Real Estate Gurus, I got a distressed seller.. what do I do...
 

ok, my friend is pretty messed up over a bad investment him and his wife made a couple years ago, here's the deal:

They bought a property for 193k, with only 9k down and a 8% mortgage.

they are saying that now 2 years later the houses have come down in value in the neighborhood and are now selling for 175 - 185k

he doesn't have renters, says he can't find any, and is talking about stopping paying the mortgage cause it's $1700 a month and he can't afford it anymore, and he's convinced he can't sell it even though he hasn't tried.

Now I know there's gotta be an angle here to help him not go into foreclosure and pickup a tidy profit for myself somehow.

I haven't gotten 100% of the deatails, but assume it's an assumable mortgage.

See if his mortgage is transferrable? Maybe you can take over payments on it and get into the property with zero down.

Only thing your friend would be out is his initial deposit/investment. However this helps him out greatly because ONE he gets off the title and TWO it opens up his cashflow.

Just my 2 cents.

DH

it's better to sell and take the loss than to go into foreclosure...

They should consider refinancing. This morning fixed 30yr mortgages were at 6.25% at the bank I do business with.

offer them 150k for it

Maybe he wasn't trying to find renters that hard? Better for him to just sell it and take his loss and learn from it.

if it is transferrable, how do I structure the deal so I don't go upside down in the property without leaving him owing alot of money,.

Hopefully, a real estate guru will actually come in here and give you an answer.

Why would the bank need to foreclose? $193k - $9k deposit - $11k principal paid off (roughly) leaves them with a loan balance of around $173k... if they can get $185k then at least they end with a little cash back, although ultimately it's a net loss. If it's an investment property then I presume they can write off that loss.

I'm waiting to see their docs, but I'm guessing they were doing interest only, so the 9k is all they have in it.

they are my Brazilian cleaning people... yes, they clean my house, and they tried to buy a house they couldn't afford as an investment thanx to some tool that talked em into it.

What makes you think you will do better than them ? If its not rented you will be on the hook for the monthlies +++ The 5% (apx) equity that they Had dissapeared, better to cut the loss and run.
Also if its an interest only mtg , you are not getting anything paid off the principle. Your payments are $20k per yr. apx in 5 yrs you have sunk apx 100K in the house, how much do you feel it will appreciate in that time?
Sorry to be so blunt , but this is just the tip of the iceberg. A lot of people got into real estate speculating without knowing dick about it , assuming there is no end to the up cycle. :2 cents:

How would he owe a lot of money if you assumed the mortgage? His name comes off the mortgage and yours goes on it. He has no further interest in the property nor debt on the property as you are taking it over. If it is not assumable take out a mortgage equal to paying his off and take over the property since he is ready to just walk away from it.

The one deal breaker is that he may have a prepayment penalty on his mortgage. 2 years has passed so that may have dropped off but i have seen some people stuck with prepayment penalties for paying off their mortgage before 5 years is up which is nuts and a rip off.

have you checked to see why he cant find renters? unless hes charging way too much i find that hard to believe.

Point your buddy to www.iamfacingforeclosure.com and tell them not to do anything they did.

If hes going to refinance, make sure he doesn't put the property on the market. Most mortgage companies won't refinance if the property has been on the market in past 6 months.

Refinance get a lower rate - such as an interest only loan (although harder to find now) and rent the place for the amount of the loan - then in the next 2 years look for a buyer and sell the home himself so as not to pay commission)

The other thing is he finds someone to take over the mortgage as DH put it and walks away - he loses out on his down payments and the money he has paid for a year although the money he paid for a year all went to interest and not the principal.

The first step is realization. Admit that this "friend" is you, and that you are flat ass broke with creditors harassing you. What some alcoholics may call that "moment of clarity".

Strip the house of any valuables, live there for the nextr 6-9 months mortgage free and let the bank take it eventually. Then file Chapter 7 and within a year - year and a half you will be back in golden. Think about it is $15,300.00 in his pocktet ($1700.00 X 9 months). He can use this money to pay for BK attorneys and reaffirm on debts that he chooses.

