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Posted by Ward-CA- on August 31, 2002 at 07:34:43:
In Reply to: What role can credit cards play in preforclosures! posted by Sheldon Gray on August 30, 2002 at 01:39:35:
: Hello,
: I was trying to think of some creative ways to use my credit cards to purchase a preforeclosure. With the cards I have about 16k in credit available and i have a good credit rating. I thought of taking cash advances to pay 10k an owner who is facing forclosure to walk. With 20k in equity, the owner would get half of it back and a clean recored. Then, I could restructure the the 1st mortage and take out an equity loan to payoff the cards and rehab for a quik flip or sub-lease. MY QUESTION IS, is this realistic or all there holes in my strategy?
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Sheldon,
You need to determine the seller's net equity in the deal first.
So you have to figure out what you can realistically resell the property for in your market at this time. Once you know that number then subtract out all present lien balances, all unpaid payments, the delinquent property taxes, and all repair and rehab costs. Then deduct all resale costs like commissions, any payment towards your buyer's closing costs, and your share of the transactional costs such as escrow, title insurance, prorates, etc.
The net equity is what's left after all the above deductions are made from your realistic resale estimate.
Let's say the net equity amounts to $42,000. Then you're going to give the current owner $21,000. But make it easy on yourself and give them part cash, say $5K, up front so they can move out and the $16K balance in a promissory note secured by a trust deed or mortgage against the property. It would be paid off the moment you either resell the property or refinance it or in 1.5 years from now—whichever event occurs first.
Now make your offer for the property, contingent upon your success in raising the cash required.
