Investor 路 Lakeland, FL 路 Member since 2015 路 344 posts 路 606 votes
Welcome to the 2nd annual Hunger Games!! (Meaning that we all are hungry for success... There will be no killing here)
Due to the success of the first game and multiple requests for a round 2, well... Here we go!!
Again, here's the game: I'm going to give you a real life scenario from one of my deals and see how you would purchase it. Best scenario as determined by votes wins the coveted Super-Duper Supreme Real Investor Grand Poobah award!! (I don't think @Joshua D. has gotten on this yet so there is a backlog but that makes it all the more valuable)
If you want I'll tell you at the end how I did buy it. Very likely your scenario will be better, But just like the lottery the only chance at winning happens if you play.
So here goes... Using a foreclosure search like the one @Tangie Cousins offers at foreclosuresdaily (no I am not at all associated with her service but I'm giving you specifics of what I use for your benefit), I stumble across this gem. (Am I being facetious? You decide)
This property was a built in 1925 4 bedroom frame "Florida cracker" house, with a 2 story garage duplex on the same lot. (Apparently, this was a popular thing for this area which was a stop off point between Tampa and Orlando. People would build the apt first and live in it while they built the main house, then when they moved into the "big house" they would rent out the units to travelers going through town. A personal motel, if you will)
Well, this property had been derilect for awhile, and was now in foreclosure. There was a 49k seller financed mortgage that was now in foreclosure.
The property had amassed over 77k in code enforcement liens at $100 per day and growing to the point the city had voted and passed the recommendation to demolish the structure and was going through the process.
Also the owner was in chapter 13 bankruptcy.
The only positive is that it passed my tax assessed test. If the mtg amount listed in the foreclosure complaint was less than the assessed value, then I would personally knock on the door as this almost always guaranteed good equity.
One more wrinkle, good or bad, you decide. The D.O.T. is planning a highway bypass right through the middle of town. This property is right in the path of progress.
So is this a deal? And if so, how should we proceed?
Annnnnd Go!!
P.S. Ok, since we all know that part of making good strategy is asking questions, feel free to ask any questions and I will try to give you all the details... And again, if I don't remember... I'll fake it!!
P.S.S. Remember, most votes wins, so please read through all the submissions and vote for the ones you like!!! Show them some love!!
P.S.S.S. Anymore s's and it may start sounding vulgar.. But more importantly, big shout out to @Terry Free who is the inspiration for this fun thread.
Buy the note for 20-25K, sit back and enjoy the ride, an equity note in FL goes back to the note holder, the highway dept will have to clear the mortgage. Liens are cleared under eminent domain. The city will fold to the highway dept. Bankruptcy, holds the wolves away until it is discharged, 13 won't cram the note down, if it was properly secured. Easy money! :)
Interesting scenario. I am in Hawaii and do not know Florida law. Also you did not include any purchase or condemnation numbers, so how can one conclude if it is a good deal or not? Just sayin...
So I'm making a stab at it with what info I can find on the internet. Hopefully I am not over complicating the deal with what I am about to say.
1, it appears chapter 13 in Florida stays foreclosure. This seems to be influenced by whether the property is a principal residence or an investment property, lets assume it is an investment as it has been derelict for awhile so a stay may not apply. Regardless it is my understanding that upon going under contract for sale the bank is required to deal with you as well as the mortgage holder, so the waters are muddy. Attorneys please provide opinions here.
2, the property will likely be condemned, purchased at market rate and demolished, unless....
3, the home was built in 1925, 90 years ago. Are there any historic preservation laws that apply? (I don't know if a cracker house is a good thing or a bad thing.) If so value goes up and challenges to condemnation could make things fuzzy
4, what is the assessed value?
6, what is the market value the state would pay for condemning the property?
7, does State condemnation law clear local code enforcement liens?
7, If the market value is above both the assessed value and the amount of the liens combined, and the owner is willing to walk away with a small cash settlement, then lock it under contract and sell the contract to the state for the difference, and if liens are washed the numbers would only get better.
@David Dey - So the D.O.T. is a very motivated buyer?
