New Member on a Fast Track-Need Suggestions.......

New Member on a Fast Track-Need Suggestions.......

Hello Everyone,

I may have originally posted this in the wrong place. I didn't get a reply. Then I was prompted to start a new Forum Topic.

Here's what I posted a couple of days ago (3/4/09)under "Ask a Question." Wrong place huh....? I'm still learning the website.......


Hello everyone!!

This is my first post. I have just signed up and received the "Profit from Real Estate Right Now" and "Be a Real Estate Millionaire" books which I am currently reading. My reason for getting in you ask? Well, here's my situation. I live in Michigan and have a small business which is strongly connected to the automotive industry. I'm still struggling along with the business, but with the declining economy and struggling auto industry you might be surprised to know I'm looking for other means of income. My credit's in the crapper and my bank isn't going to loan me any money anytime soon. I have two (yes two) mortgages in addition to the original promissory note owned by a relative which of course puts my original house "upside down" according to lender terms.

So here's more good news, I've been separated for a good period of time and live in a friend’s house and pay rent. He has filed Chapter 13 and the house I'm currently living in is in foreclosure. I see an opportunity here but with no credit it seems all but impossible for me to purchase this property. Additionally, I didn't know about the situation until I recently got the foreclosure notice taped to my door. It was to be sold by auction today (3/4/09) but I'm told that because of the President's real estate moratorium the sale has been delayed until the moratorium has expired or lifted. I thing that's within the next couple of weeks. So here I am with an opportunity in my lap and no credit and I don't know what to do. It seems time is of the essence. Any suggestions?

Your help is greatly appreciated.



Okay now the update. Yesterday, I spoke with my bank to see if there was any possibility of getting a loan for this house. They ran a credit score and it was fair at best. They also said my credit to income ratio must be at least 45% before even thinking about getting an approval. I'm not even close. And they want 20% down, which I have but using it would put me at risk since my income is intermitant (project-to-project).

I'm thinking that I may just move back into my original house (regardless of the personal situation) and buy this property as an income property. If I go that way, area rentals are going for $750-1000/mo for plain Jane houses. This one is in a great location (2 blocks from everything you'd need), plus it has a pool and a full finished basement w/wet bar and 1/2 bath. There's around $140K owed but comps are going in the $50-75K range. If I can pick it up for $50K, the payment would be around $660/mo including taxes and insurance. If I could get $1000/mo that's $440/mo positive cash flow. The bank wasn't buying that strategy either.

So now, what's a fledgling rookie REI to do? With no bank support, is this one too far gone? Or, is there still a way for me to get this property? Or should I step back and rethink my approach? Any suggestions?

Thanks in advance to all.



Wow Dan. I can totally

Wow Dan. I can totally relate (somewhat) to your situation. My husband and I have a recent foreclosure and I got laid off my job. And of course, we have a perfect property to buy/fix/flip but many obstacles to over come. I called the advisory line and John suggested joining a real estate club in my area to find a private investor. So that we will do. Have you thought about getting the property under contract and assigning it to someone else. Sure, you wont have the residual income but you will have cash in your pocket and will be on your way to finding the next deal. I hope I helped a little.


Welcome to the DG family.
Find a mortgage broker who may be able to get you a FHA loan to purchase.
Or you can find a partner with good credit. Also if you feel you will be able to clean up your credit in a year or so and can get a loan you may be able to work it out with a HML. Have a good exit plan in place in any case.
Hopefully that helps you some.
good luck.

I second the FHA loan. You

I second the FHA loan. You can be owner-occupant in the house you're in now (you just would need a lease agreement or something on your other house to prove that's not your primary residence), and then you're looking at 3-1/2% down. Rumor is that the down pmt requirement might even drop to 1-1/2%. FHA is also much easier on the credit score requirements.

Get with a mortgage broker, get a pre-qual letter, and get an agent experienced with REO's to make the offer.

Good luck!

Maybe you can get the bank

Maybe you can get the bank to pay the down payment. Or ask if it can be factored into the mortgage along with closing costs.

Thanks to everyone for your

Thanks to everyone for your help.

I'm considering each and every option available. I'm wondering if I get the FHA loan, will I be able to refinance with a bank once that's finalized?


Howdy Neighbor,

I PM'd you some additional info, but I'm also a newbie here and also in Michigan.

From what I've been told,FHA DP requirements just recently increased to
3 1/2%. I was also told that there is now a "6 %limit" on seller prepaids.

My credit is okay the last time I checked (about 650 FICO), but upfront money is my biggest hurdle. I was planning on borrowing from a 401K for the closing costs, but I seem to have lost a thousand or so borrowing power in the last two months since I started looking. Since I've been looking exclusively at bank foreclosures, I've been pretty much assuming that all of these closing costs were static.

