Is this ethical

[bovine]

 I got a call from a lady who owes 181k, the house is worth 180k-185k. She was paying 1300 a month but because she did not allow for taxes the lender paid them and then to build up the escrow account they were charging her double (her explaination). She now says that the lender is charging 2700 per month. She paid 2 months but then could not afford to pay the full amount so she sent in partial payments but these were not accepted as payment in full. The lender has now filed lis pendens.

She tells me that she has a friend who is in a similar position and an investor helped her out by taking over the payments and the deed and agreeing to sell the property back to her in one year for 40k more... My question is could this possibly be right? She seemed to feel this was a good deal since her friend could "keep" her house, and get refinanced at 40k more than the market value in 12 months. Would a lender do that? I do not see her being able to borrow at 40k over market value. She wants the same type of deal. I get the feeling this is wrong in some way but I am new to REI. What should I do?

[marcus335]

Even with the $1,300 payment she couldn't save enough for property taxes.  Interest rates are going up.  Combine that with the $40k higher principal and I don't see her affording those payments.

It's not a question of ethics.  It's a question of if there's profit for you in this deal.  It looks like a pass.

[DougON]

LOL desperate sellers and their bright ideas

The biggest problem here is that you've completely lost control of the situation. The seller is telling YOU how you should buy her house instead of you telling her what you're willing to do.

As as the "deal" is concerned, there's nothing here. There's no equity, you have to lay cash out, and to top it off you'll have a loser in the property who will probably end up not paying you.

[kdhastedt]

<<...and to top it off you'll have a loser in the property who will probably end up not paying you.>>

Which is, of course, why she's rying to tell you how it's to be...

She's trouble...I'd pass.  She's not motivated enough.  She's going to lose her house, muck up her credit, etc. but she's got a "friend" that's got it figured out...perhaps she should call her friend and see if that person will bail her out, too...

Keith

[mtnwizard]

bovine,

You have been given very good advice.  This is not a deal for you.

Da Wiz

[bovine]

I too thought it was funny how she was telling me how I should structure her deal. I already told her to contact that friend and get the number of that other investor. Its amazing to me how many people are so upside down on their mortgages. I cant wait to find a H.O. with equity and motivation to sell.

[DougON]

Considering how easy it is to get a mortgage with little or nothing down, and that people stay in their houses for only a few years, it's going to be more and more difficult to find sellers with much if any equity.

Short sales are no doubt the future for any investor who wants to pick up a decent deal.

[kdhastedt]

There is a good article in Money magazine this month about folks that have 'creative mortgages'..the article said something like over a million home owneres will have their payments double this year...

People that use these creative mortgages to buy more house than they need/can afford are headed for the 'big fall' RSN ("real soon now")...

Keith

[mtnwizard]

And the opportunities are about to double . . .

Da Wiz

[marcus335]

The problem is they don't have equity in the property and banks aren't likely to do short sales until it gets really ugly.  I've had a bank refuse a short sale because they thought they'd make money on the foreclosure.  They will probably have this attitude in hot areas for awhile.  

[knome]

Hey all.

With something like 60% of new California mortgages being interest only, and God only knows how many Payment adjustable ARMs out there, etc, plus the fact that June is here (ARM Adjustment time!) means lots of homes on the market a bit later this year.

I'm still flabbergasted that anyone in their right mind would even consider one of these things for their residence. I mean, I can see an interest only loan + balloon for a cashflow investor who doesn't care about building equity, but for your Home?

If you can't afford it, don't buy it, I always say! I know many folks here would say I'm not being creative, but being creative this way usually means trading value for occupancy, which I'm not willing to do. Not for my Home, anyway ;-)

Btw this is my first post here. I'm in my learning phase, have read many texts, talked to a few investors, and I think I'm beginning to understand The Animal that is RE Investing. My current strategy is to build capital with a small business and leverage that capital as much as I can into Commercial RE, building cashflow (to begin) so that I can focus on Business and not have to have other jobs. As time goes on to move from building cash flow to building wealth (equity) for my retirement.

[mtnwizard]

knome,

"I'm still flabbergasted that anyone in their right mind would even consider one of these things for their residence."  Why?  If your home is appreciating, an ARM option loan is the best way to go.  Your home is the source of the cheapest money you can find anywhere.  In the old days people were taught to payoff their mortgage.  Why?  Your int is a writeoff and you can't get funds anywhere else at 1%.  Pay off credit cards and high interest debt, NOT your own house.

Da Wiz

[knome]

Mate I get this, however its my HOME. I dont want to have -any- risk associated with it at all. Or, at least, as little as I can afford to have. One serious medical problem and I (and my family) could be on the street, if I don't have a cushion.

I understand completely the numbers answer, and of course you can make more money investing your cash than paying off low interest rate mortgages. HOWEVER I feel that sleeping soundly at night is an important addition to my investment profile.

I favor a balanced approach. I would rather put in more effort and make  up the cash with a side business than tolerate any significant risk in my residence.

Also, an ARM is better than a fixed rate loan? I was able to refi for a 30 year fixed for less than 6.5, whereas my ARM was about to kick in at 8%. How is that better?  (or am I missing something?)

[mtnwizard]

I agree that your home MUST be protected.  That's
why I always have my home in a land trust, no matter what kind of financing is in place.  One serious medical problem and they CAN'T touch your house.

Da Wiz

[knome]

I didn't mean safe from legal action, I meant safe from a serious declination in income that made it difficult or impossible to make the mortgage payments