Turning Arrears Into Creative Real Estate Deals

Okay, can you give us like a 10,000— like 1-minute synopsis and then I'll see if I can help you?

So it's a 1-bed, 1-bath, 1,122-square-foot condo, literally in the heart of St. Paul, our capital city. It's one of the most known buildings around. His payment every month Was 171128.

How much is it worth or what's it on for?

He had it listed previously at $225,000.

Okay.

And the feedback was, number one, the interest rates were too high for people to be able to afford it. Second of all, they're complaining about the condo association fees, which I don't blame them, $890 a month.

Well, how many units are here, though?

A lot in the building? Yeah, over 1,400.

Okay, so people are buying that. They're paying that fee.

They are. And on top of what would be their house payment, their condo association fee, they also have to pay for parking and they have to find that parking. There's a parking ramp attached to the building. It is strictly all visitor parking. valet parking and the parking ramp across the street does give a slight discount of $160 if you have 2 or more vehicles a month.

How many units have sold there like in the last 6 months, or do you know if there are any on now? I'm just trying to get my head wrapped.

The comps that I have, 3 units have sold. They range anywhere from $84,000 to $245,000, The $84,000 one was 604 square feet, and this one is almost double. This one's 1,122.

Okay. I mean, my brain goes to this stuff moving in this place, and he— so if you're the only one offering terms, which you probably are, how many are on the market right now?

Right now, of what I could find real quick on eFlow, there's 6 of them on the market.

In the range?

The lowest is $203,000 to $245,000.

All right.

That's helping you too.

Mm-hmm.

Okay.

So—

But here's where they're at. So on top of the back payments, which as of the 1st of next month, they'll be 4 payments behind.

Is this the one Zach went to?

No.

Oh, okay.

No, that was another one that we got to go out.

Payments behind.

And so they are up to date with the HOA.

Okay, good. That's a nice question. You guys know the HOA can foreclose, right? It's a priority lien. So you want to make sure— she had another one where the guy was almost getting foreclosed by HOA. That's why I asked. So, so he's about $7,000 behind right now.

It's, yeah, $6,845.

And is it empty or is he in it?

It's empty. They have moved out. They have another mortgage. And when they moved out to one of the suburbs, they also took on a car loan, which is hurting them. However, they're keeping up with the HOA. They owe $217,535 and change. And so what I did mention to him was potentially subsidizing the payment because they're keeping up with the HOA. So if someone takes the mortgage and the HOA, that potentially maybe he could even kick in half of what the HOA fee is, is what I've proposed.

Do I have another question? Yes, one more question. And I want to see what Mike thinks on the which method rents in the area.

$2,100 to $2,303.

All right. So it covers it. Okay. I mean, did you have a discussion about no cash down because he's behind? I'm assuming.

I just asked him straight out, you know, if we take over your payment, would you be willing to just let us take over your mortgage and go from there? And he said, whatever you can do for us, we'd appreciate.

Right.

Okay. So you are thinking of 2.

Correct. And then that's what a buyer— that's when I mentioned to him, because at that time I had not looked at comps. So at that point, that's when I mentioned to him, you know, it might have to be that you kick in some towards either HOA fee or the mortgage to get us in line with the numbers.

Well, the HOA is going to your buyer, right? You know that your HOA Have to be a buyer. Is the 1711 PITI?

Yes, it is.

Okay. I wouldn't— just my knee-jerk on the subsidizing is I wouldn't want you to own it and rely on him subsidizing it because eventually he's going to get amnesia and not subsidize.

Okay.

But if you do lease purchase and he's subsidizing and he doesn't subsidize, you go, hey, here's your unit back, dummy. And you just give him the thing. You assign it back to him because your agreement allows you to in Section 9, I think it is.

Okay.

That's the only thing now. But, but Annette, what if you made a contingent upon a buyer? Just think it out loud here, Mike. Yeah, she finds a buyer and the rents work and they're willing to pay, you know, they pay the HOA. So then she can do stuff too, because you don't need subsidized. You know what I'm saying?

Are you talking to me or Mike at this point?

Well, I'm talking to both of you, kind of.

Oh, I missed the value of the house in the beginning.

Well, she's in that range. She's just not selling it conventionally. Like all the ones in the market in the low 2s to mid-2s.

And what's owed on it?

$217,000?

$217,500.

I mean, if she could buy it no money down except for the arrears, the price seems like with 1,400 frickin units in the building, like she'd be the only one offering terms.

I say take it, you know, take it to market.

Yeah, well, the clue is in writing this up. And here's what you tell them.

