Woodland Hills, CA · Member since 2009 · 21 posts · 1 vote
A deal was recently presented to me from a family friend looking to sell their home to move. The home is located in the San Fernando Valley with comps in the neighborhood ranging from 475k-490k. It has 3 beds 2 baths 1350 sq ft with an in ground pool. the home needs 30k-35k in repairs.
the owner has a 306k mortgage which she hasnt made payments on in 7 months totaling 17k. the owner also owes 7 grand to a contractor for previous work done but not completed.
she is willing to sign the deed over to me if i would agree to catch her up on her mortgage and give her something to walk away with (40k).
I would take over this property with the intent to live in the home and rent the other two rooms out.
Please tell me your thoughts on this deal. I am a new investor and would love to hear your feedback and weather this is a good deal or i should keep moving.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
I'd do it for no cash to the seller. Terms of the purchase agreement: In return for the deed, I'd take the property sub-to the existing mortgage. I would reinstate the loan and payoff the contractor. I'd then give the seller a promissory note secured by a deed of trust in 2nd position for $40K payable in 6 months.
I'd rehab and resell within 6 months.
If the seller wouldn't do it, I might give them $10K moving money and reduce the seller carry back.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
I did not see the 100k down part or that the loan is non assumable. I would have to run the math more. Toms advice needs attention here to be certain. I was assuming the 17k and 7k was part of the 40k. Either way I would get that under contract asap. There appears to be close to 100k of profit/equity.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
I'd do it for no cash to the seller. Terms of the purchase agreement: In return for the deed, I'd take the property sub-to the existing mortgage. I would reinstate the loan and payoff the contractor. I'd then give the seller a promissory note secured by a deed of trust in 2nd position for $40K payable in 6 months.
I'd rehab and resell within 6 months.
If the seller wouldn't do it, I might give them $10K moving money and reduce the seller carry back.
Woodland Hills, CA · Member since 2009 · 21 posts · 1 vote
12y
K. Marie Poe I appreciate your instincts :) but in this particular case first and foremost i need to help the seller, she is a close friends grandmother. So i am trying my best to include something ($) in it for her so she can move peacefully and easily.Can you explain what exactly you mean when you say "reinstate the loan". Because i have read numerous times of that when doing subject-to deals the bank can call the money due on the mortgage and forclose.
Tim G. I dont have that information in front of me, I just got wind of the deal earlier this morning and am doing as much due diligence as we speak. But I'm trying to determine which exit strategy would suit this deal best and if this deal is worth my efforts. I am a new investor so I am also careful not to bite off more than i can chew, so all of you guys advice and opinions are greatly appreciate.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Reinstate the loan means payoff the past due amounts and fees, bringing the loan payments current. If you don't do that the lender will foreclose. If that happens, the due on sale issue is moot. :)
IMO, the seller pre-spent some of her equity by letting her mortgage go unpaid for 7 months and by not paying a contractor. If she needs moving money, I'd give her $10K and have her carry back $30K for six months.
Crunch the numbers carefully. Owners with defaulted mortgages often have other stuff going on. There may be other liens or past due tax payments, etc.
You are on the right track about to give the home owner some walking cash, but you will have people say don't give the home owner anything just screw them and those people that think like that is doing it base on their personal greed.
Woodland Hills, CA · Member since 2009 · 21 posts · 1 vote
12y
@k. marie poe Thank a lot for your input, I'm pulling tax and title info today and will see where that puts us. Crossing my fingers nothing unexpected pops up.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
@Lamonte Evans Has the lender filed a Notice of Default? If so, be aware that there are special disclosures and requirements for documents when purchasing properties from sellers in foreclosure in California. Also be aware that the reinstatement amount could be much higher than what you've been told by the seller. If an NOD has been filed there are legal fees and a foreclosing trustee to payoff as well.
The special disclosures mentioned by K. Marie are very important in CA, if a NOD is filed.
Don't forget to take a look at the note, there could be a pre-payment penalty that would blow the deal (ask me how I know).
The numbers are MARGINAL at 77% all-in (306 1st+17 arrears + 7 contractor+40 repairs divided by 480 ARV) ... that's IF you don't give any walking money (I think my math is right, I make mistakes easily).
Even then you have to make sure your numbers are accurate and cross your fingers a little bit. 77% all-in is pushing it.
Woodland Hills, CA · Member since 2009 · 21 posts · 1 vote
12y
@Account Closed I gathered that 17k in delinquent payments was included in the 306k. But none the less based on some serious work done today I was able to see that this one isn't the right deal for me at the moment. gathered much information and actually learned through the process but i am choosing to wait and find a better deal.
@Account Closed I gathered that 17k in delinquent payments was included in the 306k. But none the less based on some serious work done today I was able to see that this one isn't the right deal for me at the moment. gathered much information and actually learned through the process but i am choosing to wait and find a better deal.
Based on what you have provided in this thread I wouldn't give up just yet, unless there is something else we're not seeing.
If the 17k is in the delinquent payments and the ARV is conservatively 490k and the rehab is conservatively 40k and you give seller only a minimal amount, you are at a respectable 72% all-in...that could work. You just need to tighten up your numbers and then see where you are at. You mentioned you were going to pull tax and title, did you see more liens?
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
I agree not to pass on it yet. It's possible that the seller is turning out more difficult or demanding than originally thought. My experience is that many sellers will initially engage in a discussion about moving and wanting out a foreclosure situation but then don't actually follow through on any offers. So you want to stay in contact, which may be months or years, as they get nearer to a trustee's sale.
Lamonte: I sent you a message. I'm happy to look at the deal if you end up not taking it.