I'd LOVE to hear some creative feedback on how to creatively finance / reduce closing costs on FHA loans. I'm planning on buying my first deal within the month.(with the help & encouragement of DG, et. al.)


I'm not sure what that means about the "6% on seller pre-paids."

I don't think an FHA is the way I want to go since I would be obligated to live here. I may want to have the option to pull the possitive cash flow from the house if the short-sale price is right and I can rent it. Can't do an FHA and not live in it.

For the financing issue, I've heard an HML is the way to go if your credit's bad. Once you get the deed in your hands, you can go to the bank to re-finance. I don't know about a down payment with an HML but I think their intrest rates are higher than a bank note. I haven't gotten to that point yet...

Dan, You have the Answer to

You have the Answer to your Problem RIGHT in front of your Face! Theirs No Need to try and get Bank Qualified for another Mortgage and go through Denial after Denial, All you have to do is take this property "SUBJECT TO" the existing Financing! This property is a PERFECT "SUBJECT TO" Canadate. You'll Need to find out how much is NEEDED to bring this Baby Current, So you may NEED to put some money in up front, But NOT much and then you'll just take over his Mortgage Payments. From what you stated earlier, This Baby should CASH FLOW Just fine, Plus you'd be HELPING your Friend get his Credit back too. You NEED to find out how much is Actually owed on his Mortgage, Once you do post the figures and I'll tell you if it'll work out or Not, SULLY



Hey Sully I guess I didn't

Hey Sully I guess I didn't look at it from that angle. So what you're saying is that I could pay up the past due amount, even though the remaining is above FMV ($136K is owed @6.375%), then rent it out for positive cash flow, right? With the existing mortgage the payments are $1200/mo including taxes and insurance. I do have a call in to the collection agency who has the property for collection on the default. I think the taxes and insurance may change with a transfer of the deed but that's a minor issue. I think I would still have to re-finance (with an approval) to get the payment down to a workable amount to garner a rental fee ($850-$1000) that's competetive for the area to creat a possitive cash flow. I think I could get a renter or maybe a buyer on short notice without even advertising. If go with a buyer I think I'd rather try to offer something below FMV to maximize the profit.

Good to have a different perspective. Sometimes you can't see the forest for all the trees......Thanks Sully Your thoughts?

Dan, What do you mean by

What do you mean by Remaining? What you NEED to find out is #1 How much is owed on the property? #2 How many Payments are in Arrears? This Strategy will ONLY make sense "IF" when you Add the two together your still $20,000-$30,000 UNDER ARV or as you stated FMV. If this property is only going to Rent for $1,000 a month and his Mortgage payment is $1,200 a month Now, Then This isn't going to work. See, You haden't said what the FMV was and you were talking about possibly picking the property up for $50,000 so thats why I mensioned this Strategy, SULLY



I may have mis-spoken. The

I may have mis-spoken. The amount posted by the collection agency via the legal notice is $135,900. I presume this is the total owed to the bank including what's in arrears. I'm fairly confident that there hasn't been a payment in 8 months. That's $9600 which I'm thinking would come right out of my pocket if I use this strategy.

I'm thinking I should either wait for the short sale or make an offer before it goes to auction to see if the bank will bite. I went to the auction last week and there were very few people there, plus the auction for this place was delayed because of the moritorium on foreclosures. I'm guessing I can get the house for much less than what was listed in the legal.

I haven't completed my evaluation of FMV yet. Zillow has the median price at $179,000, but I don't believe that for a second. I have a message in to some local realtors so I'll talk to them tomorrow. The other thing I didn't think of is the neighbor 's house in for sale at in the $180s. It's has been for over a year (maybe another opportunity). Her daughter is living there now. I've seen others for sale at a much lower price and still others selling in the $50-70s

I was thinking of giving a verbal offer of $40,000 (is that too low?) before it even goes to auction. If they bite then I would lock it up. But then I'd have to convince the bank to re-write a the mortgage for me or find an HML to get me the deed. If I can do that then I may just stay in the house and start looking for others. Cheap housing. Otherwise I'd be moving and trying to find the next opportunity. Right now I need to get control of my own finances while I focus on more deals. I would rather not throw a move in the mix until I get back on my feet.

Dan, Why would you want a

Why would you want a Bank or a HML to "Re-Write The Mortgage?", I think you may be a Little confused, The BEST way to Utilize the "SUBJECT TO" Strategy is to Cure the Default on the Mortgage, Then take over the Payments, As long as your making the payments ON-TIME then you should have No Problem keeping the Mortgage in your Friends Name Until you find a L/O Tenant/Buyer. You see the Mortgage will stay in your name until your Lease Option Tenant activates their option to purchase, Which could take a Year or two. Once the Tenant/Buyer Activates Their Option to Purchase, Then at that time they will Qualify for a "NEW" Mortgage on the property, At that time the Seller then gets "CASHED OUT"(The Old Mortgage gets paid off), SULLY