Okay.

If I don't find a buyer that can cover all this, like, I would get this signed tonight. If I can't find a buyer to cover all this, like I said, you might have to subsidize and we'll switch to a lease purchase.

Okay.

This up as me buying it.

Okay.

Vice versa. If you think it's easier to get a lease purchase signed, which it is, you could say, I'm going to write this up as a lease purchase. Because I think we're going to have to subsidize. But if I bring it to market and I find a buyer and I could, then I'll buy it off you, but your loan stays in place. That's the exact script I'd use. Yeah. Anything I'm missing, Mike, or what do you think?

No, I think as long as the payment works, I mean, you're right at where the value— I mean, close to the value. I mean, if you can get in for nothing, get it.

Okay.

But make it contingent, right?

Make it contingent, of course.

Oh, here's a question. Can he say, look, if I could start this payment on you in the month, if I could start, start with September, if I could start making a September 1 payment, I'm just giving you a rough date. You're going to make one more payment. Well, he didn't make any, but he could. You find a way through a friend or otherwise to make 5 payments? You might as well ask the question if you didn't ask, because Put it in definitive mode. If I could start here, could you? Don't, because he can't now, but he's also paying other bills.

He's living.

Correct.

So could he find his way to a clear path? Steve Murnick and I did this once and the guy came up with almost most of the money.

Okay.

Like, he gives him a definitive—

you're giving him a definitive takeover?

I'm just saying, give it— yeah, say it to him hypothetically.

Hypothetically, yeah.

Okay.

And then that tells you if he's just Like straight out, he's not coming up with money no matter what or not. And then she can always pivot. Yeah. I want you to take— did you find a buyer? I just wanted to see how he answers you. Say, I don't know, I'm just thinking, but if I could, I don't know yet. I got to talk to my partners. Could you come up with 4 or 5 payments?

Okay.

Okay. Last, you guys, last but not least, because I'll forget it. That's why I had to interrupt you. I would call the bank with him as soon as you get signed and see if you can get— say, and you're his friend. Hey, my friend's going to help me if I can do something, if I could put these payments on the back end and try to get them on the back end of the mortgage.

They did offer him— what did he call it? A flex modification.

Oh, okay.

And the worst part about it, so he goes down from $1,711 to $1,452.

Okay.

A month.

Yeah.

They're not taking the 4 late payments on the back end, but they're adding 9 years onto his mortgage.

But what doesn't matter? Who cares?

I wouldn't care. There's going to be less principal paydown, but I wouldn't care about that.

Yeah.

I would tell him to go through with that. Then that takes—

Yeah, because you're gaining.

You're gaining.

Like, his payment is what, $1,750?

$1,711.

Almost $300.

You're gaining $300 upfront.

So we don't care about the extra 9 years?

I don't care if the deal works better. We've done 40-year AMMs just to get the deal to work.

Yeah.

Okay.

You're getting that money upfront every month.

It was someone in high 6, Mike. Someone did a 40-year. Maybe it was—

think about it, Chris. That $300 was probably coming off the principal.

Yeah, you're getting it. You're getting it monthly.

So now you're going to get it upfront monthly. Who cares? Yeah, it's going to be— yeah.

In a net.

Okay.

I don't know what the rate is here, but at 14-something, you could turn around 2 years and owner finance your buyer, get another spread. Now you got like a payday 4 for your bank.

Oh, just like that.

That, that it more than likely is probably going to be a fixed term, right? Fixed payment for the entire term if they add 9 more years, or is it going to be adjusting?

Yeah, good question.

But no, according to his paperwork, he did not have that with him at the appointment. According to the paperwork, it's supposed to stay fixed with a maturity date of December 1st, 2061, where the current loan, the interest rate is at 4.875%.

And they'll keep it there.

The 4.875%.

That's current.

He did not know. That is if they stay with the larger payment. If they go to the smaller payment and do the flex mod, all he had was the dollar amount. He didn't know the interest. Okay.

Yeah, let's get the details on that.

And then that is that. Mike will stay with Brad on that. I'll stay with you on this one. Like, literally text me updates as you get them because I don't see why we can't get this signed like right away.

He would like that.

It's a work in process. I got to bring it to market. Here's what I need signed first. Boom. I'm signing these purchase. I would contingent upon him doing that, the flex mod. Not so you can leave if he doesn't, but now you have leverage to make a decision if he doesn't.

Okay.

You know what I'm saying? Worst case, you got to take some money out and pay it. But I'd love to see him do it.

Okay.