If the property is stopping highway bypass progress, would the city clear the $77k code enforcement liens - with a bit of negotiation?
Who's taking the property into Foreclosure? Is it the city or the original seller who provided the seller financing or the city who wants to demolish the building?
Since you're referring to the stop off point between TPA and OIA, I'm going to assume Lakeland, Auburndale, or Winter Haven. Polk county is famous for running up liens, and settling them for what they can get when the time comes. I would settle the county lien for whatever I could get it at, and hold it until the D.O.T. comes knocking to purchase. If the property was in the process of being demolished, I'm assuming that the mortgage holder would be thrilled to get whatever they can get.
If the highway never comes through, I have the main house, plus the duplex (an effective triplex) to rent out at $1.00 PSF for the foreseeable future in an exploding rental market.
Interesting scenario. I am in Hawaii and do not know Florida law. Also you did not include any purchase or condemnation numbers, so how can one conclude if it is a good deal or not? Just sayin...
So I'm making a stab at it with what info I can find on the internet. Hopefully I am not over complicating the deal with what I am about to say.
1, it appears chapter 13 in Florida stays foreclosure. This seems to be influenced by whether the property is a principal residence or an investment property, lets assume it is an investment as it has been derelict for awhile so a stay may not apply. Regardless it is my understanding that upon going under contract for sale the bank is required to deal with you as well as the mortgage holder, so the waters are muddy. Attorneys please provide opinions here.
2, the property will likely be condemned, purchased at market rate and demolished, unless....
3, the home was built in 1925, 90 years ago. Are there any historic preservation laws that apply? (I don't know if a cracker house is a good thing or a bad thing.) If so value goes up and challenges to condemnation could make things fuzzy
4, what is the assessed value?
6, what is the market value the state would pay for condemning the property?
7, does State condemnation law clear local code enforcement liens?
7, If the market value is above both the assessed value and the amount of the liens combined, and the owner is willing to walk away with a small cash settlement, then lock it under contract and sell the contract to the state for the difference, and if liens are washed the numbers would only get better.
Great thoughts David!! Let me address them one by four!! :)
0) I did not give a purchase price cause in your scenario, you make the offer. I don't want you to figure out what I did, I want you to figure out what you would do. As for condemnation numbers, the code enforcement department is the one that condemned it so their liens were 77k plus. There was no additional amount owed until the property is demolished, then an additional lien will be attached for the demo costs.
1) in a chapter 13 bankruptcy, which is federal so it applies all over the states, this is called a reorganization of debt, also known as a payback plan. The owner determines what properties both real estate and personal they want to keep, then they make a plan through a trustee to pay back a negotiated debt.
Yes a property is stayed from foreclosure and the demo until the owner determines that they either want to keep it or let it go. In this case, I found this property in the foreclosure files in an on going bankruptcy, so it tells me that the owner had just made his choice to release the property thus allowing the owner to start the foreclosure and the city (not the DOT, they are not in the picture yet, if they ever will be) could start there demo process.
2) at this point no offer is made by anybody, not investors and not DOT. The rule of thumb with DOT is, hope for the best, prepare for the worst. Yes if you have an opportunity to sell to any government body, take it. (Remember, this is the government that will pay $800 for a toilet seat) however, until the final plans come out, which is over a year away, you don't know if they will change their mind as to the path or even if they will do it. You need to have a back up plan, and of course you have to have solved all the problems before they come to you or all your money is going to the problems, not you.
3) unfortunately, this property is actually in a less than desirable part of town and not in a historic preservation area, which lends itself to an area that the DOT would want to run through for a road. (Can you imagine having to pay for houses that were historic preservation homes?) Nope, no historic fuzziness.
4) the assessed value is 67k
6) the initial offer the DOT gives is always the assessed value. Hmmmm, I feel like I'm missing something here.... Like a five or something... Hmmm, oh well, Must be just me..
7) Again, not a sure thing for DOT, but emminant domain works like a foreclosure and would wipe out the lien but any money would be first paid to the liens before you.
