How a creative real estate solution helped sellers avoid foreclosure, close the chapter on their divorce, and rebuild their credit
Location: Caldwell, ID
Property Details: 2021 build, 4 bed / 2.5 bath, 2,525 sq ft home on a 7,850 sq ft lot
Loan: 2.875% VA loan
Solution: Purchased subject to on a contract for deed
The Situation
The sellers were going through a divorce, hadn’t made their mortgage payment in 6 months, were in pre-foreclosure, had very little equity in the property, and the property needed work. The property was listed with another agent who worked for a large corporate brokerage that did not allow their agents to do anything but traditional real estate transactions.
The Solution: Subject To Financing
I called the listing agent to gather information about the property, understand why the sellers were selling, and see if there was something that I could help them with. After gathering information, I proposed an offer scenario where I would purchase the property subject to the existing VA loan with a 2.875% rate, pay the sellers their full asking price, and pay for all their closing costs. The agent agreed that my offer would be a great solution given the sellers scenario, so we arranged an in person meeting between us and the sellers where I went over my offer with them and answered all their questions on subject to transactions.
The sellers agreed to my offer but the listing agent’s brokerage wouldn’t allow her to handle creative finance transactions. So, she and I agreed that she would refer the listing to me and I would pay her a referral fee for all the work she had done for the sellers. She referred the property to me and then I listed the property and then bought the property.
How The Seller Benefited
No Commission Fees: As part of the agreement, I did not charge the sellers any real estate commission, which typically range from 5-6% of the sales price.
Covered All Closing Costs: I paid all of the sellers closing costs, which typically range from 1-2% of the sales price, so they didn’t have to pay anything out of pocket to complete the sale.
Quick and Easy Transition: The sellers were able to quickly move on to their next chapter without the stress and inconvenience of a long traditional home sale processes. This allowed them to finalize their divorce and not face numerous listing price reductions.
Avoided Foreclosure: The sellers were able to avoid foreclosure, which can stay on your credit report for up to 7 years from the date of the first missed payment that led to the foreclosure. It will affect your ability to rent/buy property in the future and significantly increase your borrowing costs.
Rebuilt Credit: Me making payments on the sellers existing loan has significantly increased their credit scores and has put them in a position to obtain new financing to buy a new property
The Outcome
In the end, the sellers were able to avoid foreclosure, walk away from the property with some cash in hand, close the chapter on the house and their divorce, and rebuild their credit.
This solution worked out well for everyone involved — the sellers, myself, and even the original listing agent, who received a generous referral fee for helping bring the deal together.