How to structure this deal?

I got a call today from one of my private lenders about a woman who is just trying to dump her boyfriends doublewide l/h. They owe $38k on the home and want just $65k, the home appraised last month for $100k. I know this home would qualify for FHA financing and I could pay the buyers closing costs and 3% down and get rid of it pretty quickly.

But, I was thinking of trying something a bit different and wanted advice on how to structure it.

I am thinking rather than paying my hard money guy 5 points up front and holding this property for the 90-day period before FHA will finance it. Why not just lease-option the property with the option price set at $65k and find a buyer to close in 30 days at $95k less closing costs and their 3% down. The lady has no problem with me making a buck off the place, she just wants to dump it. Would the above scenario involve a double closing? Because I can’t take ownership of the property whatsoever. Any other plausable way to do this without taking ownership?

My main goal is to get this deal done as quickly as possible, reduce my investment in the place, and most importantly, be ethical about it.

I would appreciate any advice…

Cole Haynes

I understand your question Cole. Sounds like you want to Lease Option from the current owner(s). Option consideration (down) is unstated, monthly lease amount ( I assume their monthly payment?) and a 65K option amount? Sounds cool to me except there is probably a DOS clause in there, and I would want to record my option.

Why not just Option the property for 65K for 180days with their payment as the monthly cost of the Option? Find a conventional buyer or find an FHA buyer, this will maybe? not trigger the 90 day rule? I’ve never optioned an FHA property before.

Sounds like there is a buck to be made here. hopefully some sub2 or L/O experts will chime in…I’m no expert on this. Worse case scenario you make their payment for 6 months versus 30K profit…hmmmmmm

Cole, I have a 3/2 d/w on 1/3 acre that almost funded FHA. The well was 1 foot too close to property line or it would have closed FHA. And this was a 1996 d/w!!

Good Luck Cole,

Cometo MOM and bring your Dad!




One way to do this is to take over the loan via a subject-to transaction. However, this may cause issues with FHA on seasoning if you place the property in a trust. I’ve done this several times with stick-built homes and it worked like a charm.

The easiest way would be via an option like Greg spoke about. The transaction would be simple…the buyer brings $95K, pays $30K for the option and exercises the option at a $65K sales price.

There’s always a way to skin the cat, but lenders get really gunshy when they smell any creative deal making going on, especially when they are loaning on manu. housing.

Let us know how it turns out.


Another angle could be to sweeten the deal for the sellers by offering a little more than they are asking if they will give you more time to pay it off. Say offer $70k with a 5 year option. You might try it without even raising the sales price.

There seems to be two schools of thought on these deals. 1, get the money and get gone. 2, try to control it while it appreciates for a while and let someone else pay the mortgage down while the value is going up.

I wouldn’t give them cash until I had tried other things. It is hard to tell from your post just how motivated they are. They may NEED the equity in cash or they may want to be rid of the house in any way that will get if off their minds.

They may be workable with the 5 points that you could lose to the hard money lender going into their pockets and coming off the price. You might also just break the equity down into payments and don’t even mention interest. " I will pay your mortgage and give you $400 a month toward your $37k in equity". Tell them you are selling the place in whatever way it will move. It may wrap up in a month or it may take a lease option to do it.

How about this?

Give them their price at your terms. $4,000 going to the seller up front. $400 a month interest free, 3 year option. You sell on a 2 year option and have an extra year if they don’t close to sell it outright.

Equity of $37,000. After two years of paying down the mortgage you have taken the equity down to $23,400 to pay the seller. You have also paid down 2 years of the current mortgage. Hopefully you have cash from the first buyer’s option fee and some cash-flow. Now you have a place worth $110k or so depending on appreciation in you area.

Sell it outright (in an exchange) or go back to the seller and offer to pay them off and take the first older mortgage “subject to” if you pay them the rest of their equity. Your 2 year good payment record might help you here. If they agree, sell owner carry, top dollar, above market interest rate. You may have to kick in a little to help pay the equity off but you will have great residual income for a long time.

It is my understanding that if you record the option you start the clock on holding period for future 1031 exchanges. It may be best to hold this property long enough to protect some income. You have the added bonus of paying down the mortgage that sounds like it may be old enough to be taking out serious chunks of principal every month.

I would try to find out more. Dig deeper and find what their actual need is.

is to record a “memorandum of option” with no price attached. That way there is no public price attached and there is still enough info to cloud title.



