Pre-foreclosure Deal Analysis

[David Schweibish]

Hello all,

I have been actively acquiring properties in the central and south Florida market for nearly two years now, but have never dabbled in the "pre-foreclosure" arena as of yet.

I was just introduced to a woman who, in 1997, purchased a city lot and built a ~1,300 sqft. block home in a non-coastal (rather rural) Florida city with the intention of living there for many years. Two years ago, she relocated for a work opportunity (still in Florida) and began renting the house. She has attempted to manage the rental herself with little success (difficulty getting payments, damages, etc., etc.) The area, however, is a good rental market.

Bringing us to today... She currently owes approximately $41,500 on her mortgage, with monthly payments of $679.34. Not delinquent on taxes, but nearing foreclosure (five payments behind). She is privately asking $50k for the house, but has it listed at $74,900 on the MLS- down from $84,900 just two weeks ago. Current assessment value is $69,099, which is strongly supported by a good number of comps in the same neighborhood. The house only needs paint, new carpet, and a thorough cleaning. She is desperate to sell because she can not afford the payments/headaches, leading me to feel as though there is some decent profit potential.

What can be done here? Obviously, assuming the mortgage as-is does not seem favorable since the payments are quite high and between mortgage, taxes, and insurance, the house would barely cash flow at market rent rates, if at all. (about $800-$850 rent for this size/age house). Or is that okay in this instance because of gained equity at purchase? The seller has attempted to have the bank refi the balance to no avail whatsoever (surprising?)... would they do it for me, perhaps?

How could I approach this deal? (offer price, legal, financing, deed transfer, etc.) Also, note that I cannot pay cash for the home, nor would I likely qualify for a mortgage myself due to little declared income. Would a Florida-based bank/mortgage company allow a non-qualifying assumption and/or refi?

All input is very greatly appreciated. Thanks for reading...