Real Estate guys/Mortgage guys - need help

[Greywolf]

I own a house, free and clear, and it is on the market. Not in the best of neighborhoods (which is why it has been on the market for a while) but the house itself is great. Lots of upgrades, etc. 1450 sq. feet, 1/2 acre in the city, fenced, new siding, windows, carpet, electrical, plumbing, paint, etc.

So, we are offering it for $84,900 (we paid $35,000 for it and put about $16,000 into it).

We got an offer yesterday. Buyers will pay full price, but we pay 6% for closing costs (theirs - so that is $5100), and of course we pay our closing costs ($5000) - so now we are at $74,800 for the house. They are pre-approved for a mortgage of $67,000 and want us to carry the other 10% ($8500).

We are seriously considering it because we have had NO other offers, and are worried that it will take a while to sell. We'd really like to be rid of it. And anything over $51,000 to us is profit.

My question is, what sort of recourse or guarantees do we have regarding the $8500 second mortgage? If we charge them 8% interest and make it a 5 year loan, we'd make about $4000+ in interest plus getting the $8500.

The wife and I actually think they are "flippers" and want to get the home for nothing out of pocket to themselves, and then in a few months flip it and pay us and their first mortgage totally off. But we're worried about what would happen if they simply stopped making payments to us on the $8500.

I've also heard that there are companies out there that will buy second, privately (seller) held mortgages like this, but I don't know if they pay the full balance or if they offer less.

 

[odysseus]

My question is, what sort of recourse or guarantees do we have regarding the $8500 second mortgage? If we charge them 8% interest and make it a 5 year loan, we'd make about $4000+ in interest plus getting the $8500.

A headache if they fail to pay.

Why can't they find another way to carry the second? Do you still want be attached to this house? If they plan on flipping soon - which in this soft market and your experiences may not indicate a good position, what are you expecting to actually make if you carry it?

I've also heard that there are companies out there that will buy second, privately (seller) held mortgages like this, but I don't know if they pay the full balance or if they offer less.

They offer less. Based on some of the info you say, it may be much less than you want.

However if you need to drop the house and you feel no one is coming, and perhaps said buyer knows this, no one here can really tell you what to do.

 

[atlctyslkr]

A few points.

I know alot about Georgia Law because I have a real estate license here. I know a little about Florida but from what I do know the same rules apply.

If you give second mortgage and the buyer defaults then you can forclose. I'm sure you knew that. The problem comes in with dealing with the bank mortgage since you are second in line. You would have to have enough money to pay that loan off in order to get the property back (which you don't want in the first place) -- As a sidebar homeowners' associations face this problem when they file liens.

Many First Mortgages now how a clause that says if the borrow is in default on any junior mortgage that he is in defacto defualt on the senior mortgage. You can always hire debt collection service, post the information to Equifax (making it harder for them to borrow any more money).

It's risky but holding on to the house any longer with rising rates could be too. Personally I would take their offer. This is NOT MEANT TO BE ADVICE just what I would do faced with your circumstances. YOu may be able to offload the note to a small bank or private investor.

 

[BozemanMT]

Carrying paper (a mortgage) sucks.
Unless you are a banker/realtor something and really understand the rules, the probabilities of getting hosed are high.
This is a bad deal and besides you getting out there's nothing in it for you.
Counter back with no paper and maybe $3000 cash back at closing.
Remember, it's just an offer, it's not the only offer. If I haven't gone back and forth 4 or 5 times, I figure we haven't made a good deal. (yes, realtors hate me, but they get paid and I don't screw around and play games, so they survive)

Also, if this is your only offer, you are priced too high. No argument, it just is. Even the new offer is telling you that.

Also, about the 3rd time you counter back, offer a strange price (like $75,683) sounds stupid, but it's worked 4 times for me.
Oh, and to keep it gun related, hide your guns before showing it.

 

[PlayboyPenguin]

That sounds like a crappy deal to me. Where are these figures for closing costs coming from? I buy and sell half a dozen houses a year and do not pay that much in closing costs combined. I usually end up with paying about $2k a house and I am spending in the $150k-$200k range for each home here in Portland.

 

[bofe954]

Would you get more hits if you just dropped the price to 75K? You are obviously comfortable with this amount anyway...

 

[scooterthegreat]

I am just a Real Estate Appraiser in Wisconsin, but I do know that there are so many different kinds of loan packages available that they should be able to find something that would work for them and keep you from having to carry the second yourself.

I mean no offense to anyone here who may be a lender, but around here, there are some who won't offer "first time home buyer" or other great programs to help sub-prime borrowers get into a house, simply because it's extra paperwork.

Also have to agree with PlayboyPenguin in that the closing costs seem very high. VERY high...