7) Hmmmm... I have this feeling of deja vous. Like I've done this before.... Oh well, with an initial offer of 67k and a mtg of 49k and code liens of 77k plus demo liens around 10-15k, there wouldn't be anything left for you by a long shot... And come to think of it, if the buildings are down, the initial offer would be around land value only, closer to 25k.
Hope this gives you more ammo for your offer, great thoughts and questions, it's obvious that reading and writing were your strong points at school... Arithmetic??? Ummmm.... :)
Buy the note for 20-25K, sit back and enjoy the ride, an equity note in FL goes back to the note holder, the highway dept will have to clear the mortgage. Liens are cleared under eminent domain. The city will fold to the highway dept. Bankruptcy, holds the wolves away until it is discharged, 13 won't cram the note down, if it was properly secured. Easy money! :)
@David Dey - So the D.O.T. is a very motivated buyer?
If the property is stopping highway bypass progress, would the city clear the $77k code enforcement liens - with a bit of negotiation?
Who's taking the property into Foreclosure? Is it the city or the original seller who provided the seller financing or the city who wants to demolish the building?
Great questions,
1) no progress yet, DOT is about a year out. If there is any hinderance to their progress they have the power of eminent domain, however this would be like a foreclosure which would wipe out the city but also you and would pay the liens out first.
2) the foreclosure was started by the seller who had initially provided the owner financing.
P.S. Steve, I haven't forgotten the "homework" I have for you. Getting some info from Duval tax collector.
Since you're referring to the stop off point between TPA and OIA, I'm going to assume Lakeland, Auburndale, or Winter Haven. Polk county is famous for running up liens, and settling them for what they can get when the time comes. I would settle the county lien for whatever I could get it at, and hold it until the D.O.T. comes knocking to purchase. If the property was in the process of being demolished, I'm assuming that the mortgage holder would be thrilled to get whatever they can get.
If the highway never comes through, I have the main house, plus the duplex (an effective triplex) to rent out at $1.00 PSF for the foreseeable future in an exploding rental market.
Love your thoughts!!!
First, yes it is Lakeland!! Gold star for geography.
Number 2) the only problem with the negotiating issue is that you have to fix the property before they will negotiate, and because it's so far into their demo process they have suspended the ability to pull permits which would stop the demo order for up to 6 months allowing fix up.
Also, don't forget that you still have to deal with the mtg and the bankruptcy... Yes the property was released from the owner but in order to buy the property you still have to go through the trustee. (While in an active bankruptcy, all transactions must go through the trustee)
Buy the note for 20-25K, sit back and enjoy the ride, an equity note in FL goes back to the note holder, the highway dept will have to clear the mortgage. Liens are cleared under eminent domain. The city will fold to the highway dept. Bankruptcy, holds the wolves away until it is discharged, 13 won't cram the note down, if it was properly secured. Easy money! :)
See this is why I made the shout out to you, I knew that guys like you will have some thoughts like this....
Here are the things that need to still be addressed though.
1) the fact that the foreclosure just started in the middle of the active chapter 13 says (and was later confirmed by owner) that the property has been released by both the owner and the trustee as worthless to the bankruptcy estate. So no wolves held back.
2) if you were to buy the note, would you continue the foreclosure, which would take months. (Keep in mind, demo takes place in 30-60 days) or would you just sit back and take your chances?
3) one more thing to keep in mind, the DOT is over a year away and not a sure thing until they actually start buying or pursuing eminent domain.
@David Dey - So the D.O.T. is a very motivated buyer?
If the property is stopping highway bypass progress, would the city clear the $77k code enforcement liens - with a bit of negotiation?
Who's taking the property into Foreclosure? Is it the city or the original seller who provided the seller financing or the city who wants to demolish the building?
Great questions,
1) no progress yet, DOT is about a year out. If there is any hinderance to their progress they have the power of eminent domain, however this would be like a foreclosure which would wipe out the city but also you and would pay the liens out first.
2) the foreclosure was started by the seller who had initially provided the owner financing.
P.S. Steve, I haven't forgotten the "homework" I have for you. Getting some info from Duval tax collector.
Eminent domain is not like a foreclosure, the government must pay fair compensation. Some court ordered liens can be super liens, otherwise code violations fall in priority as any other lien. Most likely behind the mortgage. If the state needs the property the city will subrogate or extinguish their liens, the city cannot "tax" the state.
