wholesaling properties under distress

[Alex E.]

I have heard that the best properties to wholesale are the ones where the owner has almost 100% equity. But can you wholesale properties where the owner has a loan-to-value ratio of 90% to over 100%, where the person is either struggling to make monthly mortgage payments and / or his home is worth lower than his monthly payments?

I was thinking that in this case, the person just wants to get rid of his property and doesn't care how much he sells the property for.

[J Scott]

Originally posted by Alex E.:

I see, I think I understand now why rehabbers want to buy from FSBO. Otherwise, they have to deal with the lender's restrictions.

Alex -

I think you're missing the point here...let me try to clarify...

First, buying from a private seller off the MLS or through FSBO isn't going to change anything with respect to the lender or loan. Second, this has nothing to do with lender "restrictions," this has to do with how much the seller owes on his loan.

Imagine that you lend money to a friend to buy a house. You lend him $100K to buy his house and now he owes you $100K. He pays you for a couple years, and eventually he has paid down his loan to the point where he owes you $90K.

But, then he starts having financial difficulty, so he decides to sell his house. If he sells his house for $50K and gives you the $50K, what are you going to be thinking? Most likely, you'll be thinking, "Wait! You owe me $90K and you've only given me $50K...I want the rest of my money!" In fact, in your loan docs, it probably says that he's not allowed to sell his house unless he pays you everything he owes you.

So, you see, it has nothing to do with lender "restrictions," but instead has to do with the fact that he can't sell the house for less than he owes since the lender needs to get paid off. It's the same whether the house is selling on the MLS or FSBO...the lender always needs to get paid off.

The exception is if the lender is willing to accept a short sale -- this is where the lender allows the seller to sell for less than what is owed, because the lender realizes that this is the best option all-around. Short sales take a good bit of time, require negotiation with the lender, require the seller to prove hardship and generally still sell at fair market value (or close to it). So, short sales aren't going to allow you to get a steal on a property, but it may allow you to pick up some good deals if you're willing to do the work and wait it out.