Is this something that can be done regarding real estate?

[Darkside]

Can I go to someone whose home is about to be foreclosed and offer to pay them a small payment in return for ownership of the house? The person's home was going to be foreclosed on anyways so at least they get some money out of it and in exchange I get to own the home and I can make the remaining payments on the house which is cheaper than buying a house and making all the payments?

 

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[bflbob]

I'm assuming that the place has already been served with a lis pendens, telling them that they are being foreclosed on?

What you are referring to, in this case, is called "selling a house". They can sell the house to anyone, up to the point of foreclosure, as long as the sale price exceeds the outstanding mortgage on the property, plus any accrued foreclosure costs. The problem is that, in most cases, the outstanding mortgage is more than the house is worth -- especially after closing costs on the sale.

If you are talking about just taking over the homeowner's payments, that's known as "taking a property, Subject-to the existing mortgage". In this case, the homeowner deeds you the house, and you immediately catch up the payments to cure the foreclosure. You give the homeowner a few thousand to leave the home, and sign the deed over to you.

Subject-to acquisitions tend to have a bit more profit in them, since there are limited closing costs. But the problem in this case is generally the same as in the normal sale. Most people today owe more than the house is worth.

One final note...Subject-to's can be tricky legally. Don't just go out and do one tomorrow. Study a lot, and find good legal council.

 

[kwerner]

Hey Darkside, what state are you in?

This makes a big difference because some states have what's called a Judicial foreclosure process and some states have a Non-Judicial foreclosure process, a few states may use either Judicial or Non-Judicial.

 

[Davidla]

There might be another obstacle you will have to pass if you do this:

Some mortgage companies put a clause on their agreement with the borrower, stating that he CANNOT transfer their mortgage to other parties without the approval of the mortgage company.

I dont know if it is a new thing after the sub-prime, but In a mortage contract I saw recently it was there.

BTW - did you look at shortsales?
It seems reasonable to me that short sales are going to boost up in the near future, because of the trouble banks face with forclosures now.

 

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[bflbob]

There might be another obstacle you will have to pass if you do this:

Some mortgage companies put a clause on their agreement with the borrower, stating that he CANNOT transfer their mortgage to other parties without the approval of the mortgage company.

I dont know if it is a new thing after the sub-prime, but In a mortage contract I saw recently it was there.

BTW - did you look at shortsales?
It seems reasonable to me that short sales are going to boost up in the near future, because of the trouble banks face with forclosures now.

Davidla:

Good point on that. It's called the 'Due on sale clause'. While it doesn't really say that the seller can't transfer the mortgage, it really means that the lender has the right to demand full payment of the mortgage if the property is sold.

In times of climbing mortgage rates or property values, I can see lenders enforcing this. Right now, that isn't the case. Think of it from a lender's point of view...

If I lent you $300,000 to buy a house that was worth $350,000, I felt safe at the time. I loaned it to you at an interest rate that was fair at the time -- say 6%. Now you have fallen 5 months behind. Your home has fallen in value to $225,000 -- well below the $280,000 you still owe. Someone comes in (whether I know it or not), and catches up the mortgage payments.

Would I act on the due-on-sale clause? Not likely. I have someone paying a mortgage on time, when it was in arrears. If I acted on it, I have to foreclose on a property that I might be able to sell for $225,000 but I'm owed $280,000 -- a $55,000 loss before expenses. Worse yet, if I had to refinance the property, it would be at today's rates of 4%, instead of the old rate of 6%. Every way I look, I'd lose!

So I think lenders today would be very open to ignore the due-on-sale clause, and may even be willing to provide buyers with a letter confirming it. Of course, they would still have the right to foreclose if the buyer falls behind on payments in the future.

As for short sales, they usually have specific restrictions on allowing the buyer to pay the seller any money whatsoever. Pretty much, "Why should I forgive $55,000 in mortgage value while the person who didn't pay me walks away with $5,000 in their pocket?"

I'll agree that short sales are common now, and will be in the foreseeable future. Just make sure you cover yourself fully. Many sellers may have multiple liens on the property. Certain liens -- IRS and other taxes, for example -- can come back to haunt you if they aren't discovered.

 

[Russ H]

A few lenders are even allowing the owners to sell their houses for less than they owe, and walk away.

The logic here is that foreclosures cost money, and are STILL worth less after they're foreclosed on.

This approach makes a lot of sense, but it's still to radical for many banks, who would rather foreclose on the property, sit on it w/a higher valuation (instead of taking a write-down), and wait to sell it when the market improves.

-Russ H.

 

[rxcknrxll]

There might be another obstacle you will have to pass if you do this:

Some mortgage companies put a clause on their agreement with the borrower, stating that he CANNOT transfer their mortgage to other parties without the approval of the mortgage company.

I dont know if it is a new thing after the sub-prime, but In a mortage contract I saw recently it was there.

BTW - did you look at shortsales?
It seems reasonable to me that short sales are going to boost up in the near future, because of the trouble banks face with forclosures now.

Yeah, we haven't even seen the beginning of short sales and foreclosures yet.

 

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[00N8]

bflbob gives some good details about about the Due on Sale Clause, I never had it triggered on any of my deals. Having spent some time consulting to the GSE's and national servicers they don't randomly or routinely check title, there has to be an event that causes them to start sniffing around, like missing payments, they have to pull title before foreclosure, or if a borrower is trying to get a loan modification, if they are eligible for HAMP the servicer has to check title to make sure that a LLC or Trust doesn't own the property.

