I am not an agent but I am an ethical businessman. I have more knowledge in my area of real estate than most agents unless they are a specialist with significant experience in this area. That said there are absolutely some things I do not know.
I have done 6 pre-foreclosure deals in the past 2 years. Some I held and rented back to the previous owners, some I flipped. Many of these houses would likely sale fail and get foreclosed if they were put on MLS.
This most recent deal has been interesting and difficult.
Owner is widowed 50 year old and wants to stay in home he raised his family in. We signed a buy sell 2 weeks ago for 163K and I was just planning to rent it back to him and make $200/M cash flow until he moved out so I could flip it. The buy sell was contingent on title, inspection, financing and business partner approval. Last Friday he came to me at 3pm and said he needed $2K immediately and would sign over his house he owes $132K on to get it as long as we could do the other $29K in a separate deal with his 1980 classic sports car as additional collateral. I explained they would be two separate transactions that would need to stand on their own. He said ok and we went to the notary and the county to complete a quit claim deed and I gave him $2K check to cash at my bank. All of this we managed to get done before 5pm Friday. Deal #1 done and a good deal for me.
I have started looking into this "1980 Classic car" and it does not rise to the level of being worth $29k. He had mentioned that to me but I assumed it was in the ball park. Well, it isn't in the ball park. It might be worth $5K, it might not. However he was in such a hurry to get the money on Friday I went along with him because it was good for me and seemed to be good for him.
By the way, this is the type of guy who calls you expecting things to go a certain way in his favor out of the blue without it having been discussed. Like, are you going to get me that $30K today? No, there is a process to buying something which includes inspection etc...
I am getting a commercial loan from my banker to pay off the lien from the sellers first mortgage, no other judgments or liens. He was going to use the $29K to pay off the classic car, pay back some friends and most importantly pay the rent for awhile until he can get back to his concrete job (weather).
This guy was in a horrible situation before I got there and was just going to lose this house to the bank. That said, every person I have dealt with prior to this one has been helped with their personal goals by me as they have sold their house to me. I offered this guy concrete work on a remodel and he didn't show. He could have made his $2K simply from that job had he wanted to do some work. I am trying to find synergies with these people I work with who are in bad times. I feel bad that this guy could be evicted in a few short months and feel like he didn't get what he wanted or expected and he may feel like that has something to do with how I handled this deal.
Finally, I do have a system I use to acquire and close these properties. It is rare that someone gets me off that process but it can happen and I know the best thing to do is walk away from those deals. I just couldn't walk away from this one. To make it more interesting, a bar owner has recently told me he wants to go in on some deals with me. I went to the sellers fish fry a week ago and there were 4 guys there and me and my wife. One of the guys was this bar owner who wants to invest with me and maybe this is the perfect house! Part of my process is to create a relationship with my sellers but not expectations. It is a fine line for sure but it is a lot easier to stay in cooperative agreement if you shoot them straight and they know you are trying to do the right thing for them.
Please key your feedback to help us all keep track of the salient points:
1- Suggestions on the overall process and staying legal and ethical.
2- Suggestions on any ways to make the outcome/risk on this specific deal a little better.
3- Suggestions on anything else.
