Pre-Forclosure/Sub II....WITH equity...Need To Get Creative!

[Josh Gaddy]

I think this is the correct category for this post, I apologize if not. I'm hoping some of the more creative and seasoned souls chime in on this one...

I cam across a guy, in my hometown Charlotte, NC, who recently went through a divorce and he got the house. When the divorce was proceeding neither party paid the mortgage and it is now in arrears $17K and payable immediately. He can't pay due to an injury and his inability to work for the next 6 months. He has his court date VERY soon where the judge may postpone or schedule a sale in the next couple of months.

Currently he has the house on the market for $172K and the realtor says it's "under valued for quick sale." He claims to have an appraisal for $200k+ but I'm not sure if I believe him. All of the free sites peg the value at $172-195K. Conservatively, I think the home is worth $150k. Its very nice and kept up and VERY rentable because you can walk to the regional hospital. Nice neighborhood good schools etc.

He currently owes $107K which he says includes the $17K.

He is willing to get creative but says he will file bankruptcy to retain the house before he lets someone just pay the $17k and pocket the equity. He proposed for someone to pay him $17K and when he sells he will pay them back $24K.

I don't have the $17k to catch him up so I haven't found a way to be a principal here anyway but I thought I could pass on to some more stable guys at the REIA in exchange for a little tutoring or even a finders fee.

My thoughts on how this deal could get done are:

The investor pays the $17K to catch up the mortgage and takes ownership subject to the existing financing.

The investor works out what profit they desire...lets say another $15K on top of their $17k in the deal.

The investor who now owns the property puts the property on the market to sell.

The investor agrees to give the homeowner the remainder of the sale proceeds after the mortgage, their $17K + profit is paid using a second lien or some other type of instrument to give the homeowner contractual right to those proceeds. Investor is in complete control of the sale, timing, etc.

So house sells for ........................................$150K
mortgage after $17K catchup is paid off.......<~98K>
investor gets $17K+$15K profit....................<~32K>

Homeowner gets the remaining $20K - soft costs but is only paid after the investor and lender are paid in full.

If the house only sells for $135K tough luck for the homeowner the risk lies with him. If it sells for $190K like he thinks it should he gets to pocket the $35-40K

Not sure about this number but I think that the investor only loses if the house sells for $115K or less (~98k payoff + 17K out of pocket) or if the bank calls the loan due on sale.

Maybe I can even work a few grand in as a finders fee for me...

Any ideas or thoughts? Am I way off base? Sorry to be wordy.