If you buy the property you get the liens along with it, don't buy the property, buy the mortgage lien. Eminent domain requires the mortgage to be paid, you make 25+K from the discount on the note. If you continue the foreclosure, a seller financed note reverts ownership back to that seller/lender. Then you're in a position to sell the property to the state, near market as required under eminent domain and the city releases liens to the state.
The gag too is that the state or city can go to your foreclosure and pay you off.
Cash for keys might get a deed in lieu of foreclosure, you own it.
As the first lien holder you aren't obligated to other liens.
The down side is you make 25+K from the note or you get to sell the collateral as the owner near market value.
BTW, the appraisal isn't done as a market value that brings a property to it's highest and best use necessarily, it is a liquidation approach at times, quick sale that will be lower and it sounds like the place is ready to fall in, it might be limited more to the land value. :)
Just read your post to me, I'd probably not foreclose, get a deed in lieu if the owner walked away, the Trustee will most likely approve that on a secured debt, means there can't be any deficiency judgment post foreclosure.
Actually, I wasn't invited to play, but that's okay, LOL, :))
David, did you get an Erin-type lawyer on this case? The rest of your strategy could flow quite naturally, not too dissimilar to the last one...
Man, I love how you think!! No I didn't hire an Atty personally, but how would you incorporate Erin?
(Remember, I don't want you to figure out how I did it, I want you to tell me how you would do it)
Thanks for that David. With the property under contract, "Erin" would negotiate those "damages" with the D.O.T; and because of their compulsory acquiring and cutting-off of your future business income from that gem of a property, those damages should be significantly ABOVE normal market value.
@David Dey - So the D.O.T. is a very motivated buyer?
If the property is stopping highway bypass progress, would the city clear the $77k code enforcement liens - with a bit of negotiation?
Who's taking the property into Foreclosure? Is it the city or the original seller who provided the seller financing or the city who wants to demolish the building?
Great questions,
1) no progress yet, DOT is about a year out. If there is any hinderance to their progress they have the power of eminent domain, however this would be like a foreclosure which would wipe out the city but also you and would pay the liens out first.
2) the foreclosure was started by the seller who had initially provided the owner financing.
P.S. Steve, I haven't forgotten the "homework" I have for you. Getting some info from Duval tax collector.
Eminent domain is not like a foreclosure, the government must pay fair compensation. Some court ordered liens can be super liens, otherwise code violations fall in priority as any other lien. Most likely behind the mortgage. If the state needs the property the city will subrogate or extinguish their liens, the city cannot "tax" the state.
If you buy the property you get the liens along with it, don't buy the property, buy the mortgage lien. Eminent domain requires the mortgage to be paid, you make 25+K from the discount on the note. If you continue the foreclosure, a seller financed note reverts ownership back to that seller/lender. Then you're in a position to sell the property to the state, near market as required under eminent domain and the city releases liens to the state.
The gag too is that the state or city can go to your foreclosure and pay you off.
Cash for keys might get a deed in lieu of foreclosure, you own it.
As the first lien holder you aren't obligated to other liens.
The down side is you make 25+K from the note or you get to sell the collateral as the owner near market value.
BTW, the appraisal isn't done as a market value that brings a property to it's highest and best use necessarily, it is a liquidation approach at times, quick sale that will be lower and it sounds like the place is ready to fall in, it might be limited more to the land value. :)
Just read your post to me, I'd probably not foreclose, get a deed in lieu if the owner walked away, the Trustee will most likely approve that on a secured debt, means there can't be any deficiency judgment post foreclosure.
Actually, I wasn't invited to play, but that's okay, LOL, :))
First, let me apologize for not inviting you. I've seen your posts throughout these threads and absolutely thought of you as one of the ones I wanted to weigh in on this. (Blame it on temporary insanity or something of the sort)
You will most definitely be invited from here on out!! (Though I would guess you probably have a number of those super duper grand Poobah awards on your mantle already)
Second, everything you said absolutely is true about an eminent domain about fair compensation and the priority of liens.
