Tuesday, December 30, 2008
Assume a Delinquent Home Loan--Genius or Mistake?
"I only want to look at foreclosures," buyers have requested. "I also want to take over someone else's loan." Buyers looking for the ultimate deal.
Sounds like a win win situation. Take over someone else's delinquent home loan, relieving them of their financial burden. At the same time, the buyer would put down a small amount to pick up the property at a low price with a low monthly payment
Years ago, people stayed in their homes paying down their mortgages, when suddenly tragedy would strike--a job loss, divorce or a death occurred. The bank would start the foreclose process. The banks would foreclose and the sellers would lose all the money they had invested into their home. That is when the opportunistic buyer would offer to take over the loan and keep the house from going into foreclosure. While there are laws that highly regulate this now, it was possible to assume a loan and come out ahead.
However, in today's market, most sellers have over-extended themselves by leveraging all the equity they have in their properties. For example, they may have bought the property back in 1997 for $174,000 and, for one reason or another, have borrowed up to $475,000 in 2006. With the housing market depreciation, that home may now only be worth $240,000. So if you were to take over their loan of $475,000, you would be paying more than the house was worth. Not a good deal.
Watch out for those Websites that advertise foreclosure properties for $15,000. It was brought to my attention awhile back, when several of my clients said that I was linked (without my knowledge) to such a site. Many of these websites are quoting what you need to pay in order to get the home loan back on track and out of foreclosure. Then you can assume the loan for a home that isn’t worth what is still owed on it. Not a good deal.
On the other hand, there are a lot of foreclosures and short sales still actively listed that are good deals on the market. With the help of an experienced agent, invest your money wisely. Start out the New Year right---Buy Low and Sell High!