Burnt out house, facing foreclosure-what would you do?

Question

I don't know what forum would be best for this but I am hoping I can get some suggestions here.

I have found a parcel with a home that has substantial fire damage. Owner owes somewhere around $115K on the home. Insurance payout coming. The guy's current home may be considered involuntary confinement, sounds like this could be an occasional place he visits. I would like to offer this guy a few thousand for the house and hopefully collect on the insurance proceeds to demo the house and hold onto the lot for now.

The owner is behind on payments, facing foreclosure. I would like to get possession somehow, advance payments on the owners behalf until the insurance settlement comes in then pay off the loan.

Any suggestions as to how you might approach a deal on this?

Mark Gibbs · Answer

@Christopher Phillips, approximately $40K in equity. Most lenders would require insurance for replacement value, in this situation the house is likely a total loss, ~$180,000 to replace. If we can demo close to $15K I should be in for a neutral cash position. Like I mentioned, just want the lot at the end of the day.

Christopher Phillips · Answer

@Mark Gibbs

Right. I see what you're trying to do. The problem is that he still owes $115K. Insurance payouts are rarely enough to cover the loss and the mortgage. It would be one or the other, not both, and is usually short of getting everything done.

Was there any equity before the fire?

Mark Gibbs · Answer

Exactly @Christopher Phillips, the payout should cover the cost of the outstanding mortgage to make that go away. Any additional will go to the owner for demo and rebuild. I am assuming the guy is in a pinch, I'd like to offer him some cash so he can walk away. I am really just interested in the lot.

My thought is to get a signed quit claim, insurance info, current lien holder. Advance funds until the payout comes.

Christopher Phillips · Answer

@Mark Gibbs

Insurance payouts go to either the owner or the lender for loss of their property value. It doesn't go to some other third party.