The problem with waiting is the demo. Like you said, The valuation is based on liquidation valuation and if the property is just a city lot. Land value is around 15-25k total. Your right municipalities won't "tax" each other, but they will "tax" you if given the chance.
No doubt you are a grand Poobah though and will have this solved. :)
David, did you get an Erin-type lawyer on this case? The rest of your strategy could flow quite naturally, not too dissimilar to the last one...
Man, I love how you think!! No I didn't hire an Atty personally, but how would you incorporate Erin?
(Remember, I don't want you to figure out how I did it, I want you to tell me how you would do it)
Thanks for that David. With the property under contract, "Erin" would negotiate those "damages" with the D.O.T; and because of their compulsory acquiring and cutting-off of your future business income from that gem of a property, those damages should be significantly ABOVE normal market value.
In Florida, isn't that a possible EXTRA $100k?
Love it, I'm not sure how strong your stance would be as just someone in contract, but as owner that would work.
Two caveat's before I speak. I have not played this game in Polk County FL so the things that work for me here in New Orleans may not work everywhere. Also, the verbiage of the Note could have a strong affect on the method.
The reason that Cities place code enforcement liens on properties is not to try and rack up huge amounts of money to collect, it is to try to get the owners of properties to do something about the blight. Normally, if you are willing to correct the problems, the City will work with you on the liens. Since the demo order is the end result of the owner not curing the blight, it would be postponed when the liens are negotiated. I have seen with my own eyes a demo being halted while the backhoe was sitting out front. The City really would rather see properties fixed before they knock them down because they could ultimately become the owner of the property and even they know a bare lot isn't likely to cover their bill.
I have done deals like this in New Orleans so I happen to know for a fact that the City will work with me on the liens and I also know what they will knock off and what they won't. If I were not experienced, I would confer with someone who is before I moved forward.
From there I would buy the Note. I would not be concerned with the foreclosure process because Note holders are within their rights to remediate any conditions that cause these types of liens and the cost of remediation is added to the amount owed on the mortgage. If the borrower happens to come back to reclaim the property during the foreclosure process, they would also have to pay any costs I have incurred. I would then go to the City as the Note holder and present them with whatever documents they require (usually a clear plan for remediation).
Once I have the deal worked out with the City I would do the work and then I would rent the property out. In the meantime I would either keep the foreclosure moving forward or I would get a deed in lieu, either way I know my position is good. If the DOT comes knocking then I am sure their offer will be much better for a property that is in good condition AND bringing in income than it would be for a piece of crap that is scheduled for demo OR a bare lot. Even if I have not obtained actual ownership of the property if/when the DOT comes into the picture, I am still good because I have my position as the primary lien holder with my rehab cost and any amount I did have to pay towards the City liens covered within my lien. I have paid pennies on the dollar for the lien that I hold and I have also utilized the property for income.
@Kimberly Jones again, just like last time. I kind of like your idea better then mine. I don't see much fault in your plan at all. The only thing (and this I think goes from city to city) is that Lakeland generally requires the work done before negotiation. But, who knows, maybe they make an exception.
Also, that is a good point, that as lender you have the right to protect your interest. So remediation is possible. Again, the only wild card is whether code would work with you.
@David Dey Keep in mind there is a little distance between negotiating an agreement and the official release of lien. Often you can work a deal with the city and you will be given a certain amount of time to bring the property into compliance but the liens will not be released until the work is done and the city is satisfied.
I am about 99% sure Polk County will negotiate because I do happen to know an investor that has done it. I say 99% because I have seen it done, but I have to leave that 1% open because I am not sure everyone can pull it off. Sometimes it's about who you know ;)
I also know for a fact that there are some places that there is no negotiating as much as a dime off, namely Jersey. I have seen some highly connected individuals get slapped down in Townships up there.
I am pretty sure your chances of being able to negotiate are directly related to the amount of vacant/abandoned/blighted properties within that City/County/Parish/Township. If the coffers are full and values are strong your chances may be slim, if there are high numbers of properties not bringing any money in they will most often take what they can get just to bring the property back into paying status because the vast majority of properties that rack up large Code Enforcement liens also have past due taxes.
