How can i help a flooded homeowner wanting to exit?

Question

Good Evening guys, im down here in Houston, Texas and really thinking of ways i can help homeowners who have been flooded for the first time and wanting to break away from their homes in search of a new beginning.  I've gotten a couple of people who need my help but wanted to get some advice from peers.  Im sure everyone is aware of the devastation down in our area and it has in turn caused several people to never want to go through that again. I've gotten addresses, ran comps, come up with my MAO, etc., and am all ready to go but have held off on pulling the trigger because im not quite sure how to handle a couple of complicated situations:

1.  Both homeowners have filed claims on the damage and are expecting lump sum payments.

2.  The homeowners are wanting to get out of the houses before the insurance money comes and some are under the impression that they can pocket the insurance money and give me the house. (Im not an insurance agent but im almost kinda sure that is not possible but this is why im asking).

With that said, im really needing some advice on how to handle these types of wrenches in the process.  My questions here are: should i let the homeowner receive the money and get the house back to its previous "before storm" state before making my MAO? Is it even possible to make a very low MAO with the cost of flood repairs incorporated (while the owners have insurance money on the way)? Or am i missing something and these are bad deals all together?

Looking forward to hearing from the BP Family on this one. There are alot of tricky situations like this on the horizon given the circumstances.

Thanks in Advance!

Jon Holdman · Answer

The checks from the insurance companies will be made out to the owner and lender(s). I've dealt with this. Lenders will sometimes go as far as not allowing the owner to have the money at all. They lender makes the owner sign the check, send it to them and then they hold the money and use it ONLY to pay for work on the property.

If the property is free and clear then checks will go to the owner. And they could certainly choose to keep the money and sell you the property for a reduced price.

If the property is free and clear then checks will go to the owner.  And they could certainly choose to keep the money and sell you the property for a reduced price.

Tom S. · Answer

@Stefon Bostick  When I recently had a sizable loss on my property, the insurance check was issued to both me and the lender. Lender had to sign off on the check and wanted proof I did the repairs.  So I don't think most people can just take the money and run, unless they own it free and clear.

Jon Holdman · Answer

@Jason Moran a foreclosure is by no means the only possible outcome.  The owner would need to come up with an additional $40K to complete the repairs.  If the value of the property before damage was at least $200K the owner would be foolish to let it go to foreclosure.  At the worst, they sell it as-is for the current value and could pay off the mortgage and walk away.  Or they could do a HELOC and repair the property.  Or find the money somewhere else or use savings.

Jason Moran · Answer

So if the mortgage balance is $120,000 but FEMA only pays $30,000 and there is no flood insurance (as the majority of homes did not have) but the repairs are in the $70,000 range, then it will have to go to short sale or foreclosure correct?

James C. · Answer

Stefon,

If there is a mortgage on the property,  then the lender is an additional loss payee. Depending on the loss, the lender can use the proceeds to pay off the loan and hand title back to the owner or have the structure repaired.

The issue arises when the lender is not on as a loss payee and the owner takes the funds and runs. They still have a mortgage on the property and the bank will try to protect their interest.  You could get caught in the fray there. So if you buy, then make sure the title is good.

I'd be inclined to put them under contract at your price with the seller delivering marketable title. That should protect your interests. You may want to spend a few minutes with a lawyer and/or mortgage servicer.

Good luck,

Jim

Bart H. · Answer

Fairly certain it would be mortgage fraud, my guess is the lenders would have some say on how the money could be used.

Christopher Phillips · Answer

@Stefon Bostick

When a homeowner gets an insurance payout, it can either go towards paying off their mortgage, or to repair their home. There usually isn't enough to pay off both. And it's usually not enough to get it back to the previous condition.

If you buy their property, or wholesale it, what they are getting from their insurance isn't relative. Just offer them what you think it's worth in its as is condition.

How can i help a flooded homeowner wanting to exit?

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