I have a property where I mistakenly did a sort of seller finance deal. I am thinking about calling a few note buyers to see if they are interested but first wanted to see if anyone has any experience or if it is even worth it.

For metrics, lets say it is around 500k house and note is worth around 400k. With this type of "spread" would it be worth someone to purchase my note of 400k and they take over getting payments/foreclose on buyer?

As the subject states, this is a non performing note but it is for sale by an agent picked by the occupants. It has been on the market for over 60 days and I am tired of this property being a thorn in my side and I can't move on with my life due to making my own mortgage and their mortgage payments.

Is my best option to just wait out the sell of the house and hope it gets sold in today's market or try my luck with a note purchaser?

If I'm understanding the situation right, you need to put a lien on the house ASAP. Then send a certified letter to the agent representing the sale that informs them of the lien. The agent may elect to not spend time representing the sale, if its unlikely to close due to a lien. Is it a risk, if the delinquent owner sells it, they takes all the proceeds and don't pay you?

If that's the case…

Another option is to seek an investment buyer to acquire it under market value. Then have the delinquent owner agree that part of the sale proceeds will be escrowed and directed to you after title transfer. You may take a haircut, but better than being out all $500K.

It may be easier to find a real estate buyer for an undervalued property than selling off bad debt. Especially, if the collateral securing the debt is at risk of being sold.

I don't think I need to place a lien on the property. I have spoken with the listing agent and he had his title people do a look into the property and I do show up as a "lender". So if it sells, the title company should make them pay me as if I am any other bank. They will take the proceeds of the sale, I would just be paid out.

I am just trying to get out from under the property and be done with it. I have been dealing with it since November 2019.

Gotcha, hard situation, I hope you find an out soon.

How far behind are they? Have you done anything to start foreclosure or is that what you are avoiding? You said "occupants". Is someone other than the borrower occupying the unit?

Long story short, they didn't pay any of 2020 and most of 2021 and havent made a payment since May this year. I have filed foreclosure 4 times since 2020. The first foreclosure was put on hold due to covid and they filed bankruptcy 3 times and the judge stopped the foreclosures. All three bankruptcies have been dismissed due to paperwork not filled out and for not making payments.

It is a husband, wife and kids in the house.

I am just at my wits end on the processes. It seems I could be at the end of it now since they did put it up for sale but if there is anyway to get out of it sooner rather later that would be the preference.

If they put it up for sale then that is the fastest way to get rid of the problem. You hope they get it sale ready and price right it will sell.

You are going to have hard time selling the loan to someone where the only upside is getting the property. Most likely scenario is a difficult payoff. It you are looking to sell it at a deep discount, you have a great shot at selling.

He can't sell it. He doesn't own it. Would need to foreclose.

As you have already seen foreclosing on homestead can be hard, costly and time consuming. So, to sell a note with these circumstances would require a discount as their is no cash flow and it is more or less a debt collection proceeding at this point. So, yes, you can likely find some one to buy it but not at near 400k.

Another last resort option is to let my loans go into foreclosure since my loans are primary, the occupants would have to forfeit the house and my bank would have to deal with getting them out of the house.

Of course going this route I would lose all the payments I have been making and would have to hope I could explain the situation if/when I go to purchase a home to a lender. I am currently renting but I do want to find a home at some point.

If I just keep making the payments and they sell the home, I would at least get the money back I am putting up in the mean time.

I think I am talking myself into biting the bullet, keep making payments, and hope they sell the home so I can at least get money back. We are talking over 20k at this point plus lawyer fees.

SteveBott said:

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He can't sell it. He doesn't own it. Would need to foreclose.

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He owns the loan. He wants to sell the loan. I'm telling him he is going to have problems selling the loan at par.

I did what is called a "wrap around" mortgage. We went through a title company and all when we closed. According to all state/county documents, they own the home so they would get all the profit on the sale after they pay back the outstanding loan amount.

Their realtor contract ends October 8th and I have not heard from them about what their plans are after that. If I haven't heard they signed an extension, I will tell my lawyer to do the foreclose for November.

Olag00 said:

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I did what is called a "wrap around" mortgage. We went through a title company and all when we closed. According to all state/county documents, they own the home so they would get all the profit on the sale after they pay back the outstanding loan amount.

Their realtor contract ends October 8th and I have not heard from them about what their plans are after that. If I haven't heard they signed an extension, I will tell my lawyer to do the foreclose for November.

