Here’s the scenario. A consumer calls you based upon a blog post that you have recently made. He is in dire NEED of the services of a competent and professional real estate agent.
He must sell his house quickly. He is in foreclosure and he does not want his credit damaged more than it is already. He already has had a short sale denied by his bank because he has too many other assets. His only alternative is to sell the home.
Here are the vital signs:
1. The home is worth approximately $300,000.00 as determined by comparable analysis
2. He owes $208,000.00 on his first and second mortgage combined
3. He has a Federal Tax Lien in the amount of $22,500.00
4. He has a municipal lien for not maintaining his pool (it’s a green slimy mess) and it has been running since October 2007 at the rate of $1,000.00 per day
5. He has not paid the County Property taxes in 2 years and he owes the County $12,500.00
6. He has not listed the property because he thinks he can not afford to pay commission and he’s not willing to sign a listing agreement that he can not terminate at will
7. His wife is on title with him but she’s now in Chicago living with her parents and wants $5,000 from the sale of the house
8. He needs at least $5,000.00 himself to be able to move on with his life
9. He will also need to stay in the house for 30 days AFTER the closing because it will take him that long to move because he can’t move until he gets the money from the closing
10. The house has pretty good bones but will need:
a. Â basic cosmetic work
b. new landscaping
c. the pool drained, cleaned and refilled as well as a new pump
d. the roof needs to be replaced (estimate from local roofer is $8,500.00)
e. the garage door needs to be replaced
Other than what has been stated above, the home is located in an upper middle class neighborhood with good schools and is in close proximity to great amenities like a major mall, fine restaurants and exciting nightlife activities. It is also located within an area of stable employment.
This house goes to auction on October 31, 2010. What would you do? Seriously, often times we are accused of “realtor bashing”… not true, it’s the sub-par ones that irk us. However we know there are some consummate professionals, many of whom have taken offense to some of my posts.
Well, I have decided to make a concerted effort to engage real estate agents with much more civility, and to network with fellow real estate professionals so that we may all further our endeavors through the camaraderie of being brothers and sisters at arms…if you will.
So in that regard, I want to be more of a resource facilitator so that we can all benefit from our mutual experiences.
I am sure that someone, hopefully many, can come up with a plan to successfully help Mr. “Smith” sell this home and move on with his life.
So please, let’s work together not only to help Mr. Smith but to help each other should any agent anywhere be faced with this kind of challenge in the future.
What would you do?
Not knowing how much in the rears he is, what his monthly payment is, what the address, neighborhood, city, local market, or state laws are in regards to the property, I would say that the short term goal would be for him to put the home up for rent to own and use the money he collects to help him move and to pay anything he owes the bank. He should obviously try to work out some type of loan modification or payment plan with his bank, so that he wouldnt have to catch up the entire amount all at once. He could use the money (let’s say $10k down with no credit check) to help him get out of the home and the rest to possibly take care of the pool situation (shouldnt be more than $1500). Since the home is technically not sold, his wife SHOULD understand (yeah right) that he cant give her the $5k right now. He should also make out the monthly terms to be whatever his mortgage is (or obviously more if he has the room to do so). The MOST important detail is that he should conduct an offer in compromise with all of the places he owes delinquent taxes to. He is in fact in an economic state of hardship and at this point the debt is obviously uncollectable so by doing this he can reduce his debt significantly. Hopefully the numbers work out in his favor that when the end buyer is ready to purchase the home, that some (if not all) of the profit can be used to pay off the entire tax debt leaving him free and clear of this home, title, and debt.
Just my opinion, but then again I’ve only been investing for two years so I obviously don’t know everything………………………………………………………YET!
Oh wow, maybe I should have gone to BloodhoundBlog before I posted on here. I think the Hard Money route is an amazing answer by Barry Cunningham. Learning always opens new doors.
Hi Barry!
You obviously closed the topic on Bloodhound, so I had to move my questions here. And Barry, I’m not trying to drive you crazy, I’m trying to learn, so here are my questions/comments again on which I’d sincerely like to hear your thoughts:
1. I don’t see the hard money cost factored in. If you’re talking about incentives for buyer and reducing price if necessary, I’m having an even harder time seeing the commission/spread in this.
I’m also wondering about the cost of the pool repair? Contractor needs ground water pumps to keep pool from popping, and I’d want a contractor who has “pop-out†rider on insurance – I’ve been down this road! From my experience that alone puts you with the higher caliber (therefore higher priced) contractors.
You didn’t ultimately address the labor for landscaping and the garage door…admittedly peanuts in the great big scheme of things here, but needs to be addressed.
