What This Single Mom Did To Keep Her House

House

You arrive home tired and exhausted from a long day at work only to find the house is empty and very quiet.  An envelope addressed to you is left in the usual place where you usually place your things when you arrive home.  Opening the letter you find a one page note:

I’M SORRY BUT I JUST CAN’T HERE ANY LONGER.  I’M MOVING BACK HOME TO SORT THINGS OUT.  TELL THE KIDS I LOVE THEM.

Can you imagine coming home from a long day at work to this letter?!?!  Neither can I!

But for Norah this is exactly what happened.  This was a serious problem.  The spouse, father and income-contributor of the family had just deserted a family that very much depended on him.  Norah had to make some hard choices over the next few weeks.  Because she had made the purchased the home she was living in prior to getting married, her primary residence was in her name only.  After sorting out her situation Norah had approached my colleague with the idea of selling the house for $375,000.  She would then downsize into a less expensive apartment that she and her 2 young children could start over.  Norah felt she had enough equity to cover two years of rent but still had sizable monthly bills.  One of the largest bills was her automobile loan, a stiff $400/month.  Norah still owed $9000.00 on the auto loan so the debt wasn’t going away anytime soon.  After learning about Norah’s circumstance my colleague could see she was in a tough position. Not just because of her bills, but because of her life circumstance.  Loosing the financial and emotional support of her spouse, uprooting her 2 young children, selling the house, moving into new surroundings and into a new apartment.  This would be a lot.  My colleague sat down with Norah and looked at her monthly budget.  There was no question that she earned a good living, but the auto loan was expensive.  Looking deeper into the details my colleague found that Norah had the money to cover the mortgage.  She just didn’t have much left over after paying all her bills.  To provide a solution she suggested that she would be willing to buy the house from Norah with a 5 year option.  As part of her down payment, which would be non-refundable she paid off the car note to the bank.  She then originated a promissory note with Norah in which Norah would pay her $137/month for the next 5 years.  My colleague agreed to reduced the auto loan by $1000 and then deduct it against the Option purchase price she offered.  This would keep the monthly auto payment down.  Even better, she told Norah that if during or at the end of the 5 years she wanted to buy out the option from my colleague, she could purchase the house back at a price they would agree to, or a 10% increase whichever was less.  They agreed to the deal.  Norah had to agree to not miss any payments on auto loan and maintain the property(repairs), taxes and insurance.  So what did this accomplish for both parties?

-Norah was able to continue to live in her house and keep the children in the same school district.

-Norah was able to sell her house at $375,000 without hassle by accepting the option.

-For the next 5 years Norah can sort out her financial goals without the pressure of moving and starting all over again.

-Norah will still be paying down her mortgage debt so if she sells the house in 5 years she will still have received 5 years of mortgage interest deductions on her taxes.

-For the next 5 years if Norah’s financial situation improves she may buy out the option and repurchase the house – thus never moving.

-Norah reduced her monthly expenses by refinancing the auto-loan with the Option buyer at a more affordable payment which will leave her with more money in her pocket at the end of the month.

– The buyer’s option guaranteed a minimum of a 10% increase on the purchase price if Norah were to buy out the option.  A 32% return on investment after paying $9000 to pay off the original auto loan.

-Even if Norah doesn’t buy out the option she agreed to continue to maintain the property (repairs), pay the mortgage, taxes and insurance so the buyer has zero property management issues to deal with.

Although Norah could have sold her home, this solution gave Norah favorable options in which to stabilize her life circumstances to give her the confidence to face her financial challenges from a position of strength.

Don’t overlook WIN-WIN scenarios.  The obvious isn’t always the best solution.

