Best Strategy for this Situation -Transactional funding?

Question

Hi everyone,

I have a specific situation that I would like to get your opinion on since I think there could be several ways to go about this. Please excuse me if these are dumb questions as I am fairly new into RE investing world :)

Here it goes: I was speaking to someone at my local gym (while networking) that mentioned he put an offer on a house to live in, but he does not know if it will pass inspection since the roof is significantly damaged (and then some). The property is an REO and was in Auction in January for 281K (unpaid balance). After that, the lender took ownership for 435K. Now, six months later, the lender has listed it for 279K.

My first question is, does the end buyer still need to worry about the unpaid balance back in auction? Or is the listing price what he's working with?

Second, what strategy can I use to help him get the loan since he plans on fixing the roof himself. He has looked into the 203K loan but he would need to go through the credit check, ect ect that a bank requires.

Could I potentially do a wholesale with transactional funding? This way I can put the property under contract, all cash, quick close and then double close with the end buyer?

Sorry for the long post but I hope I explained this correctly. Any help or creative strategy suggestions would be greatly appreciated!

Thanks,

Val

Wayne Brooks · Answer

@Valeria Valdes Sounds sort of silly.  If he can buy it from you, one hour after you buy it, he can simply buy it directly from the bank.  What do you think you getting in the middle accomplishes?  He won't be able to get FHA financing anyway with You as the seller, since you're not the owner.  Also, you seem to be comingling the terms FHA and Conventional, they are quite separate and different.

Valeria Valdes · Answer

@Wayne Brooks hmm, I see your point. I guess I was thinking there was a strategic way to do this but you are right about me not being the owner in essence.

Thanks for your response Wayne, just what I needed to clear my confusion with that.

Best,

Val

Valeria Valdes · Answer

@Brent Coombs and @Devin Beverage thanks for your response.

The gentlemen I met is going through a conventional loan, inspection contingencies, ect but does not think the bank will pass the inspection since the house needs so much work. He does not have all cash to purchase the property but he is using an FHA loan. I guess my question is, can I purchase it with no contingencies and transactional funding and try to offer a bit less on the house? And if my offer is accepted, double close and sell it to him for a small fee? Basically I'm thinking it would be a win-win since he put a full price offer and I can potentially get it for a less?

Also, at the point of a double close can the end buyer still use an FHA loan as he planned origianally?

Brent Coombs · Answer

@Valeria Valdes, to the best of my knowledge the REO Bank can't come after any outstanding mortgage beyond the price that they agree to sell their property. [Not legal advice].

Are you saying that YOU have access to pre-approved non-conditional funds for that full amount, and would be willing to "sacrifice" that pre-approval on this particular deal? Because if you utilize YOUR Lender, all the risk from then on is being taken by YOU until your gym buddy makes good on his supposed ability to do a "proper" Loan at some stage (as far as I know)!...

Devin Beverage · Answer

Hi, Val! I'm a newbie myself, but I'll try to tackle your questions anyway.

So... You have a friend who wants to buy a REO house, but he doesn't think it'll pass inspection. He wants to put an offer on it, though.

As far as your first question, I can't say for sure because I don't know enough about foreclosures/bank owned properties, but I believe they put homes on the market to recoup the remaining balance on the loan, not to put that remaining balance on another buyer.. That would be crazy, right!

Regarding the 203K loan, I'm inclined to ask whether he would be purchasing the property in cash if it weren't for the repair costs (need for the 203K). Because he'll need to apply for a mortgage anyway, why not go for a 203K through FHA? A regular ol' mortgage will require a credit check/screening.

You then go on to ask about possibly wholesaling the property, which I'm guessing means you are looking to get it under contract with the bank, close, and resell (because you'd need to do double-close with REO, because the bank isn't going to play around with re-assigning) it to your friend, who will pay in cash, for a fee. Is this accurate?

Unless there are rules against this, it sounds fine to me. Just make sure your friend (well, the guy you met at the gym) is okay with paying a little more if he does it through you. I think I may be missing something, though, because if he has cash anyway, why wouldn't he buy it straight through the bank? Does he not actually have cash and you are going to seller finance? I'm not sure I'm seeing his benefit, otherwise.

Let me know if I'm misunderstanding.

Best Strategy for this Situation -Transactional funding?

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