Question About Placing Home Under Contract

[Alex Jefferson]

Hey everybody, I hope your having a good start of the new year so far. If not I'm sure it will get better for you.

I have a question in regards to placing a home under contract. Say you place a home under contract but the owner still owes money on the home to the bank? For example, say you place a home under contract that's worth 300K for 160K but the owner owes say 100K to the bank. How would you go about placing that home under contract? Would I have to negotiate with the bank they owe the money to? Is it even worth pursuing?

How has everybody here handled these type of situations? What amount is to much for us to walk away from the deal? This is my last question (hurdle) before I actually start my marketing plan next week.

As always thanks for the help.

[J Scott]

I think something a lot of new investors miss is that it's VERY common for the person you are buying the property from to owe money on it. The standard practice is that the loan is paid off at the same time you purchase the property.

So, in your example, you pay $160K for the house and the seller owes $100K. The closing agent will take the $160K you bring to the closing table, and allocate $100K to pay off the loan, while giving the rest of it to the seller (about $60,000 after fees, etc).

If the amount you're buying the property for doesn't cover what's owed (using Jerry's example, you're purchasing for $160K and the seller owes $180K), the seller would have to provide the difference at the time of closing (in this example, $20,000) -- if he can't or doesn't want to come up with the $20,000, the deal can't close.