Help Me! Want to buy a preforeclosure but not sure if I should!?

Question

My husband is a licensed in every handyman job there is. This would be our first home or flip or rental. I have found a house that has 2 mortgages. And I know the approx value: about $100K, plus $32K in Federal Tax, and $10 K in other tax. With lots of liens on it (the mowing of the yard, etc). I pass by and I see one light turned on it the house and a big lock in the front. It has a basement because it has a door to go to it. I know this area well, because I rent here. The houses are going for about $300K at least. I have the address of the wife, and the loan co. told me by spring, it should be in foreclosure. I'd like to talk to the lady first, but I don't know if it is recomended and I don't know what I'd say. I'd like advice on what I can tell her and if there is a specific type of loan I can get.

Thanks for all and any advice and help.

Answer 1

i have a few questions for you...

approximate value 100k? or do you mean approximate lien

I work with lots of F.C. clients so here is a quick run down of the process...this varies state to state to double check everything i say.

borrower goes 60-120 days late. lender files for F.C.
add 5-6k to thier loan balence-legal fees and an drive by appraisal (to see if whether if they forclose will they get thier money.)

owners will get notice of sherrif sale. This is usually done by auction, this is where you can check the house out and place bid.
***check www.zillow.com and get an estimated idea on value for the house.

BEWARE OF ACTS OF VANDALISM!!! many burnt owners will deface the property or pour cement down the pipes. see what your getting yourself into it.

--many lenders will not lend on a property with functional or structual damage. you may inquire into certain goverment loans that will help you get the financing to do the repairs and get the loans on the house. Try contacting HUD.
some lenders will escrow the money to you to fix it as well but it is rare and limited..maybe a few thousand dollars. you can get away with cosmetics but if there are holes in the wall, toilets or sinks missing your going to have a problem.

once they accpet your bid the orignal borrower will have a REDEMPTION period. 3-12 months to either refiance or sell the house. SInce the home is in foreclosure status, they still usually go much lower than what market price would be.

you mentioned homes in the area go for 300k...are the houses comparable? are they with in .5 mile and 6 months form the sale date? just because the appraisal says its worth more doesnt always mean you can sell it for that. Michigan for instance is going thorugh a hard time right now. I work many loans there and values drop every month constantly.

so becareful and check the market. Look for good economic signs like a starbucks or a home depot opening up. (signs a neighborhood is on the up and up.) hopefull this foreclosure isn't one of many!

its a gamble on whether you will get the lowest price with her or with the auction. Dealing with her may be a safer bet in getitgn though. the banks only care about getting thier money back no matter where it comes from.

you could even buy it from her and put her on a rent to own or landcontract so you could make a small profit and save her house. (this could be risky if you don't know what your doing)

its sounds like she is still living in it and hasn't quite burned the house to the ground yet so financing options are wide open.

when you first buy the house, no matter how much it appraises for, what you pay for it was what the bank views as it's worth. so say the home is worth 300k but you buy it for 100k. you have no money down. its a investment property so you option for a 50 year mortgage or a interest only loan. this is all doable.
but it not like you get an automatic 66% down cause you got it at a great price. you will still need 100% financing. sit on the property for 6 months to a year before you can utilize the equity for a lower rate or cash out. of course you can always sell the bugger for a profit.

just make sure you leave yourself plenty of space in carring all your debt plus this investment. include taxes and insurace with your money payment and see if you can afford it..even if a renter "forgets" to pay the rent. have back up in money researve.

you don't want to get in over your head and be the next sherrif sale ;P

Good luck!

Answer 2

The best way to contact an owner to make an offer is always a letter. Handwritten is best. This gives the owner the comfort of reading it and considering your proposal on their own time.
Take into consideration all of the liens against the property, work that may need to be done and any other additional lawsuits that may be against the property and finally if someone is living there. These are important items to consider, you must find out as much information as possible.
Next figure out the market value of the home and how much you would like to save or make (if your gonna flip) from there you can determine what a good offer price will be. It will then be up to the owner to decide whether or not to accept.
This can all be done on your own but before you jump into anything you want to make sure that you understand the foreclosure process in your state. Become an expert not only in the process but also the property that you are interested in. There is a lot of room for error in foreclosures and I have heard and seen first hand some very, very bad decisions made by people who were not educated on their particular property.
So if you are comfortable with your knowledge of foreclosures and the home then go for it. But if you have any doubt at all another one will come along and you can always bid in the future. It's always best to wait until you are 100% sure you know what your doing then to make a big financial mistake.

Good luck out there and remember, research, research, research.

Answer 3

You are in the right pew getting into the property at the pre-foreclosure phase.

Please forget the real estate agent, at this point they are about useless even if they are paid by the seller. They have no idea of the negotiations that must be settled between the buyer and the sellers and what to offer.

Going to the sale/bid then you are bidding against a lot of other bidders. The other thing is at the bid, you have to have all cash and be able to prove it prior to even being allowed to bid.

