House #47: The Divorce House

We picked up House #47 today, after many weeks of struggling to get this deal done…

The lead came from our short sale marketing campaign back in the beginning of January. The woman who called was going through a divorce and wanted to short sale her house. My wife arranged a meeting with the woman at the house, and quickly realized that we could likely purchase the property outright (pay off the entire mortgage), and completely avoid a short sale and having to get lenders involved.

The first potential issue we ran into was that the woman was on the title to the house, but wasn’t on the mortgage. So, she didn’t care about the mortgage getting paid off (she was happy to have her soon-to-be-ex-husband have to deal with a foreclosure) — all she wanted was some cash out of the deal. If we purchased the property for exactly the pay-off amount, her husband could avoid foreclosure, but she’d get nothing…not an outcome she would consider. So, we offered her $1000 out of the deal, and she jumped at it. Issue averted.

The next potential issue was that the husband was on the on the mortgage and title. So, he would have to approve everything and sign all the docs as well. Unfortunately, they weren’t talking to each other, so we had to call him (he lives out of state) and explain the entire situation to him. He was thrilled to be able to avoid foreclosure, and agreed to give his soon-to-be-ex-wife Power of Attorney to sign all the documents on his behalf. He also didn’t care that she was getting some money out of the deal. Issue averted.

We scheduled closing for 5 days later, ordered the payoff from the bank and got all the contracts signed. Unfortunately, the payoff from the lender indicated that the loan was in bankruptcy; the woman forgot to tell us that she had filed for bankruptcy a few months earlier. This presented the next potential issue — her bankruptcy trustee would have to approve the deal, and that was unlikely to happen before the divorce settlement was completed. Luckily though, she hadn’t paid her agreed upon bankruptcy payments to her creditors, so the court had just dismissed her bankruptcy a few days earlier. We got the bankruptcy dismissal, forwarded it to the lender to remove the loan from bankruptcy and rescheduled the closing for a few days later. Another issue averted. Or so we thought…

The lender appreciated the dismissal letter from the bankruptcy trustee, but said they needed a “court closing letter” as well, indicating that the bankruptcy had been closed. They wouldn’t release the loan from bankruptcy until they got that. The woman called her bankruptcy trustee to ask for this closing letter document and was told, “You don’t get one of those if your bankruptcy is dismissed…only if it’s completed.” So, she called her lender again, and they said they’d take care of it. Another issue averted. Or again, so we thought…

The next payoff letter still indicated the loan was in bankruptcy, and the woman went back and forth with the lender and the bankruptcy trustee for over a week, with the lender saying they needed this closing letter and the trustee saying it doesn’t exist for her case. Ultimately, she got my wife and me involved, and we spent hours on the phone doing three-way calls with this woman, her lender and her bankruptcy trustee. We were literally ready to give up while on a final call with the trustee, when me wife asked, “Are you sure we can’t get one of these letters?” The woman on the other end said, “I’ve been doing this for 26 years, and I can promise you that these letters don’t exist when the bankruptcy is dismissed. I can’t help you.”

My wife asked to speak to anyone else in the office, just as a last ditch effort. The next person to come on the phone quickly told us, “Oh yeah, you’ll be getting a closing letter…it just takes a month or two after the dismissal for it to be filed and received.” On top of that, she agreed to expedite the request, and said she could likely have it for us within a week. Four days later, we had a copy on our fax machine. That same day, we had a letter from the lender indicating that the loan was out of bankruptcy. Once again, issue averted.

Which brought us to our final issue. We were scheduled to close today. All we needed was the Power of Attorney back from the husband (who had been very cooperative the whole time) and for the wife to sign the closing papers. Well, three days ago, the couple had their court date for the divorce, and it must not have gone very well. He decided that he’d rather let the house go into foreclosure than to let his wife get any money out of the deal. After a last-ditch effort to save the deal, we realized that he was just as cash motivated as his wife, so we ultimately offered him $1000 to let us close the deal. After much back and forth (the wife didn’t want him to get any money and he didn’t want her to get any money), we ultimately agreed to give both of them $1500 in addition to paying off the mortgage. Final issue resolved.

On Saturday, he signed the amendment to change the contract and overnighted his Power of Attorney. We closed today and they got their money. After the extra $3000, the extra costs to payoff the loan after an extra month of interest/fees and all the work that went into this, we may not make enough profit to make it worth all the effort. But who knows…investors have been fighting over properties in this area recently, so we may end up doing pretty well.

We’re likely going to just turn around and wholesale the deal to another investor to use as a rental…