After analysis, what would you pay Mr. and Mrs., if anything?…
2. Signing over the deed would end any other options that may (however unlikely) present. Why not just close and own/control the property during post-occ? Is it because that would involve two closings and the associated expenses?
3. Once an offer, any offer, is in hand and negotiations can begin, anything could happen, including that farfetched better offer. The investor/buyer should not be a part of that.
Thanks!
Hi Jeanne..sorry about that
1. I mentioned at the end of that article that there was I believe $10,500 left over for holding costs etc.
2. As for pool repair..I did out line that. Your example is a bit different. We just drain, acid wash, refill and replace the pump…you say “pool popping” not much of an issue down here in South Florida..we have had this done a few times and it’s not been too expensive or troublesome.
3. In the post at the end I addressed the landscaping and garage door ..please see the comment (less $3,500 for the landscaping, cosmetics, and garage door)
I think you missed my comment explaining how we would get the deal done. It is all outlined there…would it be easier if I emailed it to you? Let me know.
As for why in obtaining the deed, because there are a number of things that would need to be taken care of BEFORE hand and would require investment in both cash and time. Could not do that wwithout having the security of owning the property. Additional closing expenses would indeed be another reason.
Basically I understand you position in not wanting the investor involved but if the investor is not involved and part of the transaction…you have a listing you will never sell and a client that better start packing.
Wow Run in the other direction is my first impluse but more info is needed. It depends on the state in which the property is located. Some states with federal/state and county tax lien are more aggressive and the client may have fewer choices in regards to time and workout methods.
Need info on the exact amounts of 1st and 2nd mortgage, and the interest rates and the number of payments in arrears. Check with the 2nd/Junior Loan to negotitate it down to little or nothing.
However if the pool is being fined $1K/day since Oct 2007 – he will never get from under nor will anyone else as it would be $720K by Oct 31, 2010. If not have the county condemn it and buy from county.
If those factors can be addressed and the numbers workout then the property should be purchased Subject To and give him the $10K. Owner finance or lease option the property to payoff the liens since title will not be able to transfer until they are removed.
I have only bought tax liens. Trying to do my 1st flip and property management transaction.
Hey Fourever…we’ll tell you what we did…I want to let a few more people answer or ponder it then we’ll tell you how to take it down on Tuesday
If there was equity after factoring in the market value, the repairs needed, the mortgage loan and all the liens then I would do an equity purchase agreement that allowed for the owners to net the $10,000 required and still produce a profit for me. If there was no equity or negative equity and the homeowner would not do a short sale then I would probably pass on this house.
Hey Jim, the premise that we work under, is that if there is no equity, we create the equity. Meaning when we make an offer or strategize about our options, we decide what WE want to pay. We don’t worry about the perceived equity. When dealing with problematic properties like this…which I love…we know inherently that the banks don’t want these properties and we position ourselves as trobleshooter. That’s why it is VERY important to make sure you uncover everything. A person doing a BPO would never have caught the liens…they don’t care. They take their $75 and move on to the next evaluation. We want the bank to know what they are getting into which allows us to create equity during negotiations.
As you know…homeowners are not allowed to receive anything from the proceeds in a SS so you have to think where the money will come from legally.
We’ll tell all on Tuesday
Is the market value in the as-is condition worth $300k or does it need the repairs outlined to make it comparable to other $300k properties on the market?
1) His best hope is that a skilled investor comes along and is able to paint out the full picture for the bank with all of the liens and state of disrepair. Hopefully the investor can make the bank realize they have a property with near zero equity once the tax liens, building code violations and disrepair are taken into consideration (possibly even a full loss and a huge liability of the pool fine can’t be negotiated down to nothing). If the investor is able to negotiate a great bargain with the bank which still leaves enough cash to pay all of the liens at face value (and even more profit if you’re able to negotiate those down), and still wholesale the property as-is for a substantial profit (with the wholesale purchaser agreeing they can take possession 30 days after closing). But this doesn’t resolve the illegal proceeds from the short sale.
2) He finds a good realtor that is willing to work for less than full commission, negotiate the 30 day deal into the contract and the ~$10k he and his wife need come out of the realtors’ combined 6% commissions. Assuming $sale price -$6% – $first mortgage – $second mortgage – $liens and fines = $0 left over after sale. With the stiff building code violation for the pool, this seems impossible unless the realtor is willing to negotiate that down with the city. It would need to be a highly motivated and good realtor to get the deal done. But a deal at lower commission is better than no deal at full commission. As for the home owner wanting a contract that he can terminate at will, beggers can’t be choosers.
Barry tell us how you handled it!