Contact me if your looking for solutions to your housing needs!

buyorrentmyhomes@hotmail.com

 

The Lease Solution

lease

In 1992 an up and coming real estate investor/agent found himself over his head in the commercial real estate market — $5 Million in debt!  He couldn’t pay back the loans for his commercial real estate projects.  At the same time many developers were getting out of commercial real estate because the market was collapsing.  Not a single banker would negotiate or restructure his debt.  His loans were causing him such a headache he couldn’t pay his bills including his mortgage.  He had to downsize immediately!  So he put his house on the market before serious trouble ensued.  But he didn’t try to sell his house.  Instead he recognized that his home had value and if he could find a suitable renter, it would allow him to return to his house after getting his financial situation in order.  He consulted several colleagues and determined the best idea was to find a tenant that would pay a full year of rent in advance.  This strategy would allow him to keep his house, even though he would have to move out temporarily.  He called every realtor he could think of and asked if they could knew of a renter who could make a full years worth of payments — up front.  Weeks passed when one morning an associate learned about an athlete who had just retired from sports and was between home purchases.  The athlete wanted to take a couple years to make her next buying decision.  After walking the property the athlete said “I’ll take it.  Would you be ok if I signed a 2 year lease?”  The investor/agent couldn’t have been more excited.  In actuality the athlete liked the home so much she actually stayed much longer.  This gave the investor/realtor the time he needed to rebuild his residential real estate business, which at that time was his only source of income.  It took 8 years — but he did it!  Eight years after he had left his home he was able to move back into his residence which had never gone into foreclosure.  Foreclosures are on the rise again.  If you come across someone facing financial strife please refer them to this blog.  There are more and more solutions available to ease the burden and solve the problem at hand!

Foreclosures are Avoidable Part 2

So now your behind on your house payment.  That job with the big commission is now further delayed till next year.  You open the mail to find that you owe tens of thousands of dollars on credit cards and your bank account balance just dropped below a thousand dollars.  Your getting the picture.  This was the scenario that my customer Jerry and his family were facing (I changed the names and dollar amounts to protect the innocent).  As an artist, Jerry earned commissions when he sold his works of art.  His wife Diane had a steady office support job that she had been working for over twenty years.  With the downturn in the economy (for Jerry) Diane soon found herself the breadwinner of the family.  Behind on their house payments, the threat of foreclosure seemed inevitable.  Through a mutual colleague I met Jerry at the brink of financial disaster.  Only it wasn’t.  You see Jerry had several patrons that, through the years, had kept his business thriving.  Jerry had done a great job keeping in close touch with his business patrons.  Our  discussion also revealed that Jerry was waiting on five (5) years worth of work that could be commissioned any day now.  Even if only one project was funded it would bring enough income to last for more than a year!  Based on our conversations I believed his best opportunity was two fold.  First, Jerry had to get out of the original loan.  It was in default and the bank was not receiving timely payments.   Second, I requested Jerry reach out to his patrons and ask for a private equity loan.  Based on his earnings projections he we was to ask for a five (5) year loan with a modest 6% interest rate and a payment schedule that would start out low but increase each year till the end of the 5 years.  At the end of the five years Jerry would refinance the loan into his and Diane’s name and the patron would be paid back all of the interest and principal accrued to date.  Although the patron liked the idea, at the last minute they changed their mind.  The patron was concerned that if Jerry got behind in payments again, the patron would be forced to foreclose on  Jerry and Diane.  A scenario the patron could not stomach.  So the patron contacted me and made the suggestion that instead they would buy the house outright, put the house in the name of a trust and then would rent the house back to Jerry and Diane with the right to buy back the property at an agreed upon sum at the end of five (5) years.  That way if Jerry got behind the patron could adjust the rent and would not be forced to foreclose on the couple.  After discussing with Jerry and Diane it was agreed.  I soon drafted a purchase and sale contract for Jerry and Diane to sell the house to the patron’s trust, then executed a lease-with-option-to-buy in the amount that Jerry had just sold the house.  The lease payments were small enough for Diane to cover and, five years and one month later, Jerry and Diane were able to purchase the property back by obtaining a new bank loan.  Will this method always work?  No.  But it did because it was a STANDARD SALE.  You see the banks do not allow a SHORT SALE transaction to occur where the buyer then leases the property back to the debtor (the debtor was Jerry and Diane in this case).  But there is no such restriction with a standard sale.   In my next segment Foreclosures are Avoidable Part 3, I will share a scenario that involved a short sale scenario.