A friend has a house who's house is about to be foreclosed on
November 25, 2016 3:21 PM   Subscribe

An elderly friend has a home in san francisco that is about to be foreclosed on, she has exhausted all of her legal appeals and avenues to block the foreclosure and does not have any assets to bring the mortgage current, suggestions for ways to help her save the house or pull the difference in market value out of the house (my guess is ~ 4 - 600k in equity with some work put into the house)?

I/we may be interested in purchasing the home from her to help her get some equity out of the property. The details behind the foreclosure are extremely complicated at this point my/our main goal is to present her, her options before the foreclosure. Any thoughts or suggestions for how to help avoid losing the property to the bank when there is equity but also an owner that is not ready to "sell" the house on the open market prior to foreclosure would be welcomed
posted by specialk420 to Work & Money (10 answers total)
I wonder if you could do something like the companies that do reverse mortgages. Basically, pay her mortgage for your own equity stake in the home and then have some binding contract that gives you first right of refusal in buying the home from the estate at a future date. I have no idea about these things but I'd think a real estate lawyer would be your next stop. Edited to add: there seems to be some interesting results when googling "private reverse mortgage."
posted by amanda at 3:24 PM on November 25, 2016 [4 favorites]

Lawyer lawyer lawyer. Get a good real estate lawyer that will work with both you (the potential buyer) and her (the potential seller), who can help you navigate the obviously complex situation and present a good option to the bank that is repossessing.

The money you collectively spend on this lawyer will be far less than what would be paid otherwise (realtors, bank fees, possible lawyer fees for everyone involved, court time, etc).
posted by erst at 3:44 PM on November 25, 2016 [5 favorites]

When the house goes through the foreclosure auction, the overage over the amount of the mortgage balance plus fees will be due back to your friend. The bank doesn't get to profit off of the foreclosure. They do, however, get to charge your friend for the fees associated with the foreclosure, which tend to be significant.

The bank will generally decline any offer that is less than what the bank can expect to get at the foreclosure auction. In general, if the property has equity, the foreclosure auction will result in the house being sold for pretty close to market value. As a result, you will have to be able to present an offer pretty close to the full amount owed by your friend to the bank for the bank to consider the offer at all. This saves the house, but does not retrieve any equity.

Your friend should tell you what her mortgage balance and accumulated fees are right now. You should then figure out a very solid financing plan for that amount of money (since that's what the bank will get at the foreclosure auction anyway), preferably in the form of cash, less favorably in the form of a mortgage pre-approval. When you have worked that out, then you should start talking to a real estate lawyer. If you can't work that out, there's no point to talking with a lawyer because you will have to pay the lawyer for a consultation, but the bank will ignore you.

If you want your friend to have equity, she needs to sell the house, getting a reverse mortgage (which will require getting current on the mortgage), or refinancing the mortgage (which I don't think will be possible post-default).
posted by saeculorum at 3:52 PM on November 25, 2016 [8 favorites]

You make a deal with her in writing, and you get the loan that goes to forestall foreclosure. In exchange for this you become a tenant in common for the amount that you have put in, and are willing to put in for remodeling. You make the deal the elderly friend can stay and you have an interest, that will be paid at the time of sale, or the time of her demise. If she has family who can not step up at this time, you become quasi family.

She might be amenable to joint ownership if this is near her last years, and she has no heirs. If you are joint tenants, then you can force sale when your interest in the situation wanes, due to her non performance, or ill health.
posted by Oyéah at 5:56 PM on November 25, 2016 [2 favorites]

Thanks for the suggestions and tips folks @saeculorum especially - it's a complicated situation as is housing for everyone in the bay area. Given that she may have exposure to other creditors upon the sale of the house - any suggestions for a financial structure to help protect any equity she may be able to extract? A trust of sorts?
posted by specialk420 at 8:34 PM on November 25, 2016

Do those other creditors have a lien on the house? Did they use the house as security on the other lines of credit? (Is one a HELOC?) If not, then I think the main worry would be that now she has cash that they could go after.

It sounds like she should look into declaring bankruptcy. The homestead exemption allows some people filing for bankruptcy to protect their home (with its equity) in some circumstances. May or may not apply in your case. My recommendation would be to start by looking into that.
posted by salvia at 9:32 PM on November 25, 2016

This is 100% a real estate lawyer situation.
posted by mercredi at 11:50 PM on November 25, 2016

In view of your (friend's) concern about other creditors, it may be a good idea to talk to a bankruptcy attorney. It may be possible to delay the foreclosure and wrap up all the debt that way. (Perhaps you'll need 2-3 attorneys: bankruptcy, real estate and trusts & estates.)

It sounds like there's good reason to consult (and pay for) all three. It's unfortunate that it took the acute crisis of the imminent foreclosure to get people motivated to fix things, but now that it's that time, it would certainly be a shame to fix only one of the problems. That won't improve your friend's life very much.
posted by spacewrench at 8:54 AM on November 26, 2016

Thanks @spacewrench & @salvia - without going to far into the details the owner has already had 2 bankruptcies. Will be proceeding with all of the recommendations so far, thanks for all of the suggestions so far.
posted by specialk420 at 12:09 PM on November 26, 2016

Have you contacted or sought the resources listed on the Mayor's Office of Housing and Community Development website? They have a page dedicated to foreclosure resources.
posted by late afternoon dreaming hotel at 10:28 AM on November 28, 2016

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