Subject too Foreclosure Help

[Gregory Breeden]

Hello I have some questions in regards to wholesaling. Now I understand wholesaling you are basically selling the contract to a new buyer. I have had conversations with wholesaling mentors so I have a previous knowledge to how to get leads and buyers. I have also invested in real estate attorneys and have gotten purchase and sellers agreement & Assignment of Purchase agreement drawn up to help me seal my deals. So here is one of a few questions based off different scenarios I have come across.

Example 1. I have a homeowner whom is currently in foreclosure with a auction date that is 8 weeks away. The seller is open for me doing a subject too on where I would be carrying the existing loan however she understands that I am actually not buying the house I am just selling the contract to a buyer. The fair market value of the home is 1 million. The payoff on the loan is 980,000. The reinstatement of the loan is 189,000. The seller is open to all options she just doesn't want the home to foreclose. When learning I was taught that when you do a subject too; you would purchase the home for whats due on the loan. Can I put my assignment fee on a subject too purchase and seller agreement? If its cost $189,000 to reinstate the loan and I assign the home for $200,000? The buyer will now have a subject to contract yet I made $11,000 off the deal. These are not the actual figures btw.

I know this isnt the typical methods of wholesaling but I wanted to know if anyone has done a deal as such.

[Lynnette E.]

Originally posted by @Ron S.:

Originally posted by @Lynnette E.:

Originally posted by @Ron S.:

Originally posted by @Lynnette E.:

If foreclosure is 8 weeks away the bank will not go off that process to negotiate a short sale with an unqualified buyer/flipper.  If they loose money through a foreclosure, its insured...they do not care.

That's highly assumptive that its "insured". About 75% of my portfolio is not insured. Not every loan out there is a government loan or a loan with MI on it. It has nothing to do with whether they care or not, it has to do with their investor guidelines or internal policies and procedures for short sales. There are also federal rules in place that trump any investor or internal procedure or policy, and one of them is the requirement to review a short sale offer if it is substantially complete, and submitted with enough time to review and decision the offer prior to the sale. If a borrower brings a short sale offer to their servicer and the sale is 8 weeks away, under almost all circumstances, the short sale would have to be reviewed and considered. It doesn't have to be accepted but, 8 weeks is plenty of time to make a decision, and federal rule would require a decision to be made. If the decision shows that the lender would recover more with a short sale than they would through a foreclosure sale, in most cases, the servicer would be required to approve a short sale. That said, approving a short sale by the servicer, doesn't mean the buyer will approve the offer made by the servicer.  The servicer wants more than what the buyer wants to pay usually.

You are right.  I did assume that it was insured and it may not be.   I assumed that because there is only $20k equity on a million dollar value property when property is, in general, appreciating, which is another assumption.  But it is possible its a loan without insurance, maybe  they did have a huge down payment, but they have not made many payments for quite a while and the interest/missed payments/penalties/fees have consumed their equity.

But would you consider a short sale if the buyer is not qualified? I only tried to buy a house one time that was short sell, and they wanted me totally qualified, POF, etc. before they would even consider the offer. Then it took 3 months for a answer. (and aside from this, it all fell apart when the seller had taken out a HELOC and took out $ to buy his new house after my short sell offer was approved, which he moved into before we closed. So then my offer was not enough to cover his HELOC, which he assumed would be 'forgiven', even though he did not even tell his mortgage company he was getting it.)

I would think it would be very unusual for a mortgage holder to consider a short sale offer that included assignment, and no ability for the potential buyer to close.  Would you?  I am asking, trying to learn, not being fresh.  I only walked this pathway once, and it was a disaster.

 If there is enough time, Federal rule would require you to review and consider the short sale. if the short sale submitted for review and consideration checks off all the boxes (Less loss than foreclosure, arms length transaction, etc.), we would have to approve it. Part of the review looks at the buyer's ability to purchase. We would look to the buyer's proof of funds or look for a loan approval to fund the purchase. if the purchase includes a subject to, of course we would reject it immediately. If the purchase includes a pre-approval instead of a full blown approval, and that pre-approval suggests that the loan cannot be closed in a timely manner (before the foreclosure sale), or suggests that the numbers don't work, we would reject it. In the old days, yeah, it was a nightmare and took forever. Today, it has to be decisioned within 30 days...by federal rule. If you don't have proof of funds, it's not going to take me 30 days to reject the offer.

To your point, no mortgage holder would consider an assignment. No mortgage holder would consider a subject to. Still, we would have to review the offer in order to decline it if one or more of those conditions existed.

On a side note, your scenario that you described would be an incredible situation. How could a borrower being considered for a short sale, also qualify for a HELOC? Those two issues conflict with each other. A HELOC by definition assumes equity. If there is equity, there is no short sale to be considered. I'm guessing you mean the seller took a HELOC on a different property because it would be highly improbable to take out a HELOC on a property that was already under value, for a borrower being reviewed for a short sale. It would also be highly improbable for a lender to not know about the HELOC, or for the HELOC lender to knowingly put themselves into a subordinate lien position on a loan that was underwater from the beginning.

 Thanks for the education!

The HELOC was done back in the days when they would approve a HELOC for 20% above the value of the house. And he took out that 20%. He did it through a small credit union from his work. Apparently he said the loan was to improve the house, not to buy another one and move out. Not sure how he did it without the 2 parties each knowing what was going on, but the mortgage holder was very upset and threatened criminal consequences, fraud, falsifying the forms, etc. They found out when the title insurance did a pull of the records right before closing. My realtor said it would be a very long time to buy that house, and we were a week from closing, so I walked. Can only live in temporary quarters for so long with 2 kids, and pets.