What are options for buying a house of a relative that is in foreclosure and having them continue to live there and pay rent?
I have a close relative who's home is currently in foreclosure. I'm not experienced in real estate and was thinking that I could buy the house at a much lower price then their refinance option and then have them pay rent til the home is paid off.
Is this something that can realistically be done? If so, how should I go about doing it? What are other options for this relative and for me if I'm able to purchase the house?
Thanks in advance for your response!
A Hunch2014-06-07T08:54:34Z
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Unless you are willing to pay off the existing loan and all fees, you can't. To receive any kind of benefit from a forecloser (short sale, current market value, etc) it's a federal law that the property needs to be sold at least "an arm's distance away". This means no one that is related or close to the current owner.
If it is in Foreclosure then they will not have a refinance option. I am guessing it is near going into foreclosure and you are thinking about buying it on short sale. If you do that the bank often requires you to swear you are not a close relative or such-
If it is a foreclosure auction then anyone can bid- the bank will normally also bid. In my state the bank bids higher than anyone else about 95% of the time because of certain bookkeeping reasons. They then turn around and clear the title and put it up for sale with a real estate company.
Most of the time you are much better off to help the family find a new smaller and cheaper place to rent or buy.
There are options a real estate investor would do financially that would not require them to apply and be approved for a mortgage loan to purchase the property.
You would prepare a contract of purchase with the current owner of the property.You would list the down payment if any, the day you would like to close the transaction(estimated). All concerned would sign this contract. Make sure the contract has this clause "I am buying this property subject to the existing mortgage" You escrow agent and title company would understand this clause and take the appropriate action to close your transaction.
This clause allow you to basically to assume this mortgage, thus eliminating you in obtaining a new mortgage loan.
The mortgage loan would remain in the name of the current home owner. They would be held liable for any missed payments. They are currently in foreclosure anyway. By you using this mortgage loan in this manner by bringing the mortgage loan current, they would no longer be in foreclosure. Over the next 3-6 months with you making the mortgage payments their credit score would improve.
You would be required to pay the mortgage current. The escrow officer would inform you of the cost to bring the mortgage current.They would contact the mortgage lender to find out the amount to bring the mortgage current. The mortgage lender would inform the escrow officer in writing the amount necessary to bring the mortgage loan current.
Take this signed contract to a local title company and state licensed escrow closing agent to complete the transaction.
The escrow and title company would make sure this transaction close according to local, state and federal real estate laws.
Once the transaction close your name would be on the title deed, recorded by the title company at the county recorder's office.
Since the property has transferred to you, you are now required to pay the monthly mortgage payment each month to the same mortgage company as the former property owner.
The only negative I find in this transaction is it is not a good idea to do business with family and friends.Your relative might think they are entitled to the house as they once owned the house. They might use this attitude not to pay for rent..
If you do not understand this concept it would make things a lot easier if you would just prepare a contract and apply for and be approved for a mortgage loan to purchase the house from your relative . You wold still take the signed contract to a local title company and escrow agent to close the transaction. Inform the title and escrow that you are applying for a mortgage loan. These two companies are equipped to handle these type transactions.
Either way you decide to go, it is imperative that you engage the services of local title and escrow services. They are the only companies that is able to close this transaction legally and properly.
An age old saying is that money and oil do not mix.Also family friends and finances do not mix.
I hope this has been of some benefit to you good luck.
Your only chance to purchase this property would be to submit an offer to the mortgage company. Your offer should be close to the price the mortgage company is asking or someone else will outbid you. The amount your friend is in arrears for has nothing to do with the price the mortgage company will accept. It would be very foolish of you to purchase this property with the idea of renting it to your friend. They will do the same to you as they did to the mortgage company...not pay the rent. Don't think differently. You will pay for it later.
If the home is is foreclosure then the owner could consider a short sale, where the home is sold for less than the mortgage balance. However, is a short sale family cannot buy the home.