Selling to a Investor
In the event you are unable to sell your house using conventional means in the time you have available, you can always find an investor who will buy it from you. You’ve seen their signs and ads that say “We Buy Houses - Cash!” If you need to sell a house quick, you have no greater friend than your professional real estate investor. They specialize in quick sales using creative financing solutions.
Before we go any further, let me warn you that it is extremely important you are working with a professional, experienced investor. There are thousands of amateur, part-time investors who have read a book or bought a course from a late-night infomercial, but have little or no experience and capital. Be sure you are working with somebody who does several deals a year and has been in business for some time. Don’t be afraid to ask how long they have been an investor and how many deals they do a month.
Understand that Investors, like the rest of us, are in business to make money. What they do is hard work, complicated, and risky. Good investors earn a tidy profit, but they work hard for it. You need to understand that a real estate investor can and will solve your problem, but they are going to make a profit for doing so. And they deserve it - solving problems is one of the highest paid professions.
Depending on how much equity you have or don’t have in the home, the investor may make several offers on various ways to buy your home and prevent the foreclosure. Keep in mind the investor is in a good negotiating position here because they know you are in foreclosure.
Deed Your House
The first option is simply to deed your house to the investor. They will bring the loan current, take over the payments, prevent the foreclosure, and keep the dreaded FORECLOSURE black mark from being stamped across the face of your credit report. The loan actually stays in your name, so the on-time payments by the investor look good on your credit report. (Naturally this assumes they actually make the payments, but they have tremendous incentive to do so - otherwise they lose their investment of bringing your loan current by paying all the back payments, and the opportunity for profit on your home. As discussed in the earlier chapter about scams, you should always make sure you are working with a professional, experienced investor, as covered above.)
If you have little or no equity in your home, or it needs lots of work to get it into a sellable condition, this will be the option most investors recommend. This may not be the most desirable arrangement, but if you have little or no equity in the house, foreclosure is looming, and you just want to walk away without a foreclosure on your credit, this may be your only option. On the other hand, if you are going to try to buy another house and you still have this one in your name, you will most likely be unsuccessful. Ask the investor – “When will you have the loan out of my name?” It is reasonable to expect them to find another buyer or get a loan themselves within 12-18 months. Also, note that this sale will take place outside of a title company, because the title company would require the note to be paid off to your lender. This is because of a clause in your mortgage called the “Due on Sale” clause. In theory, if your lender finds out you have sold the house, they COULD call the note due. If the investor then didn’t get a loan and buy it, or manage to sell it to someone else, the lender could start foreclosure proceedings again. Even though you deeded the house, the loan is still in your name, and you still could end up with the foreclosure on your credit. In reality, if the investor keeps up the payments, they never will even know about the sale, or care. All they want is their monthly payment. I have never heard of a case were a lender actually called a note due, so long as the payments were being made.
Lease Option
If your house is in a nice neighborhood and in good condition, and you are unwilling to simply deed your house to the investor, they may offer to “Lease/Option” or “Lease/Purchase” it from you. This is similar to the arrangement that I mentioned in the FSBO chapter, but you are leasing it to an investor, who will in turn sublease it to a new tenant-buyer. In this scenario, the investor would lease your house for an agreed upon period of time with an option (but not the obligation) to buy it within that period of time. The investor would rather not have to put down any down-payment, which is known as an “option-fee” in this case, as it cuts into their profit. But in reality, for you to bring the loan current, they are going to have to. However, if the investor is willing to do this, it will save you from losing your house. Because you are maintaining ownership, you still get all the tax benefits etc. Meanwhile the investor will try to find a new tenant-buyer who can put down even a larger down-payment. They will use the tenant-buyer’s down-payment to cover what they paid you and pocket the rest. The house is sub-leased to the new tenant-buyer, with an option for the tenant-buyer to buy it at a price (higher than what you sold it for) that allows the investor to make a tidy profit.
As you can see, this is a complicated scenario, and I can tell you from personal experience, putting two deals together back-to-back and getting out of it with a profit is not easy. It is possible however, and you are likely going to find some investors who will offer. Just be aware that they are probably going to ask for at least a two-three year lease so they can have the time complete the sale successfully. Be sure you are working with an established investor who will be able to make their lease payments to you, even if the house is vacant. Otherwise, you’ll be stuck looking at foreclosure yet again.
Short Sale
Another technique often used by investors is the short sale. Essentially, they work with you and the lender to negotiate a discount off the amount due to the lender. The lender may agree to this if they determine that they would lose even more money by going through with the foreclosure. For example, if the house is in disrepair, or the loan to value amount is extremely high, the lender may just want to take their loss, write it off, and move on. If the lender agrees to the sale, a contract for the lower price would be approved by the lender, and they would simply reduce the payoff due to them at closing.
This seems like a good option for you as there will not be a foreclosure on your credit! However, there is a big gotcha here - ask the investor to try to negotiate as part of the deal that there will be no deficiency – that is, the lender cannot subsequently sue you for the amount they lost, leading to a judgment against you. Otherwise, you might end up owing the lender for that “reduction in price” after all. In my state of Texas, the amount is limited to difference between the fair market value on the home and the amount of the short sale. If the amount is small enough the lender might choose not pursue a deficiency judgment – but don’t take any chances. Ask the investor to get the lender to agree in writing to forego a deficiency judgment, otherwise you could be liable for that amount.
A good real estate investor can be your best friend when you’re being foreclosed upon. Just remember, they are taking a risk and are in business to make a profit. Negotiate a good and fair deal that is a win-win for both parties.
