Options pursuing FHA note foreclosure

[Bob Jaeger]

Looking for strategies and creativity ideas on how to pursue an opportunity I found in my area that at the right price could be a good addition to my BRRRRRRR portfolio. The facts and challenges are-

1) The house is listed for sale on the MLS and it's "short sale listing approved by bank" leaves no deal.

2) The first lien holder, which is a FHA loan, is for foreclosing and the sale date is set for about 3 months from now.

3) The owner died and his estranged daughter now has the right to sell.

4) The estranged daughter has zero motivation to engage in the process.

5) The lender is owed about what the houses ARV might be after $75k in renovations and carrying costs.

6) I've been able to connect with the attorney handling the foreclosure in the interest of pursing buying the note who reports that since it is FHA they are unable to accept a short payoff.

This is where I'm looking for ideas or advise. Ultimately I'm trying to get in a position to control the property prior to foreclosure in the hopes of not having to compete for it at the foreclosure sale where I believe it wont sell and end up going back to the FHA although I have no idea what the opening price might be. It would seem that the foreclosing lender isn't that motivated because their losses are covered by the FHA.

The only thing I can think of is trying to offer the daughter cash for keys for a quit claim deed if I’m using those terms correctly. If I am the deed holder do I have any options?

I realize that the lender can still foreclose but might I have a better position to negotiate from with the lender or possibly FHA?

Thanks in advance for your input!

[Justin Abdilla]

This ultimately doesn't mean anything, as whatever offer you submit will need to be approved by the Bank *unless* you're doing a full price offer.

Does this mean there are two liens? It normally does not matter if the property is FHA or not. Foreclosures in Illinois are state-driven, not federally driven. A sale date 3 months out means it just went to a foreclosure judgment, because Illinois schedules the sales for 91 days out automatically. I would say you have approximately 7 weeks to conclude your purchase. Banks typically claim the process cannot be completed within 35 days of sale once that date occurs and withdraw approval. You should hire an attorney to represent your interests in this foreclosure now, if you plan on purchasing it.

Does she have letters of office giving her that right to sell?  Is the title on her inheritance clear?  Do you know this?

That's pretty typical.  If it's not her money at stake, most homeowners are willing to let the home slip to the bank.  Some short sale deals provide that the seller receives $X off the top of the sale (usually $3500) as part of the Bank's willingness to motivate you to prevent their total loss.  Maybe you could find that out from her listing agent to see if her contract qualifies.  $3500 is pretty decent motivation if it applies.

This means that your offer is going to need to be about 85% of that $75k number to be approved.  You can find out the final amount owed by buying a copy of the Judgment of Foreclosure and Sale from the Clerk of the Court in whichever jurisdiction the foreclosure is located.  It must include the judgment amount and per diem tolling.

The investor ultimately determines which payoff they will take. FHA loans are insured for their value by the US Department of Housing and Urban Dev (HUD). Investors won't take short payoffs usually because HUD promises to buy the property back from them at full debt value if it forecloses when its an FHA loan.

Please don't do this.  If you purchase the property from her via QCD, you will not have marketable title, and you're in an immediate position to be foreclosed upon yourself.  They will not have to make a second case, they will simply name you and join you to the original case.

They set the opening bid of the foreclosure auction via legal notice published 42 days out from the auction date.

Cash for keys is not possible.  The Bank gives cash for keys to have the homeowner relinquish possessory rights so that they can moot the foreclosure proceedings.  You, as a purchaser, do not divest the bank's foreclosed lien by giving the homeowner cash.  You simply give the homeowner cash and then step into her shoes to be foreclosed on.  Pretty awful deal.

If you were the deed holder, you could redeem the property by paying off the full amount of its debt in Illinois using the statutory right of redemption.  This is present in the law at 735 ILCS 5/15-1507 and 5/15-1603.  You can do some reading on it, but basically you pay the clerk of the court the amount in the judgment and the foreclosure is dismissed and the lien is released.

I'll favorite this post so I can respond to any questions you have, as this is my bread and butter area of law.