · Answer

Christine L. I totally understand that you want to make this a fair deal. Also no one says you should not get a good deal. My advise to you as someone who has done this hundreds of times with all kinds of circumstances is to be extra extra cautious. Do not give any deposit whatsoever outside escrow, do not release any money before close of the deal. You need to get possession at the close of the deal. If you came to term with these sellers I be happy to look at your paperwork, you could send me a copy of your contract on a PM, totally up to you.

Morry Eghbal · Answer

Christine L. Cautious is advised, you are dealing with a seller who is under stress. In California, we would use a 3 day right of refusal agreement, which means I would not give the individual any money upon agreement or signing of the contract for 3 business day. The individual has the right to cancel without any obligations during that time. THIS IS A VERY SERIOUS BUSINESS. The law is for that person who is under stress. You need an attorney to draw up your agreement. Do you use escrow? Make sure they are out of the house before you pay one penny. There is too much to say, and I am not one for writing long emails. I am sure others will have plenty to say.

Account Closed · Answer

As Wayne mentioned a seller pretty much needs to work with an agent to complete a short sale on any property where the loan is more than the value. Lenders typically require a listing to consider a short sale.As for taking over payments and taking a property subject-to: Be sure to have a plan for how you will pay off the loan if it is called due. Also, be sure to include a payoff date in your agreement with the seller. Many sellers like the idea of getting out of their mortgage payment when they are in distress. But a couple of years later, when things have changed for them, start getting antsy about a loan still in their name. 'Congrats on getting such a good response rate on your mailing. You're learning a ton just by taking those calls.

Wayne Brooks · Answer

It will be a short sale, if not listed you'll need a good short sale agent. Also, I'm sure you can't buy your personal residence with a self directed IRA, no personal/self dealings with the IRA purchases.