Help appreciated - how to make this work...

[EJ Suvanto]

Hello,

Have been an active a reader of this forum for couple of years but somehow never got to post anything until today :)

Would first like to quickly introduce myself. Born and raised in Europe, done real estate overseas for many years (some flips, mostly buy and hold) where I still have my small rental portfolio. Quit my corporate job 3 years ago and been a full time investor ever since. Averaging appr. 10 flips a year. Done pretty much everything on the fix and flip front and now started to look into new construction and development deals as well. This is mostly what gets referred to me and my main focus is still on flips...

Now to the main topic:

Was offered a deal in a prime area (close to business and residential condos etc).

Existing property is a two-dwelling setup with a duplex in front and another 2/1 in the back (especially the back unit is a complete tear-down). Value is in land for future development. Zoning allows commercial and residential units to be built.

Owner has two loans that total appr. 847k. She is asking more than that but understands that the property is not worth that much to an investor/developer. She is old but understands real estate very well. What makes the matter more complex is that she is facing a trustee sale in 14 days. On top of that, the loan situation is very complex. The 1st actually thinks they are the 2nd and the 2nd thinks they are the 1st... How is this possible? Everything got mixed up when her 2nd (credit line) was paid off but never closed, paperwork mistakes were made at the county and bank acquisitions and mergers mixed everything totally up. The banks don't seem to know about the situation and have offered her payoffs that indicate short sale willingness.

She wants to postpone the trustee sale date by entering escrow asap with a legitimate buyer who would give her time to move and settle things. She understands that this needs to be a win-win. Her suggestion was an option deal that allow her to open escrow, postpone TS and give the buyer a chance to negotiate a deal with the banks that would make financial sense. Along those lines, I was thinking to enter a deal with her with the following terms:

- option to purchase the property subject to successful negotiations with both banks. Bring purchase price down to 500k as a result. Thinking being that the banks would be motivated to cut a deal with a new person once they realize what a mess the loans are and that I'd represent a legitimate opportunity to close the books on this once and for all

- Option term would give me enough time to negotiate with banks, e.g. 6 months or so

- Seller would give me an exclusive right to purchase the property

- Option fee would be nominal, say $100 at first and the rest would be payable upon successful negotiations with the banks (she wants to pay off her credit card debts, $30k)

Questions:

- does it make sense to structure it this way?

- Is option agreement the best way to do it?

- Any other comments?

Sorry about the long post. Appreciate all feedback. Thanks!