@David Dey I don't even know if I could call this a deal at best the we would make an offer at land value at about $25,000 the code enforcements of $77K could be negotiate in Lakeland down to know less than I believe its 50%(been a while since I checked). The reoccurring lien of $100 a day is only stopped once an inspection is completed showing that the property was updated usually that the fascia was covered and that the property is no longer open to the elements (whole in the roof or broken window/doors). The judge here is a not easy on investors he usually only works with people who will be owner occupants not investors profiting but like @Kimberly Jones said it is all about who you know.
I personally would not bet on the D.O.T. at that point you are speculating and I much rather prefer a sure thing. But I seen someone over pay for a house in the ghetto(by 10th st.) paid $70K for a house assessed at 40k 3 months later sold it the school at $120K because the school was expanding its football field, he obviously knew something no one else knew.
If we are talking a Lakeland "cracker house" I would let my dog live in it as they don't hold up to well. but I would need to know what it would take to repair it? What could I rent it for and what is the repaired value on the property. at $25,000 + 38,500($74k/2) = 63,500( not including fees & repairs) you are right around the tax assessed value of $67 actually may not be so bad a bad deal at all we know I know Lakeland tax assessed value are way lower than the appraised value most of the time.
@David Dey I don't even know if I could call this a deal at best the we would make an offer at land value at about $25,000 the code enforcements of $77K could be negotiate in Lakeland down to know less than I believe its 50%(been a while since I checked). The reoccurring lien of $100 a day is only stopped once an inspection is completed showing that the property was updated usually that the fascia was covered and that the property is no longer open to the elements (whole in the roof or broken window/doors). The judge here is a not easy on investors he usually only works with people who will be owner occupants not investors profiting but like @Kimberly Jones said it is all about who you know.
I personally would not bet on the D.O.T. at that point you are speculating and I much rather prefer a sure thing. But I seen someone over pay for a house in the ghetto(by 10th st.) paid $70K for a house assessed at 40k 3 months later sold it the school at $120K because the school was expanding its football field, he obviously knew something no one else knew.
If we are talking a Lakeland "cracker house" I would let my dog live in it as they don't hold up to well. but I would need to know what it would take to repair it? What could I rent it for and what is the repaired value on the property. at $25,000 + 38,500($74k/2) = 63,500( not including fees & repairs) you are right around the tax assessed value of $67 actually may not be so bad a bad deal at all we know I know Lakeland tax assessed value are way lower than the appraised value most of the time.
You are absolutely right as to the fact that Lakeland code does show favoritism in a good old boy network. @Kimberly Jones is also right it helps to know someone. At the time of this deal I used to handle my own codes, now I hired someone that I call the code whisperer who handles all my negotiations.
The rule of thumb for Lakeland code is reducing the lien to 10% of the total amount along with admin costs for first time offences and 50% for repeat offenders. The problem with this one is that they have suspended the ability to pull permits which would put a hold on demo, and you know them in Lakeland, they once they get something set in their brain they don't like to let go. It's like you have to have a big stick to threatens them with or a "code whisperer," to deliver the carrot.
ok time to eat the frog, or boil the frog, or kiss the frog, or whatever the book tells you to do with the frog... Within limits. (PETA would be proud)
It's been a lil bit since anyone had added to the scenario so I'll go ahead and tell you what I did.
So as mentioned, the property consisted of a 4 bedroom house and a 2 story garage duplex. With 77k in code violation liens growing by around 100-200 per day and the city had just authorized the demolition of the property.
The buyer was in foreclosure and had gone into chapter 13.
Well you know what they say on how to eat an elephant, one bite at a time. (Ok maybe PETA won't be so proud)
So I went to my seller first and asked him what he needed. " I just want this behind me," was his response.
So I wrote up a contract to purchase the property for the payoff to all liens and encumbrances, subject to permission by the bankruptcy trustee.
(Keep in mind, I have not put any money down as this is subject to acceptance)
I then went to the lender who had been the prior owner who had owner financed the property to my seller.
I offered him 25k for the purchase of the note. The problem was that he also knew about the upcoming DOT situation.