It happens to the best of them, hence the reason that the protection laws exist in the first place. No, it is not the ideal situation or resolve for most people, however it may be some people's only way out. You must protect yourself and your family before going belly up with nothing on the ass end.

The way the economy is right now, there will be a time in the very near future where banks will be making the same risky loan decisions that they made 2 years ago only due to the fact that so many people have gone beyond 30 days + and that their client base will diminish.

Even the rich are "poor" right now for the most part. I don't mean flat ass broke poor, but not where they were a few years ago that's for sure.

lol, sorry bro, it's not me, I'm doing just fine... these people bought the investment property in Orlando, in a shitty neighborhood by the airport, we live in Boca/boynton so it's a heck of a drive to go there, they barely speak Engrish so they had no clue how bad they were getting fucked. Sad.

Just trying to help my Brazilian cleaning people out.


and as far as your theories of "Even the rich are "poor" right now for the most part. I don't mean flat ass broke poor, but not where they were a few years ago that's for sure." is complete crap! I Am a bit better off now than 2 years ago and I was better off 2 years ago then the 2 years before that, and etc.. If your biggest investment is your house, you are a fucking idiot.

Yes, see if the mortgage is assumable.

If it appreciates over time, that is good, but..

Investments are cash positive. Your personal home is not an investment.

Rental properties which are cash positive are investments.

Your house is a place to live. Most are cash negative.

One more bit of advice form a former RE broker:

buy low/ sell high

:)

EXACTLY.. I try and show people this and they think I'm a tool.

Like down here in my neighborhood.. the houses were all bought 3 to 5 years ago for $170k, and they sell for $400 - $500k.. the neighbors are all excited about how much they "made" then I tell them "if you sell where are you going to move?" cause the house all over here are the same price.. The only way to make all the eequity work is to buy cheap properties against it and rent em out, something that none of these people can do..

It seems the only hope is trying to refinance it, otherwise they'll get fucked hard no matter what they do...

Tell them you will assume the loan if all the payments are made up to that point and rent it out. You get a house for very little down. Always a good thing or almost always. They get out of this deal. win/win

Downside is you are now in the rental business. Ready for that? You paid full price and do not have equity either so you might have a hard time baling out if you have too.

Bingo.

8char

yea great idea, fuck over your "FRIEND" for a profit

enjoy the karma :thumbsup

on second thought...i hope this persons just an associate of yours & not really a friend...i dunno, in my world...people don't see friends in distress as an "investment opportunity" knawmsayin?

Real Estate Roller Coaster (video)

wtf is that site wow

try and refi at 5% I have seen them out there a 3point drop should bring it low enough to make it rentable, with a TINY profit.


But profit is not even the thing. Get that mortgage paid.

Sounds like the property is upside down already, and with a sinking real estate market you'd be best to steer away from it. Try to help them by steering them to a good real estate agent, its better to take a small loss then sit on a house in a sinking market thats upside down already. I think we have only seem the tip of the iceberg with the sinking market and all the over stretched people out there.

Their best best is to get with a real estate agent that is reputable, and knows what the term 'short sale' is. Not all agents are competent or have experience with them.

What will happen is the agent will put the house up for sale. Then when there is an accepted offer, it is sent to the lender for approval. They are the ones that are going to eat the loss. This is bad for the credit report, but not as bad a foreclosure.

As for you buying the house, only do it if makes sense for you. If it is going to be a rental, will it actually make enough to pay the mortgage?

refinance and get a better rate...I guess that depends on his credit situation

If you can't sell it for enough to pay off the mortgage, then you can't sell it. Unless by some miracle you get the bank to agree to drop the lien for less than what is owed and basically trust you to pay the rest of the balance over time.

have they tried to advertise that for renting?

I often wonder that thinking too...I just sold my house for $500k woohoo! wait...i need to buy another one for $500 or $600k haha....good move..

Yeah, it's still a benefit but not the way most people think it is.

It gives you equity that you can borrow against to make other investments. That's capital that most people wouldn't have access to otherwise.

It's also good if you live in a high priced area like the northeast or west coast and then sell out and move somewhere cheap like the midwest or southeast.
Otherwise it's really just a paper profit like you said, because you'll have to find somewhere else to go if you sell.