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Don't rush too much. You need time to check and double check.

Posted by Ward-CA- on August 24, 2003 at 11:10 PM

In Reply to: URGENT! Desperately Need Help by 8/25/03! posted by Ann on August 24, 2003 at 9:55 PM

: We came across the following deal and would really appreciate your feedback:

: House after repaired value: ~$580,000

: Repair costs: ~$10,000 (painting, shampooing carpet, cleaning)

: Mortgages: First of ~$345,000, Second of ~$85,000

: Seller wants $5,000 cash and saving credit/stopping fc

: Situation: Seller is going through foreclosure, recently received Notice of Default

: Our offer to seller:
: We'll buy property for what's owed on it subject to the existing loan and give $7,000 cash to seller at closing. Our agreement indicates that we would bring the loans current and/or paid off (in the case of the 2nd mortgage) and cover the mortgage during the holding period, plus all closing costs during the close of escrow. We're thinking of borrowing enough from a private lender to bring the first loan current and pay off the second loan, plus borrowing holding costs until we can find a buyer.

: We're thinking of doing repairs after the seller vacates and then put up the property for sale. We had offered to pay the seller $7,000 when they vacate.

: Questions:

: 1) What we've structured so far, is it the best plan of action?

: 2) At what point should we record the deed? Are there any rules against transfering title if the loan is in default?

: 3) When should we give the seller the $7,000? Should we give half when they move out and half when we get the new buyer to close?

: Help!
-=-=-=-=-

Ann,

Go to our Fillable Forms link and find the Projected Net Worksheet and fill it out to find the projected net equity figure after ALL deductions. (Your initial info above isn’t detailed enough to determine that figure.)

When you arrive at that net figure, split it 50/50 in your mind. If you got 50% and the owner got 50%, how much would that be apiece? Does that seem like a fair deal for both you and the owner? Is it what you’d want if your roles were reversed?

#1. Try to structure your deals where you give the seller part cash up front and the remainder to them upon your refinance or resale of the property. That way you’re giving the owners enough cash to get relocated to start over, with the balance owed them paid in full in a few short months. That will allow you to conserve the amount of upfront cash you need to work the business.

#2. If you’re in CA you have to conform to the dictates of CC §1695 (see our Foreclosure Codes page) that requires you to wait 5 days after writing up your EPA (equity purchase agreement) before you can give or receive anything of value from or to the selling homeowner.

When the 5 day waiting period is over, and the seller still wants to do the deal, that’s when they can exchange a deed for cash, etc.

There’s no law prohibiting you from receiving title to real property while it is in default. The existing lien holders have the right to call their loans due and payable because of the transfer of title from their borrower to you, once they discover said transfer. But in this hyper seller’s market you’ll probably be paying them off rather quickly—within 4 months I’d guess.

#3. You might find things working smoother with the seller if you give them about $2,000 to $3,000 upon getting the deed to the property and another $2,000 to $3,000 when they have moved out 5 to 7 days later. Then, whatever else you might owe them, should be secured by a promissory note and recorded deed of trust from you, payable when you refinance or resell the property.

I caution you not to do a lopsided deal in CA where you’re making a lot more out of the deal than the defaulting homeowner. You don’t want the issue of unconscionable profit-taking to be alleged later on.

Hope this helps.



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