I'd go with that attitude, by the way, pretty aggressively going, here's what I need to do. I need to see you tonight and get that signed. I'm going to go right in the market. You got to get that bank thing done and like, Line these steps up for him because he needs direction right now.

Well, and his—I don't know.

Nope. Oh, she doesn't have a computer too. She'll come back. Do you guys have questions on that while she's coming back? Not sure where to get started. Go to smartrealestatecoach.com/getgoing for free books, strategy calls, and a whole bunch more.

We're going to help you get going the wicked smart way.

We've been after this for over a decade, doing exactly. Exactly that.

No, sounds like a great deal.

Yeah, I don't have a question.

I just—

I'm always amazed at how you guys start things and then you think several years out, oh yeah, you can change it to this, you can change it to that, you can do this. It's that part always amazes me. That's the fun part. Yeah, I had deals I loved. These were 2, 3, 3 great deals potentially.

What does it matter if the interest rate on the back end is variable or not?

Well, we just want to know what the terms are like if it— because the payment could jump if it is like some type of adjustable rate.

And then like if they're putting a low duty, then 5 years around adjustment.

Oh, in 5 years. I thought you meant those adding 9 years. Those last—

You don't care about that. You're right.

Yeah. If it did it the last 9 years, you're not going to care because that's going to be 20, 20 years from now.

But you might perhaps maybe cash out by that.

Yeah, right. Yeah, exactly.

They do it. It's going to be probably within the first 5, right, Chris? More than likely.

3, 5, 7. Yeah, one of those. And that— you were saying something else and you clicked off. Are you good for now? Because you get some good ammo.

Yes, I'm good. Sorry, I'm just not very good with tech.

That's all right. I just— it took me 2 weeks to get all my shit on this new computer. I think I did it by today, by the morning. Steve, you have a question on this deal?

I do.

And it kind of relates to the deal I'm working on with Mike because that seller is really far behind too. And Mike, this makes me think, can we— because the seller we have is $87,000 behind. He hasn't paid in 5 months. He's really not sure what he's doing.

That's a big difference, Steve. I don't think this guy's behind that much. How much is this guy behind?

$7,000.

Yeah. Okay.

But I mean, the property price is significantly different too. So I was wondering if any way that we could satisfy the buyer I have, because he's going to get nothing on this. If we use the down payment from the new buyer to pay him, to pay the back off and give him $20,000 to leave and then take off, take over as on a sub-2 while we've got a buyer, would that work?

I don't know the deal, Mike.

Yeah, I'm looking at Mike. We can. The only—

it's a tricky situation because of the power of attorney, right? I'm kind of nervous about all that. And we're dealing with these Yes. Numbers, right? It kind of has to be pretty clean. But I'm not opposed to that if he's good with— because if we get a big enough down payment, we can negotiate.

Yeah.

Why don't we wait, take it to market first, see what we get? And then if we get someone with a big down, go back, say, hey, since you have a buyer, what if we get you this and we could just take this whole thing off your shoulders? Give you this.

Yeah, I'd be okay with that if we had a buyer. It's just that he seems— you've talked to him a couple of times and he seems like he's stuck. He doesn't want to go forward where the deal we gave him, I think, is the only way to save anything and either not give this up.

Well, we can't do anything unless we have a buyer. We can't even tell him that we'll take over the house because the numbers are so big.

Like, even if you're right, I'll catch you up payments.

Let me take title. I mean, you're going to have to come out of pocket $100,000 right now just to catch up the payments.

I mean, this guy now, I feel all mod Mike. Can't do that. No, way too far gone.

I mean, he's— can you do a load mod, Steve?

I don't think he's already in short sale. The bank has already given him permission to short sale.

Done and slashed, bro. Yeah. Yeah. Right. Okay. Okay. And it's not even him.

It's his girlfriend that he has power of attorney on. So it's kind of a weird situation too.

So, all right, I got a rope there. You got to spend some time, but it's a little bit of a gamble, but caution of it.

We did have a question, though, Steve, on the power of attorney piece. Do you remember that, Steve? How could we confirm that the power of attorney that he has is valid besides the paperwork that he provides?

Give it to the attorney.

Just give it to the attorney. Okay.

Yeah. Don't try to play attorney. Give it to the attorney.

Okay.

Yeah. Because who knows? Like, I agree. Yeah. Okay.

Like, it's not even his wife. It's his girlfriend that he's a power of attorney. That's just kind of weird, you know? I don't know.

Anyways, is it a power of attorney for that property only listed or is it unlimited? What is—

We haven't seen the paperwork yet. I don't know.

Let's get it and send it to attorney.

Okay.