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Gotcha.

So then one last question. Why are you the first creditor to be repaid the mortgage payments you've made on their behalf if they sell the home, but not if you foreclose?

If I foreclose, I would actually take all the profit from the sell which would then be my repayment.

I am just a little gun shy about the foreclosure actually going through with all the past bankruptcy's they have filed. I have a feeling they would file again and then the bankruptcy gets dismissed again but that would be 3-4 months down the road. This is why I went along with them selling the house, it just seemed the quickest and best option. Of course now the market has turned for the worse.

Thanks for the information. Guess I keep doing what I am doing.

Olag00 said:

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If I foreclose, I would actually take all the profit from the sell which would then be my repayment.

I am just a little gun shy about the foreclosure actually going through with all the past bankruptcy's they have filed. I have a feeling they would file again and then the bankruptcy gets dismissed again but that would be 3-4 months down the road. This is why I went along with them selling the house, it just seemed the quickest and best option. Of course now the market has turned for the worse.

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Gotcha looks like you're still first to get repaid in either situation. You've just got to hope for the home selling price to cover all the debt obligations if you sell.

Sorry youre stuck in this mess. At some point, a judge is going to throw out their bankruptcy claims and let the foreclosure happen.

Jay@AgsReward.com said:

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oh, you did a wrap. Oh boy. I assumed you actually held the lien, so no you cannot sell the note.

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Yep. This. Sorry you got stuck in this situation. Good luck.

With the big change in interest rates, I would think these wrap arounds will become more popular. There is still a lot of risk to the Seller (wrap around lender).

I agree but my thinking has been if they have it for sale then it would be at same position if I was to foreclose and put up for sale. Them not being foreclosed on could also help with them not destroying the place if the foreclosure went through. Not saying they would, but they could. Then there would also be the hassle in the eviction process. I did email my lawyer to put this property on his radar for the November foreclosure and I have until this Thursday to let him know either way so he can get the paperwork ready.

Foreclosures only happen once a month and they are on the first Tuesday of every month and we have to give the occupants 21 days notice. This is for the county the property resides in.

Doing a wrap around can also trigger the due on sale clause making your mortgage due and payable in full.

Yep. What's funny is I requested a hardship with my lenders when the occupants stopped making payments and explained what was going on. They declined the hardship application. The lenders never did request the loan to be paid in full even though they knew what was happening. Needless to say this loan has been bought and sold twice in 3 years probably due to what has been going on with the payments.

Here is a little secret. Lenders do not want to foreclose unless it's a non producing loan. Moving the loan into an LLC, wraps, etc almost never results in a loan call due.

If you make the payments, on time, the lender most likely ignore most other things.

I agree, but some people aren't aware what all can trigger the due on sale clause.

Yep and lenders do the same. It's always "are they making their payments?" If yes the lender moves on.

OP sounds like you have a good plan. Let them sell and come November start the foreclosure process again. Actually your experience is one of the reasons lenders will mostly ignore the little stuff. It's a pain in the A…

yeah there has been a new development. Just received my escrow analysis and there is a huge shortage so the payment is going up over 1000. I told the occupant I can't keep up with that payment and he needs to list it just to break even instead of waiting around to get market value.

I have also told my lawyer to prepare for November foreclosure as now it is where I can't make the payments along with my personal residence and wait around for the sell. It is much more critical at this point to get it taken care of.

ETA: it could get interesting if an offer comes in before foreclosure. I will have to cross that bridge if/when it happens.

Have you considered attempting a deed in lieu of foreclosure?

The potential bankruptcy could muck up a sell too.

I tried the deed-in-lieu at the very beginning in 2020, I even said I would throw in $5000 for him to leave the house in good condition and just hand over the keys.

He never even acknowledged the offer. He would just reply I will make a payment "tomorrow" which never happened. I may bring it back as an option since he is having to reduce the price eliminating the potential profit he would have gotten if he had try selling last year.

I'll give you 250k cask for the non performing note.

Corey at GBTpm dot com

I have the foreclosure set for November 1st...if it gets called off I may be in more of a situation to look into some options.

Difficult and aggravating situation. As cold as it may sound, My only $0.02: do not trust them for anything and they do not care about you or your finances. Most likely, they believe the world owes them and they are a victim. Pursue your exit with tenacity and best wishes!