Personally, I wouldn't go anywhere near a deal like this. But then I probably watch too much daytime court TV...

 

[mrtgbnkr]

If you do break down and carry the second, which, might not be soooo bad as long as you run credit and see where things stand with the buyer. I would not even consider carrying a private second for less than 12%....more if they've got credit issues. The buyer won't be too shocked. They're trying REALLY hard to get something for nothing, and that carries a price.

There are two other benefits of bumping the rate. If they pay well, which they very well may, you make more $$. If they choke, then they'll work harder to find their own secondary financing

 

[Calumus]

Greywolf, a quick question, are you selling the house yourself or are you using a realtor? If you're trying to sell it yourself you might want to consider listing it with a reputable broker. About 85% of ready, willing, and able buyers are working with a realtor right now and a realtor's much less likely to show their clients a property that's not going to pay them a dime if it closes. If you are listed with a realtor, take a look at your commision level. Sometimes a house that's listed with a limited service brokerage that takes 2% here will get zero showings over the course of the listing. Once they go with someone else at the same price but say a 6% commision rate then they'll start seeing some real traffic. Keep in mind that while realtors are supposed to be out to represent their clients best interests they do have bills to pay too. A perfect example was a house that sold here about 3 weeks ago. They had a 4% commision rate and had lowered their price 3 times for a total discount of around 80k. They took the house off the market for a week, re-listed at 6%, raised the price 10k and had 2 offers within the next week and a half. As for the offer you have on the table, I'd have to say unless you're in dire straights I'd walk away from it. Unless of course it truely is just a starting point and you can work them back up to something reasonable. Put it this way are you really comfortable floating a loan for $8500 to a complete stranger who can only qualify for a $65k mortgage? One other thing, I can't see what state you're from on this screen but those closing costs seem pretty bloody high for a house in that price range. I mean it looks like about 12% of the price of the house. That would make the average in my neck of the woods around $72,000 just for closing. I haven't heard about one of those yet Anyway, just some thoughts. Cheers,
Shawn

 

[BigFatKen]

They can trash the house leaving you with nothing. Happened to me.

Have them get better financing or someone else.

 

[ARTiger]

Run . . . . don't walk away from this deal. I've been in the mortgage business for over 20 years and manage a multi-state region for a large national wholesale lender. From my experience I can tell you that these buyers are not what you want from any perspective.

For one, anyone with a 600 credit score (that's considered sub-prime quality) can get a 100% financing to buy an owner-occupied home from any of 1,000+ mortgage brokers in the Tampa area. If 90% financing is all they can get then that and the inflated closing costs they are paying would tell me their credit is terrible.

Secondly. . . A small second mortgage at 100% loan-to-value is worthless as far as reselling the note unless they have impeccable credit and you have a profesionally documented loan and credit file. It may be even more worthless if they don't pay. Your option to foreclose is predicated on you paying off the first mortgage (which may have a significant prepayment penalty), legal fees, repair/rehab costs, another real estate commission, etc. You'd be better off writing it off as a bad debt if they didn't pay.

If $67,000 is okay for what you want to net from the deal then go ahead. But bear in mind that's the only amount you would be certain or even likely to receive. Paying the 6% closing costs reduces your "basis" for tax purposes and should be considered a viable selling tool as long as you still receive your desired net after doing so.

If fact, if you contact a professional mortgage broker in your area and let them know you have a property for sale and would be willing to pay the buyer's closing costs up to 6%, many may have prequalified borrowers with approved 100% loans looking for a property they can get into without paying their own closing costs for a "real" no money down purchase.

In any case if you are paying a realtor for listing your house and still have these questions unanswered or even worse, if he/she advised you to accept this ludicrous offer, I'd fire them immediately.

PM me if you need further information. "So-called professional" realtors and mortgage brokers screwing folks over just because they didn't know better is a special pet peeve of mine.

 

[rwc]

I vote for rejecting their counter offer and requesting they obtain a second. If they can't or don't want to incur the equity/cash flow hit that tells you something too.

If it costs you the deal that is far less hassle than the risk of default and the attendent headaches. Lower the pric if you need to get it to move.

Not legal advice, you are not my client, etc., etc.

 

[asknight]

How are they legitimately "pre-approved" for a $67k mortgage without the bank even looking at the house they wish to purchase for collateral purposes? Especially for a house that appraised for $87k or better? You did have your home appraised before putting it on the market didn't you?

I would firmly and soundly reject this offer as it's akin to someone offering you $6700 for an $8700 vehicle and them expecting you to eat the rest.

This "pre-approved" thing is a gimmick, nothing more.

 

[Preacherman]

Sorry, but this is way OT for this board. Try the topic on our sister forum, www.armedpolitesociety.com .