Thanks for the info. That is some pretty advanced stuff to me and I will need to read it 4 or 5 times to understand it! lol. I really like that 3 year option idea

I should have been more clear in the original post. They need to sell this place ASAP. The boyfriend is in jail and the girlfriend is trying to sell the place for attorney fees. They are going to have to dump this place because cosmetically its a wreck and they have this ferret in the house really stinkin up the place good. I love it, and I think a few more weeks and she will settle for one of the ideas you mentioned above just to get out of paying the mortgage.


I am not sure what “memorandum of option” is? If I understand you correctly that option shows the sales price as $0 in the public records? More info would be great.

Thanks for all the help…


Greg is right on with the memorandum of option. You record a paper saying you have an interest by way of an option but you don’t let the world in on your business. They won’t be able to sell or borrow any more against the property without dealing with you.

This puts a “cloud” on the title. Something they will have to clear up to close or borrow against the property.

I don’t speak at some of my meets cuz I don’t sometimes have anything new going on.

But your average investor here ( I include myself here) will use Options, Leases, etc. in every day dealings. I’m going to bring a deal I am involved in to the next MOM. There are Trusts, Leases, Options,Memorandum of Options, and other stuff we all hear about, but maybe wonder if we will ever use. I’m here to tell you. we WILL use 'em…if we want to protect assets and minimze taxes.

I owe a lot of my limited success to folks right here on this Board…I’d never heard of any of these things five years ago.

Please post on this deal Cole…I am so happy youre funding these L/H…you worked hard on 'em and a payday is coming!


I know these creative strategies are important and I think Im getting to that point where I could start using them.

It seems that every L/H I come across now, foreclosure, motivated seller, etc., there is a nice $30-50k check that I could put in my pocket. I just need to find the most profitable way to do it.

I’m going to give the owner a call today and get an update, I will keep posting…


I spoke to the owner today and she is ready for something creative.

This is the deal:

$37,400 - mortgage balance @ $395/month

$5,000 - amount she wants at closing

$200-400/month - amount she needs to pay attorney per month

She actually owns this property and two adjoining lots on either side of the home. She wants to get rid of the entire thing and be done with it. The home and three lots together would make this package worth $110 - $120k pretty easily. I am closing on a property three streets down this Friday, so I have done a lot of comps in the area.

We really didn’t get to a final purchase price she is more interested in getting rid of the place and getting some payments each month to pay the attorney. I figure regardless of value of second I do with her I could just stretch out the payments to make them low and affordable for me.

My immediate idea was to take mortgage in a trust and create a second mortgage with her. Any more profitable ways to do this?

My plan was to get rid of the place as soon as possible, but Bob pointed out all of these tax strategies and I am open to some smarter suggestions. The mortgage was created in 2002 and she is checking to see if it is a 20 or 30 year mortgage.

I would make sure this deal closed so I would not try any lease option moves.

I hope this isn’t too confusing but I am going to risk it.

This lawyer is probably not going to expect to see all of their money. The criminal will get amnesia once he is out and drugs will be more important than bills. I would guess the lawyer will end up either eating a big chunk of this bill or selling at a huge discount to a collections company.

You might get the perp to allow you to talk directly with the lawyer. Find out if the woman is expecting to get the $5k (try for $3k) and give the rest to the lawyer. If she expects no more money then she really isn’t the one to negotiate with. Pay her off and talk to the lawyer.

Tell the Lawyer about the ferret, the mess etc. This won’t be a surprise. Then tell him/her you are willing to let them secure the debt, with you rather than the current owners, secured with a second mortgage on the property. In exchange for this security you obviously want to ask for a substantial discount of say 40% or so. Don’t mention the fire sale price unless you are asked directly. Focus on the security you can offer. If she is paying the lawyer without interest there is no reason to offer to pay it either unless he/she brings it up. If they ask for interest, ask for 50% off.

While you are doing this make sure you tell him/her you may be developing the other lots or splitting them off to sell. Tell them you will give them half the money if you sell one but make sure he/she knows the second is on the house and not all of the lots.

You may also tell him/her that you are planning on renting the house out and will need a month or two with no payments to clean it up and lease it out.

I doesn’t sound like your seller thinks they will get anything above the cash at closing. There may be no reason for anyone but you to know the actual sale price of the house. Don’t talk too much and find out what the players need to see the deal as a win for them.

It looks like you are about to nail one of those deals you read about in the books. Go get em’ and good job! Did I mention don’t talk too much?


I got you on the don’t say to much, I don’t want to be giving profits away.

