deeds, estates and debts.

[Soni]

Hello Mustachians,

I need some help in solving a truly bizarre situation.

8 Years ago I was leading the country and sold a 4 unit home to my dad. Sold isn’t quite the right word. I quit claimed the deed to him and went overseas. While in Tonga I found out that he never refinanced it and was defaulting on the mortgage and took out an additional note against is with a private party. Despite numbers attempts at resolving this issue, it never got any better. My father passed away in Feb ’13 and a year later, the estate owns the deed, I still owe the bank, taxes haven’t been paid in two years, there’s still a second lean holder on the house and all the utilities are about to be shut off and tenants moving out.

Fun huh?

In many ways, I would just like to be rid of it and done. But, I just keep trying to figure out how to salvage it and turn it into an asset. This is where I’m hoping for some advice. Here’s the situation as it stands.


$92,000    Loan to the bank
$50,000   Private loan
$8,000   Back Taxes
$5,000   Repairs and maintenance

$155,000   Total

The appraisal we just had done came in at $140k. Now you see why I just want to let it go. However the private party that’s owed $50k is willing to discount half of what she’s owed if we rewrite the note in my name. This drops the total the house would need to $130k. Now, I don’t have much cash in the bank to work with so the bank will add the $ for taxes and repairs to their note. If I’m thinking about this right, this will get me into owning a 4plex with no money down, a note for $105 to the bank and $25 to a private party? I’m not sure the interest rates yet and can post them tomorrow after I talk to the bank. The income on them would be $3,300 and the combined payments should be about $900.

So, please ask me some questions or send me some thoughts. Any and all would be appreciated since I have to make a decision in the next week or the deed will be going back to the bank.

Thanks,
Jason

[KLBroad]

If the estate still owns the deed, I'd be wary of rewriting the note in your own name.  You could end up owing on the private loan (because you've rewritten the note in your own name) but not actually owning the property (because it's currently owned by your father's estate, and you may or may not end up in possession of it).

Good luck!

[arebelspy]

There's definitely potential here.

The biggest problem is that the estate owns the property, and that doesn't seem likely to be able to be sorted out in a week.

What you need to do, IMO is work on negotiating with them for more time, and then I think the cleanest way to do it is to take it over from the estate (IDK how that works being the heir, so you will want advice from a lawyer), either as the heir or by "buying" it from the estate with the approval from the first and second lien holders who will rework your notes at the same time.

If I'm reading this right and each unit rents for 800+, this is a 2%+ property, so as long as it's not in a terrible area or have a ton of deferred maintenance (and your numbers are correct), there are plenty of investors who would be interested.  (Hell, I'd be willing to take over the notes and property, refi and pay off the notes for you, but of course, there's the sticky issue that you don't own it, since it belongs to your father's estate).

In any case, my two biggest pieces of advice are:
1) Get a lawyer (who knows what they are doing regarding real estate, and probate).
2) Get more time.  Waiting until the last minute is a recipe for disaster.  Real estate is slow.  Probate stuff is slow.

And if you just can't make it work, let me know, I may be interested in owning it.  ;)

[arebelspy]

If the estate still owns the deed, I'd be wary of rewriting the note in your own name.  You could end up owing on the private loan (because you've rewritten the note in your own name) but not actually owning the property (because it's currently owned by your father's estate, and you may or may not end up in possession of it).

Good luck!

The note is already in the OP's name.  They quitclaim'd it, and the original liens remained.

[KLBroad]

The smaller private note, it looked like, is in his father's name, not his.  Should've made that more clear in my post.

[arebelspy]

The smaller private note, it looked like, is in his father's name, not his.  Should've made that more clear in my post.

You are indeed correct, I missed that detail.  Thanks for clarifying and pointing that out!  :)

Also, FWIW, a 50% discount on a non-performing second that's quite close to foreclosure is quite weak.  You should be negotiating that down to a few thousand bucks, at most.  (Maybe 5 to 10 cents on the dollar.)  You should feel no obligation to pay the full amount, IMO, it was a loan your father took out on an asset which belonged to him at the time, and you are now inheriting, which is not worth that much money.   The second has no leverage and should be pretty happy to take what they can get.

[Soni]

Thanks for the responses. Good points, all of them.

Legal advice has been sought. The real issue is of timing. The estate is willing to quitclaim deed the title over upon the bank refinancing into my name. The executor and the estate attorney are friends of the family and I trust them. It's just a matter of working out the timing and the exact details. Currently in the works.

Timing...well, this situation has been festering of a year. Now that the bank is wanting to foreclose on it and the management company is backing out of it it's brining everything to a head. We have about 4 weeks to work out the details, but decisions have to be made this week.

The second, this is a tricky one. It's a family friend, someone that I've known for years and has lost most everything due to a recent bout with cancer. I pitched $15, she is hoping for $25 and I have a feeling we'll settle on $20.

Also, after a talk with the managing company I found out a few key pieces. The income is actually $2200, the estate had their numbers wrong. And, there is quite a bit of deferred maintenance. This makes it less attractive, but still worth while from what I can tell.

Definitely a mess and I appreciate your comments.

[arebelspy]

Also, after a talk with the managing company I found out a few key pieces. The income is actually $2200, the estate had their numbers wrong. And, there is quite a bit of deferred maintenance. This makes it less attractive, but still worth while from what I can tell.

Definitely key points.  Figure out how much the rehab will be, and where that money will come from.

Let us know how it all works out or if you have any other thoughts along the way as you work through it.  Good luck!

[Soni]

Just a few updates in case you are still following:

I took a walk through with the current property manager. the house definitely needs some work, but it's not nearly as bad as I thought. There's about $3k that needs to be done immediately with another 10 that can be done over the next few years.

The bank is willing to rewrite the loan from 92 to 105 which will take care of the back taxes and provide a bit of cash to do the immediate repairs.

And, the second; We've wired it out that she will forfeit her 50 in exchange for 15% interest in the house. This keeps the cash outlay very low until the house is under control. Then she'll do a 10 year note at 2%.

[arebelspy]

Good work making some progress on this and making things happen!  Easy to let things slide.