Options to help a neighbor in foreclosure?

Question

I'm looking for creative ways to help a neighbor. Here's the situation:

While perusing foreclosure notices yesterday, I found one posted for a long-time neighbor. The outstanding loan balance is only ~10% of the value of the house. The couple is about to file for divorce (wife living in the house - hubby moved out a couple of months ago), two kids out of high school, and college money is tied up in the house. Wife has been unable to work for the past several months because of a nasty car accident. The divorce will likely force the sale of the house. Going through with the foreclosure would destroy so much for this family, and I'm determined to prevent that.

The question is how to do this with compassion, create a win-win, and limit our risk. Here's what I think I want to do since the house would likely make a good flip:

• Pay the 10% to clear the bank loan and ask for no repayment from the family in the short term. In return, they would theoretically agree to sell us the house when they're ready.
• Mom & sons continue to live there until they decide to sell (likely soon to pay for college) or until the divorce forces the sale.
• Once they are ready to sell, we buy it at a discount & flip it.
• Alternatively, maybe we buy out the husband's equity in exchange for part ownership in the property, then buy out the wife's portion when they are ready to move. This option provides the most relief, but ties up more of our $ and increases our risk.

What are some other ways to attack this?

Ronald Rohde · Answer

Many issues going on, is this a charitable act or investment? You need to decide which is driving the decision. I would paper everything because memories are foggy. You'll run into many issues with homestead, HW consent, divorce decree, etc.

I commend where you're coming from, but they can get a loan if there is as much equity in the home. Help them do that instead.

Beau Fannon · Answer

Don't do it.

Bryan Lyde · Answer

If you have a relationship with the ex-couple, meaning they know that you know they're splitting up but not perhaps they're in trouble, and they also know you are an investor then have a conversation with both and see if they will open up on the finances and what they would like to happen. Best approach I would think is purchase at numbers that work for you and lease back to the mom so she doesnt have to moveout. Get the lease to cover your holding costs at a minimum if you're in the flipping game, or offer lease to own if she wants to stay until she's back on her feet.

The best solution is probably the one that causes the least stress and upheaval which is the last thing that family needs right now.

I would move quickly whatever you're going to do, the house has 90% equity so it's on a list, and if they've filed papers already they're on another list which will make the sharks salivate. Perfect storm of high equity and motivated seller

Good luck and let us know how it turns out.

Brit F. · Answer

Agree, @Ronald Rohde. Thank you!

Brit F. · Answer

Thank you, @Bruce Lynn, we may end up doing that.

Bruce Lynn · Answer

Refinance her out of it with you as the new noteholder.

Ronald Rohde · Answer

understand, just get it papered up, this isn't a handshake deal when you're dealing with the foreclosing bank...

Brit F. · Answer

Thank you @Bryan Lyde & @Jay Hinrichs. Appreciate your comments and ideas.

The Mom & I had a good talk today. The primary purpose was to show her a couple of items that came up on my title search, so she can get a head start on clearing those, regardless of when she sells. One of the items is a small loan from a lender that went out of business in 2017, and I couldn't find either a release or transfer.

I let her know more people would likely be calling, knocking, and mailing, and she should chase them off with her cane :)

While she understands the need to sell in the near future, we both agree that there isn't any reason to do it now. In contrast, she understands the outstanding balance must be cleared asap.

She's going to follow-up with some family leads on a loan to pay the foreclosing bank, and we'll stay in touch in case we need to step in.

I'll update the thread as things progress.

Jay Hinrichs · Answer

not sure if this works but i bought one in Portland 10 years ago .. same thing they were losing it for tax's I paid the back taxs and gave them some money 80k in total.. and then gave the lady living there a life estate.. she made it well about 8 more years. I paid the tax's and she maintained the home.. Such as it was.. ( it ended up being a tear down and i am building 3 specs on it now) but that worked.. Not sure if it was the best use of putting 80k on the side lines with no income.. but I ended up with 450k worth of lots .. so gain is about 350k in 8 years on 80k .. for flipping purposes who knows probably could have done about as well.. for buy hold I think i did better.

Brit F. · Answer

Thank you @Ronald Rohde and @Justin Kane.

The idea is that the charitable act leads to the investment. The numbers would be fine for either flip or hold; I'm not worried about that. But, since we're not interested in adding to our rental portfolio right now, we'd likely flip it.

I decided to not try to solve any divorce-related risk -> buying out the husband's equity is off the table for now. If the divorce forces the sale of the house, so be it.

To refine my goal: I want to eliminate the immediate foreclosure risk and ensure that we can buy the house at a discount whenever they sell. In a way, the 10% the bank wants could act like earnest money on a purchase agreement with a lengthy closing date. Instead of paying the 'earnest money' to the Title Co, we'd pay the foreclosing bank.

Options to help a neighbor in foreclosure?

Options to help a neighbor in foreclosure?

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