Case Study: Our First Deal
Why hadn't the bank foreclosed? The sellers assured us there were no lawsuits pending. We decided that the bank would probably really want to get the non-performing note off the books, and so we offered the $25,000 to the bank...."
The first deal that we bought and sold ended up being a crazy, highly educational, adventure. In all honesty, we really got in over our heads on this one, but if we hadn’t taken action then we never would have learned what we did from the whole process (plus that check at closing didn’t hurt either!).
We had been driving around neighborhoods looking for vacant, distressed properties and writing down the addresses. The owners and their mail address were quickly found on our county's tax assessor website (just search Google for '[your county] tax assessor').
The owners of these houses- I think we only had between 50-100- received a postcard from us. The postcard basically showed a handful of cash on one side and a "We Buy Houses - CA$H" message on the other side, with my phone number. Lo and behold, we received a call from someone who had received one of our postcards.
She told me that her house had fire damage and that she was interested in selling it. They had received insurance money and had bought another house and just wanted to get rid of this one. Sounds like the potential for a great deal to me! We quickly scheduled to view the property. It was boarded up and burnt pretty bad. The fire started from a bad jacuzzi tub installation. The entire house had bad smoke damage, but the roof was only badly damaged above the bathroom. The house was salvageable.
A contractor had come with me to help estimate the repairs as this was a big one and I didn't know squat about repair costs. I don't remember the exact numbers, but I know we needed to buy the house for $25,000 because that is what we offered. The seller then informed us they owed $60,000 and were behind on payments for a year or more.
???????????????? Why hadn't the bank foreclosed? The sellers assured us there were no lawsuits pending. We decided that the bank would probably really want to get the non-performing note off the books, so we offered the $25,000 to the bank. A realtor we had met mentioned to us that she did short sales, which was basically what we were doing- offering a bank less than what is owed. So we called her up and she submitted the short sale paperwork. We nervously waited for a reply for several days (short sales can take months!). They replied quickly and told us they would accept $25,000. Excited, we informed the sellers that the bank was willing to accept the offer.
BUT THEY WERE NOT HAPPY!! INSTEAD, they informed us that they would not sell. They simply would not go to closing. Argh... They were not happy that we could buy the house from the bank for $25,000 when they would have to pay the $60,000 if they wanted to keep it... Are you serious? You wait til now to decide that! After all, they were the ones that spent the insurance money on another house instead of fixing up the collateral for the loan (i.e. their burned house). We informed the lender of the situation and they offered to sell us the note. We agreed to do so. Now we were really getting in over our heads!
We purchased the note with the intention of foreclosing the property for non-payment. This is where finding a local attorney who specializes in real estate comes in handy. (Man, we really built our team with this deal!) Before we could foreclose, another attorney approached us because he wanted to buy the note and he was willing to pay $50,000! Double what we paid. Of course, we took it and closed the chapter on our first complete flip.
The attorney went on to fix the house and flip it himself. I'm sure he made out great since the area was being revitalized and increased dramatically in value. Don't let this scare you. This was probably the most complicated deal we've done to date. It just happened to also be our first one! This goes to show you how getting out there and doing the deals is the best teacher of all. The best way to learn is to TAKE ACTION!