Has anyone ever done a take over payments on pre foreclosures?

Question

I am currently looking for a house to rent.Due to the economy, we have to downsize.I have seen several ads on craigslist about companies that will let you take over payments on pre foreclosures.They claim that you don't need a downpayment or credit check.They claim that you just walk in and the current owner signs a quit claim and you take over payments.There are a couple that I found out were scams.It seems like it would be good for the delinquent home owner, the bank and the buyer.Does anyone know if there are companies that actually do this?Any info would be appreciated.

Jon Holdman · Answer

Mike, This is called "subject to" in creative investing terminology. That's because you're purchasing the house subject to the existing loan. Its very possible to do this, but not as simple as these guys are making it out to be. If the house is in foreclosure, then there are almost certainly back payments and fees that need to be paid to bring the loan current and stop the foreclosure. If that's not paid, the foreclosure will proceed, and the lender will take the house from you. There's absolutely no need to use a quit claim. Do this transaction using a warranty deed and do it with a title company, title insurance, etc. Yes, all those fees will have to be paid, but that's no different than buying a house normally. The only difference will be the deed will list an exception for the existing loan. The title insurance will also list this exception. Not all title companies will do such transactions. You want to make the payments directly to the lender, or via a third party escrow service you find and verify. If the folks who set this deal up want you to pay them on the assurance they will pay the lender, you're about to get screwed. The guys doing this deal will want paid somehow. Between their fees and the amount to bring the loan current, the initial cost may be quite significant. This only makes sense under the right circumstances. Those are that the current loan balance is less than what the property is worth and the loan terms are reasonable. As in a reasonable, fixed rate. This would be a bad idea if the loan is an ARM that's about to reset to a higher rate, or if the loan balance is more that what its worth. An investor would say the loan balance needs to be significantly less than what its worth. There is a risk of the lender calling the loan due. When the ownership changes, the lender expects to be paid off. There is a clause in the loan saying the loan is "due on sale". At the moment, rates are low and lenders are busy with foreclosures, and the likelihood of a loan being called is probably low. However, if rates jump up, lenders may get more aggressive about calling these loans. However, if you plan for that possibility, and have your finances in a position where you could refinance, you're prepared to pay it off if need be. Now, as to whether these companies are scams or not. I suspect they are. at best, they're going to stick you with a bad deal. Buying subject to is an investors dream. Especially if the loan balance is much less than the value, and the loan has a low, fixed rate. Its not easy to find such deals. I'm quite sure nobody who goes to the trouble of finding such deals is going to dispose of them cheaply. Before you sign up for such a deal, you want the original loan documents from the loan. You want the current statement from the lender and you want copies of any letters showing what's owed. You also want an "authorization to release information" from the current owner allowing the lender to speak directly to you about the loan. You want a title search to be sure there are no other liens, such as a HELOC, tax liens, water liens, or anything else. Otherwise, you could end up with a house that has an attractive first mortgage only to find out there is a HELOC that's also in arrears.

Dory Peters · Answer

I agree with nearly everything Jon stated too; however, I have a slightly different perspective on the following comments. Although I agree that this company could be scammers, I don't entirely agree with the statement about investors being unwilling to sell off those kinds of deals relatively cheaply. Sure, the middle-person will charge a fee for setting this up, and that fee doesn't have to be any of your limbs. You have to do your due diligence. You need to know what's in this deal for everyone. I agree with Jon that you need to ask--or at least find out--why they're flipping the deal to you. If the explanation is reasonable, the numbers work, and your RE attorney (assuming you have one--who's also an investor) will bless the transaction, then the deal should be OK. It also wouldn't hurt for you to post your deal here, and let everyone on BP pop the hood; inspect the engine, lines, hoses, etc; kick the tires; etc. By the time you're done--assuming that those investors are legit and still interested--you'll end up with a much better deal.

Dory Peters · Answer

Mike Cardenas · Answer

Thanks everyone.The advise is very helpful.I understand that if it sounds too good to be true, then it usually is.I just wanted to check if these programs exist.

Dick Green · Answer

Jon is absolutely correct. This type of transaction could end up being a virtual land mine. Be very careful. It's even more dangerous negotiating thru a middle man who is surely motivated by profit and does not have you are the home owner's best interest at heart.