Bankruptcy risk on owner-finance?

[MikeDFW]

I have a tenant/buyer in a property in Texas. They are very interested in buying, have good self-employment income, but bad credit due to some big medical bills in the past. They can't qualify for a loan right now.

The option strike price is $210K. I owe $116K to Countrywide. Obviously, I'd love for them to qualify with a 3rd party lender and cash out all that equity!

I've considered financing it myself, but they've talked about filing bankruptcy to wipe out the medical bills and that makes me hesitant to do the owner-finance. Plus then I wouldn't get much of my equity up front...

Any creative ways to involve a note-buyer or a hard-money lender to allow me to get all or most of my equity and still get them financed, either by me or by 3rd party?

Thanks for any help or suggestions you can offer!

[Eric C]

Hi Mike -

I'd be running them by a good agressive mortgage broker right away.  

And I'd be asking them exactly what they think they'll gain by filing BK. If they have trouble getting financing now, ... do they think the BK will help?

Since I'm no longer really active in the SFH biz, I can't tell for sure where we are in this turn of the credit cycle (exactly). But if we're closer to the end than anywhere else on the curve, interest rates may continue to fall even as lenders continue to tighten up their guidelines.

You've heard the old line, "water, water everywhere and not a drop to drink"?  That's the way it is during the last stages of a credit contraction.

Those with sterling credit (or cash) will see remarkable bargains everywhere while those with more questionable financials are most often left standing by the wayside.

Again, check with some of the SFH people in DFW (David Alexander comes to mind, but Tim can probably direct to you to many more) to get their take and to find a source to finance your buyers.

Good luck,

Eric C

[Lisa Arthur / Houston]

I know of some investors who might be willing to buy property from you so you could get the equity and then offer a lease/option to the prospective buyers.