"Why should I settle with you for 25k?" He asked. "The DOT is coming and should give me all my money."
"The problem is," I replied. "There is a demolition order on this place, and If you don't accept my offer, you will have to finish your foreclosure and by then the place will probably be torn down." "If that happens, the DOT will only offer you land value, which is around 25k. "So you can accept my 25k offer now, or you can spend money on finishing your foreclosure, have to deal with the demolition lien, wait a year and still receive 25k."
Long story short, he accepted my deal.
(Again keep in mind, I have only written up the agreement, I haven't actually spent any money yet)
I then went before the board at the next meeting and asked them to reduce their lien from the 77k to just their hard costs, and to give me 90 days to bring the property back into compliance.
"Why should we do that?" They asked. (I seemed to be getting that question a lot in this deal.
"Because," I responded. "I control the first mortgage on this property, and if you don't work with me on this I will just foreclose you out and you won't collect anything." (Kind of like @bill gulley said) "However, if you accept my plan, you will get your hard costs back and won't have to eat the demo lien and will end up with a property that is up and running and a good tax base for your municipality."
Thankfully, they saw it my way, and reduced their lien from 77k+ to 1k.
(Again, I just got the agreement from the city. I haven't actually paid anything out of pocket yet)
My last stop was to the bankruptcy trustee. Now keep in mind, the trustee goes off of the property assessed value of 67k. He still sees the 50k first mtg and the 77k plus code lien.
There was no equity for him to pay against the creditors so he had already released the property from the bankruptcy. However, because it was still an active bankruptcy I needed permission from the trustee to complete the deal.
"I need your authorization to take this property back." I said as controller of the note.
"Why don't you go ahead and foreclose out your lien?" The trustee asked.
"Because," I responded. "There is a demolition order on the property." (Which there is, until the 1k is paid then a 90 day repreave) "If you don't work with me, I may lose my property." "You are supposed to work with creditors, I need this help."
He did see it my way and for 2k he released the property to be sold.
Now that I have a clear passage to ownership, I took the completed package to my title company, borrowed 53k from my private lender and closed the property for 28k.
The repairs were actually relatively nominal. The issue had been how long the violations had remained latent.
It only took me about 12k in rehab to bring everything into compliance (my employees doing the work) and I actually walked away with 13k in overage that went into my pocket tax free!! (Proceeds of a loan)
I then rented the 4 bedroom for 800 through section 8 and rented the duplex for 500 per unit for a total rents of 1800 with monthly profits around 1k per month.
About a year later, sure enough the DOT showed up. There was one change though, the map had moved over in the plan and all they needed was pie shaped sliver of the property. The problem (for them) was that the pie shaped sliver ran right through the duplex making it so that in order for them to take the property they would have to tear down the duplex.
The DOT made me their initial offer at 67k plus I would keep the house. I said, "no."
(You never accept the first offer)
"Why won't you take that offer?" The negotiator asked me.
"Because, right now I have an income property generating 1800 per month." "You will be taking 2/3's of my income (never mind anything so trivial as math) and leaving me with a rental house backing up to a highway. (This is what we call presenting intrinsic damages)
The final number we agreed to was 97k with me keeping the house.
So with the numbers in hand, I went to my private lender and asked her if, since I would be keeping the house which was more than enough collateral to protect her interest in my offer, if I gave her 13k, would she do a partial release on the duplex and leave the remaining 40k on the house.
Since she liked me and was mainly interested in receiving a return on her money, she agreed.
So instead of making a measly 44k on the property, I was able to actually keep 84k. That with the initial 13k I had pocketed at closing and the 1k per month profit I had been receiving for over a year, gave me well into the 6 figure profit on this little "cracker shack" @Manny Cirino that most people would have passed on, while still being in a positive cash flow on the house (which I later sold for a separate profit)
Not bad, eh?
The point is, if you are a problem solver and are willing to eat your "elephant" one bite at a time, you can make an incredible, ethical living in this business.
Thank you @Kimberly Jones @Brent Coombs @Bill Gulley @David Maleski @Benjamin Pekarek everyone for playing this round!! If you liked it, let's do it again soon!!