Real Estate Question

I don’t know anything about real estate so maybe someone more knowledgeable or experienced in the area can tell me what their impression of this is.

A friends house is being foreclosed on. She is trying to sell the house to pay off the loan before the lender takes the house. Time is just about up.

She was contacted Thursday buy a guy who works for a firm that “buys” houses. What little i understand goes like this.

They talked on the phone. Without even seeing the house he sounded like he wanted it. Apparently the way it works is that the current owner signs some kind of contract with this firm. The firm takes over the house, the current deed and mortgage stay in place. The firm makes the loan payments, taxes and pays all up keep on the house. I have no idea how the deed transfers at the end.

She told him that the loan payments were behind. He said that wasn’t a problem.

She told him the house was being foreclosed on. He said that probably wouldn’t be a problem.

She told him she couldn’t be out of the house as fast as he was willing to take it over. He said that wouldn’t be a problem.

Nothing seemed to be a problem.

Why would they keep the current loan in place? Interest rates are so much lower now than when that mortgage was taken out. I would think that a business specializing in buying houses could get a much better interest rate. They avoid closing costs by not changing the loan but would that generally make up for the difference in interest rates?

This place has a web site but even it’s faq doesn’t seem to have much information.

As i said, i don’t know anything about real estate. Is this a legitimate practice or some type of scam to take advantage of those down on their luck?

Sounds like a whale of a deal to me. :smiley:

No equity, no problem. Delinquent payments, no problem. Just sign here and we can cut out the middleman, why go to the expense of even looking at the property, since the value, possession and condition won’t matter anyway.

It’s always nice to see a business cut through all this unnecessary red tape.

I would be very leary of the fact they keep the current loan open. Will it still be in your friends name? :dubious:

Tell him/her to get a copy of the contract they want signed and take it to a lawyer. One that does real estate closings would be best.

Yes it would and that would seem to be a cause for concern.

Probably illegitimate. It doesn’t sound like the deal you described is what they are actually doing. If the company buys the house, they will record a deed in their name. That is the only way to protect their interest.

It sounds like they are talking about some sort of wrap around mortgage. These only work if the original mortgage was assumable. But a wrap around mortgage does not make much sense in this situation.

If they are buying the house, the company will probably have to get its own financing or pay cash. The only way to protect its interests from others who have claims against the property would be for the company to record a deed in its name.

When I called them, Sue told me that they try to do “rent to own,” which means that they ard doing the same thing as pretty much everyone else in the business. They buy the property, and then sell it back to the homeowner on a land contract.

Is this legal? Yes. Is it a good deal? That depends. If the homeowner truly has no other options, the homeowner might benefit from the deal. The homeowner’s credit will look better for it, and the homeowner may be able to avoid a deficiency judgment. On the other hand, if the homeowner misses a payment, in most states, the result is that the homeowner loses the house, and quickly.

I have written deals like this for people. I recently did one where the buyer did a lease with an option to buy for the homeowners. You have to realize that the Sue and Terry are looking out for their own interests and hope to profit from the deal.

You are right, I used the wrong term. I am told they referred to it as leasing the house. Since it is understood that the property becomes theirs buying came to mind.

When things make no logical financial or business sense and vaguely described they are usually scams. This smells like the scammiest of scams.

The residential housing market has almost never been as hot as it is right now. Assuming your friend has done the necessary work to make her house present well, and further assuming it’s not a trash pit or encumbered with some structural defect(s) she needs to change agents or adjust the price to what the market wil realistically pay for a quick, cash sale.

If she’s holding out for a specific price, because she “has” to get a certain amount of money to cover her debts, and the house doesn’t (marketwise) justify this amount in it’s current condition or presentation, she’s going to lose the house and still have an even larger debt when the bank takes it back as a REO then re-sells it at market, plus be responsible for the banks transaction fees. She would be better off to drop it to where it will realistically quickly sell (to a non scamster) take the hit and move on.

If she’s going to go bankrupt anyway this is all sort of a moot issue.

She needs to talk with a knowledgable person and show them the papers. The real estate broker who helped her buy is likely to be helpful here, often for no money.

Her loan papers no doubt require that, upon the house changing ownership, that their loan be paid off in full. If that step is skipped, they legally go to take it out of her hide, and she won’t even have any equity to use.

The foreclosure sale is likely to result in net cash to her, if it’s properly done, and it should be. IE, the house was worth $X00,000 five years ago when she bought it, the loan was for 80% of that, it can now be sold for $X50,000, she has paid $5,000 of the principal in five years. That means the money potentially available to her is $55,000 plus 20% of the original price, minus costs, and likely minus some money for a foreclosure sale since foreclosures are kinda forced sale and it’s hard to get the ultimate price on one.

But this outfit could very easily be after the $55,000 and more for themselves.

Notice she is under time pressure and she has no real estate expert on her side. Please ask her to call her original broker today, or a consumer protection expert, or her title insurance company, or her current lender. Or several of them.

And not sign anything yet. A foreclosure sale is not the biggest disaster she could face.