Underwater Solution Help

[John Matthews]

Hey BP,

A friend of mine is a bit underwater on their home in Phoenixville, PA. They bought it in 2009 for $173k and it's worth about $150k with about $150-155k left on the loan. They need to move in another year or so. So I'm trying to think of solutions that work for them without having to put money up to get rid of the place.

Rent in the area for that property type is about$1350/mo. So with a mortgage payment of about $850/mo it doesn't quite make sense to rent it out - it'd be negative $150/mo.

My thought is that she sells the home, sub2 with a seller finance wrap around her existing mortgage to an end buyer. I could get the buyer to put down 20%, and pay 6% and still keep up with her mortgage payments, but the home would need to sell for about 10k above what it might be worth. The other thought is, if she's not interested in dealing with potentially foreclosing I do basically the same thing, but instead she sells it to me sub2, then I sell it to an end buyer with a wrap around seller finance, so I have the right/obligation to foreclose if the buyer defaults. Obviously she's not as well protected in this scenario though.

Hopefully that makes sense...But I've got a few questions.

1. Would a seller finance note sufficiently protect the lender and give them the right to foreclose if necessary?

2. Is it unreasonable to think that someone would buy a seller finance home ~5-10% above market?

3. Is 6% interest unreasonable on a seller finance home with 20% down?

4. Legally are there any issues with selling the home like this in the area? How about if the seller finance monthly payment is $50-$100 more per month than her existing mortgage payment?

5. Am I making this too complicated? Is there a better solution to her problem?

Thanks for your help!