The total bill for the lawyer is $40k (life charges), the owners have already paid him $20k and still owe him $20k. She only wants two things out of this sale: A. Stop making payments on the place. B. Start making payments to the lawyer to keep him working for her.

So, contact the lawyer directly and agree upon a negotiated price of the $20k balance? Working the current owner out of the deal altogether?

So the deal would look something like this:

$37,400 - mortgage taken, Sub2

$3-5k - to attorney at closing

$X - remaining amount negotiated with attorney as a second on the single property, not including two additional lots.

Sounds easy enough.


Why would I offer to give the lawyer a cut if I sell the empty lots seperately?

Thanks for the help, I definitley wouldn’t have thought of that but it seems it should work well.


Hey Cole, you may get more bang for your buck by offering the attorney cash. He has a client that has been reliably making payments to him (vs. you the unknown investor). But he may jump (read: accept a steep discount) at the opportunity to get a lump sum payment. You didn

Was almost ready to hit send on the first draft of this when the power flashed off. Here I go again.

Daphne’s got a great point also. The complicated deal I am laying out is kind of assuming you don’t have the cash, or don’t want to spend the cash, to get a steep discount. It is also an excerise in " what if". Cash does indeed talk. I think $8k in cash is a good discount for this situation and he may well go for it.

First question,

Get the owner to agree to let you work it out with the lawyer. He will be far less emotional and not subject to seller’s remorse. As soon as the pressure is off your sellers they will be trying to undo the deal they are so concerned with getting done now.

If he thinks you are getting too good a deal he may balk. If he does just go back to the $65k and you haven’t lost anything. But now if he whines you ask for concessions like no interest or letting you roll the $5k down payment into the second mortgage. You do have a lot of expense to get this place rentable and getting it rented gets him his money. Lawyers negotiate every day and are more ready to give concessions than lots of folks.

If he refuses to let you put him in a mortgage you can go for the steep discount like Daphne said or ask for some time to ready the house for market and tell him you will pay him when it sells. If you come up with a LO buyer you can call him back and tell him what you have going and ask him to hold off on payment until your buyer closes. Offer him the option money you get from your new tenant / buyer and take it off what is owned.

If he doesn’t balk just close the deal with a discounted note, a second mortgage etc. and don’t talk about your actual sale price.

Second question,

I am not saying to give him a cut of the profit just a payment any time the property throws off some profit. This is just to assure him you aren’t going to leave him paying for years while you sell off the other property for a quick profit.

Remember when you are negotiating that you are a problem solver bringing solutions to a bad situation. You are not likely to walk away with less than a $65k deal on a $100k house. If you drive a little harder and get rejected you still have a great deal in the works.

If you land this one don’t forget to tell the lawyer you have other options for investors. You did just stand your ground in negotiations and score a deal at 65% or better LTV. Tell him you are looking for investors for your HMP deal you are putting together.

I spoke to the seller about an hour ago and we have come to an agreement so far…

$37,400 - take mortgage in trust

$8,000 - to seller, once I SELL the property in 4-12 months

$20,000 - to attorney, or less. In payments or cash when I SELL

I have the attorney’s name and number and will give him a call tomorrow. If I can’t negotiate much off the balance, I may try to hold him off for 6 months or so until I sell the place. Then, I would only be paying the mortage until it sells.

I am happy with this so far, the sale will include all three lots, home, deck, attached carport, shed, nice coy pond.

Thanks to everybody for the advice…



Would the owner consider 50K in cash to be done with it? For those of you think that, there isn’t enough to cover her cost should know that; you will never know until you ask. All I’ve read so far is that, she “just want to” get out of it and that is a strong signal that she might consider the cash. If not, that is fine but she might come back with 60K cash. Now, you can partner with someone who has the cash to buy it and sell it for profit.

By the way, attorney’s will negotiate if they are getting the money today as well.


Money does strange things to people.

Post Edited (07-30-07 05:36)

There is something you may not have adequately factored in - the farret.

Last year I bought a house in probate - other than looking thru the windows I never went inside - big mistake. This woman must have had a 100-&-1 cats that pissed everywhere.

My work crew need gas masks! We needed to rip out all of the drywall 4’ high and seal the wood studs with Thompson’s Water Seal and remove all floor coverings to steam clean the concrete to contain the smell. After 3 months of airing it out the house it was still not inhabitable. 4 people 3 weeks @ $22.50 each per hour wasted.

In the end I bulldozed the house and put a pre-owned manufactured home on the lot and was happy to break even.