Contact the person that is presently in the property. Ask them if you can take a look at the property with your husband. She will probably say yeah it is ok. He should look for any damage and repairs that need to be done to the property. Beware of structural damage as well as needing a new roof.

Let your husband estimate the cost to repair the property. NOw once you have found that out find out how many mortgages and leins are on the property. Add the mortgage,leins and cost to repair the property.

If this is workable up to this point now go back to the owner. Find out if they want something in their hot little hands, remind them of the tax liens that they must pay as well as any other taxes that are do that are their personal responsibility. Now you must add in this mix any back payments and fees that it will cost to bring the mortgage current.

If they give you a figure as to how much they want add this to the mortgages and cost of ther repair. Are we still in the ball game and is still a deal to you?

Now sit down and see if the figures work and you will have lots of equity left after you have paid the owner what they want, and doing the repairs.

My problem with making an offer is the cost to bring the existing loan current, how they plan to take care of the taxes.

Would they pay for the taxes and take less in their hands. Those questions have to be answered before you can make an intelligent offer.

You should get the mortgage payment coupons, deed, and county tax statement from them.

If they say they will take care of the taxes and the entire amount is less than $175,000-$200,000 then you probably have a good deal.

Now make the offer to them subject to the existing loan. You will need to bring the loan current through the excrow closing agent.So you will that amount of money as well as what they want in their hands, they will have to take care of the taxes through the escrow closing agent also.

If this is all done get your clear title,close the escrow,now find some money to fix the property up and go at it.

Just remember that you have a mortgage to pay each month now.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 4

Federal tax liens are not attached to property unless the Feds went to court and placed a lien on the property.

You're looking at $142K in mortgages and taxes plus fees and other associated charges. Being that the house is in preforeclosure, the owners are still authorized to negotiate the sale of the home. If the home is not for sale, your buyer's agent can't do a darn thing about it and even negotiating with the foreclosure attorneys may get you nowhere.

Rather than wait for the foreclosure auction, you could retain a real estate attorney and make a decent offer on the property like $160K which will payoff both mortgages and both liens and cover settlement costs. The owners will walk away with a little money in their pocket and you will have a house with $140K in equity.

Also realize that nearly all mortgages are not assumable, meaning that they cannot be transferred to another party just by paying any assumption fees or other costs needed to make the mortgages current.

Answer 5

FWIW, I know of a couple of people who buy preforeclosures and make a lot of money doing it, but they are professional real estate agents and they do some things that my conscience just wouldn't let me do.

Basically, they approach the homeowner and ascertain what the problem is. (Most reasonable people will sell before they get into trouble, so the assumption is that someone who is on the slippery slide to foreclosure and isn't doing anything about it has a problem that is keeping them from selling.)

In most cases, the people who are in this situation are people who are not savvy financially and do not have a good support network of family or friends who can help them out. The real estate people who buy preforeclosures become this person's rescuing angel: they explain to the homeowner that if things continue, they are going to lose their home and any equity they have in it and end up with their credit smashed to smithereens. They then make a low-ball offer that will give the homeowner some cash, and set about making arrangements to get the homeowner out of the home.

They will do things like scout out an apartment for the homeowner, something they can afford; assist with moving the homeowner physically out of the house; assist them with all the paperwork necessary to close the deal, and usually keep in contact with the seller just long enough to assure that the seller isn't going to suddenly get unhappy with them.

What I don't like about this is that however well-intentioned the buyer tries to seem, they do not really have the best interests of the seller in their minds. To maximize their profit they need to make a low-ball offer, which is not in the seller's best interest. They can (and do) rationalize that if the home went into foreclosure the seller would probably be in a worse situation, but that still doesn't change the fact that they are choosing to make their profit by manipulating someone.

It's a hard way to make money, IMO, especially if you've got a soft heart for people in trouble, because virtually all the people you will be dealing with if you do this will be people in trouble. JMO, but I'd rather make money some other way.

Answer 6

Call her and tell her you are interested in the home. First you need to know what her payoff is including all liens, back taxes, etc. You can order Title insurance and the commitment will show all that. If it's not too late they you can buyer the property before it's repo'd. That's it. Of course I'd take a good look at the property. Good luck.

Answer 7

First, call a real estate lawyer. They will be able to really address these concerns. Second, be very specific about what you want and put it in the contract. You do not have to allow them to spend time in the home after you have purchased it however, it is curteous. You can charge rent for each day that they are in the home and you can require a security deposit. If you word it right, they should be able to use some of the money from the sale of the home to pay back to you in rent and security deposit. that is presuming they will have enough left once they have paid off the loan. But first and foremost, call a real estate attorney. It may cost you a little money now but save you a lot of money later. peace

Answer 8

Agreed. Get a realtor. With all those liens in place, foreclosure, etc..., you need a professional to help you navigate through this. He'd be paid by the seller anyway.

Answer 9

Here is your answer: GET A BUYER'S AGENT. They will take care of all of this for you!!!