 

[hatterasguy]

I guess you could but why? Most foreclosures I have seen owe far more than the house is worth, so why would you want a part of that?

The bank is just going to take it back and try to sell it, they are not going to take less unless there is hardship, ie your broke.

Personally I have looked at a ton of foreclosures, every one is an overpriced POS that maybe some new buyer sucker will buy and fix up. I have never seen one sold cheap enough to be a deal.

 

[Runum]

Personally I have looked at a ton of foreclosures, every one is an overpriced POS that maybe some new buyer sucker will buy and fix up. I have never seen one sold cheap enough to be a deal.

Your experience is valid for you but it is not true for everyone. A buyer does have to be selective but there are deals out there.

 

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[Darkside]

I guess the goldmine would be to find someone who has paid something like 80% of their mortgage already but is about to stop making payments due to losing their job. Then you take over their mortgage payments. You get their home already 80% paid off and they get to maintain good credit.

 

[00N8]

Darkside, One of the common pre foreclosure filters is the date the mortgage was originated, if it's old enough and paid down enough then there could be some equity in it. Usually the origination date is listed in the foreclosure sale notice in the paper.

Bankruptcy attorneys highly solicit to people in foreclosure which will steal leads too. You want to make sure you are either first or last. So right after the sale notice or right before the foreclosure. Soft skills are essential to pre foreclosure, non threatening body language and an overt motivation to help the homeowner. Any sniff they get of your money making covert interest will ruin the deal immediately.

 

[DeletedUser2]

here is a twist.

first, I have done alot of "subject To" types and a few shortsales as well.

Go to the bank, Offer to buy the note. if done right you can get a discount that can be steep enough to go get a hard money lender to step in and pony up the cash for the note purchase.

otherwise, if your going to deal with the due on sale clause, use land trusts. there are a number of good courses out there regarding how to use a land trust effectively.

I have purchased ALOT of properties, and Yes, I have had the due on sale clause bite me in the butt on occasion.

but honestly, I Have made alot of money with doing exactly what your talking about.
even when i wasnt looking i would pick up 12-20 houses per year doing that exact thing. little or no cash to the owner, they walk, I make money

its all in knowing how...

 

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[Darkside]

Yes. Even though the homeowner might feel a big sting from leaving after making so many payments, at least they won't damage their credit rating.

 

[00N8]

Yes. Even though the homeowner might feel a big sting from leaving after making so many payments, at least they won't damage their credit rating.

That's not the case, by the time a homeowner gets to foreclosure or even a notice in the paper their credit is ruined. The auction is just a final twist of the dagger, it is the culmination of multiple late payments where the dagger is sunk in nice and deep to start the credit score plunge.

Plan to be part therapist when you go into these deals, every borrower has a story (once you've heard 500+ of them they all have commonalities) and they will tell strangers (aka you on their doorstep) about them before their own family (or spouses some times which is tricky to handle).

 

[RichD]

What you are referring to is a Quitclaim Deed. However, you need to know that this will NOT absolve the current mortgage holder from the debt to the bank. It can also cause the bank/lender to enforce any due on sale clause that will cause them to have to pay the balance in FULL immediately which they obviously cannot do.

All in all I say, as a real estate agent, this is typically a bad practice.

(Removed by MOd. 2nd time)

Rich

 

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[kwerner]

Hey Darkside, I realize this is an old thread and not sure if you're still interested in doing these types of deals or not, but from my experience chasing foreclosures is:

1) What you can and cannot do or talk with a homeowner in foreclosure about entirely depends on YOUR state's laws. What works in my state, probably isn't going to work the same in yours because states have different foreclosure processes.

2) Most homeowners going through FC are in denial, and they would rather bury their head in the sand rather than listen to you try to help them out of their situation. There are a few that will listen to you, but they're few and far between.

3) Homeowners will make an EMOTIONAL decision. Banks on the other hand, will make a FINANCIAL decision (even though some of them are stupid, especially Bank Of America) so most of the time, you're better off trying to get a deal and talk logic to the bank (except in the case of Bank Of America, haha j/k). Getting a deal directly from a homeowner like the example you used CAN be done, but in my opinion, you're odds are going to be higher just dealing with the bank.

Hope this helps.

 

[Darkside]

Hey Darkside, I realize this is an old thread and not sure if you're still interested in doing these types of deals or not, but from my experience chasing foreclosures is:

1) What you can and cannot do or talk with a homeowner in foreclosure about entirely depends on YOUR state's laws. What works in my state, probably isn't going to work the same in yours because states have different foreclosure processes.

2) Most homeowners going through FC are in denial, and they would rather bury their head in the sand rather than listen to you try to help them out of their situation. There are a few that will listen to you, but they're few and far between.

3) Homeowners will make an EMOTIONAL decision. Banks on the other hand, will make a FINANCIAL decision (even though some of them are stupid, especially Bank Of America) so most of the time, you're better off trying to get a deal and talk logic to the bank (except in the case of Bank Of America, haha j/k). Getting a deal directly from a homeowner like the example you used CAN be done, but in my opinion, you're odds are going to be higher just dealing with the bank.

Hope this helps.

Yes, that helps, thanks! Sorry about not responding to your post earlier on in the thread as I didn't see it; I live in California.