All Forum Posts by: Matthew Hall

If a seller's mortgage has been discharged via CH7 BK and they sell the home subject to existing financing and sign the title over to the buyer, how would this be viewed by underwriters when they try to get a new loan? Normally with a sub2 transaction the seller would still be on the hook for the mortgage even though the home is out of their name, but in this case there is no mortgage, only the lien. Seller stayed current on the payments through the BK but never reaffirmed and is current to this day. They are outside of the seasoning periods for FHA and have the income to qualify for a mortgage, but not while carrying the current property. They just want out in order to relocate for a job change.

I left a few important details out. This has been ongoing since 2008. I believe the BK was discharged in 2009. He was able to purchase another home by living in this one and not making a mortgage payment for five years. Apparently though, Ocwen still sends him requests for modifications constantly. Ocwen only got around to filing a NOD in February of 2015-with the pace of foreclosures in NJ it could be another year before it actually goes to Sheriff sale.

There's a property I've had my eye on (for myself-not as an investment or flip) for a while that's been on and off the market.  I finally tracked down the owner and he laid out the story for me.  His business ran into trouble which forced him to file for CH7 (Including the mortgage), which has been discharged, so the note has also been discharged.  He has vacated the house and has purchased another one, so all he wants is to get rid of this one.  He's lined up a few buyers but the bank wants too much for the house.  They keep asking him to modify which he has no interest in because he already has another house. 

Given the situation, he offered to quit claim the property to me (for a fee) so that I can negotiate with the bank directly for a modification. I realize that a quit claim can open you up to any liens on the property, but to my knowledge (which I'd verify with a title search) there are no obvious ones. The mortgage (owner claims no second mortgage) has been discharged through the CH7, there is no HOA, and I verified with the town that the taxes are current.

All that said, I'd like to find out what other risks there would be in a transaction like this, and if there might be other ways to structure it.  I'll be talking with an experienced real estate attorney about this tomorrow, but I'm eager to hear from others here who might have done a similar deal, or ran from one with good reason.  

The home I would purchase/renovate would be my primary residence-it is a 3 bedroom/2.5 bath Colonial with a studio apartment over the detached carriage house.  I would be living in the house and renting the apartment over the carriage house.  In addition, I would rent the home we're living in now and have two properties.  

They have a short sale agreement in place.  Property was originally listed at $400K then dropped to $298K-the realtor says she fought the bank to get them to agree to that price, but again, they maintain that there is nothing wrong with the septic.  The property is tax assessed at $368K.   

I'm looking to purchase a foreclosure as my primary residence as it has a studio apartment over the garage that I should be able to get $1500 a month from while renting my current home for $2000 a month, which would result in a net income of $1185 a month (subtracting the mortgage on my current home).  The home is an attempted flip that wasn't totally finished/was poorly executed.  The exterior is finished and just needs cosmetics-the interior needs a bathroom finished (tile and rough plumbing are there-just needs a toilet, fixtures, etc...) and all appliances in the kitchen (brand new cabinets were installed, etc...). The kitchen and bathroom in the studio apartment also needs fixtures and appliances.  The rest (flooring, paint, new windows, heating system, etc...) is all there. 

HOWEVER, the bank maintains that they have no knowledge of the septic system and that as far as they know it is working fine.  I have evidence to contrary that I'm working on compiling.  Neighbors have submitted formal complaints to the county health department that were investigated and I've submitted public records access requests to the county to get the entire file.  What I suspect is that it is a 3 bedroom system (main house has 3 bedrooms) and that somewhere along the way the 4th bedroom (studio apartment) was illegally connected to it, overloading the system causing excessive odor and runoff. Basically what I hope to do is get the bank to accept my low offer by presenting evidence that this property is definitely going to need a $30-40K septic system.  I am in the process of getting estimates from an engineer, but I'd love to hear some tips from folks who have negotiated with banks in this manner before.  Lis Pendens was filed on this property back in May 2014 and I don't think that the property owner is contesting, so if it doesn't sell soon (it's been on the market just over 200 days) it is likely to go to Sheriff's sale early next year. 

The property is listed with an agent who doesn't seem to know much about it-the lender is Greentree.  I called them and they basically have a recording that says if you want to purchase one of their properties to work through the agent.  From talking to her though, it seems as though she's unmotivated to do anything with the property and is resigned to let it go to sheriff's sale.  

My wife and I currently own a 2 bedroom/1 bath house in a nice neighborhood, but we bought just before the crash and have only just broken even on it seven and a half years later.  Our interest rate is 6.125% (no equity to refinance) and taxes are high ($7600/year) so our payment is relatively steep at $2315/mo.  The most we could rent it for given the current market would be $2000.  It is within walking distance of a train to NYC, a walkable downtown, has a fenced backyard, schools are good, etc...  

I just got a new job with a $20K bump in salary that would allow us to buy a $300K property and retain our current property with an FHA loan given their DTI limits. That said, I've got my eye on a property that needs rehab work, but I think could get it for $200K, then use a 203K loan to purchase it and dump another $100K into it. The property has a very nice detached carriage house garage with a studio apartment on top. I could easily get $1500 a month for it as it close to both a trendy downtown area with lots of shops, bars, and restaurants, as well as the state capital. All in all, if works out, I could cover the mortgage on our current house plus have a little to spare. I figure down the road I could decide to keep it and refinance or sell it and just keep the rental income from the onsite studio apartment.

I'd love to hear any potential pitfalls, or advice from others with more experience.  It's my hope that I can start with the two rentals and begin to expand from there.  

Dion, thanks for your post and explanation.  Basically we were just looking for an easier out than trying to sell the property on our own as we cannot afford to use a real estate agent.  My thinking was that if I could find someone willing to take over the property "subject to" in some fashion that we could qualify for another mortgage, but that prospect seems awfully murky.  Some have told me that if I were to sell sub2 that, combined with the fact that the mortgage has been discharged, that I'd have no trouble qualifying for a new loan.  Others have said the exact opposite.  The mortgage brokers I've spoken to have no idea what I'm talking about, so it's tough to know where to go from here other than try to sell it on our own and keep closing costs as low as possible.

I'm guessing their reply will be, sorry, you're stuck with it, but I suppose it can't hurt to ask.  

That is indeed what we did.  We filed in order to wipe out other debt and protect our home-never missed a mortgage payment in seven years.  Attorney advised us to "stay and pay" and stated that if the bank sent a reaffirmation agreement (they never did) that he would not sign it.