Help my friend to RTO her own home to avoid foreclosure?

akinyioj

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Oct 10, 2014
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#1
A close friend is facing foreclosure. I just learned about it and during a brain storming for options, it occurred to me that I could buy from her, have her rent from me while she repairs her credit and puts together a down payment and then have her buy it back from me.

I don't believe she has much equity - probably 20k or less in equity is my guess on a possibly $280k to 300k legally suited side by side half duplex. From past conversations, she has this idea that her house is worth about $400k . The side by side half duplex is not in the best part of town in Edmonton Alberta, I believe if it was to be well run, it should do ok. I'm seeking suggestions/guidance from the REIN community:

1. Do you think this would be a good idea for us ( i.e.for me to look into the deal, given out relationship and the fact that I have never done an RTO before)?
2. If so, is there any one out there who can help me put together a deal for both our sakes (mine and my friends), for a fee?
3. Are there any suggestions or things you foresee that you can draw my attention to or provide guidance on?

Thanks.
 

ThomasBeyer

Senior Forum Member
REIN Member
#2
Have a chat with Sherilyn as the premier rto person in Edmonton if not Canada !

As step I recommend an appraisal as a deal makes no sense if you think 300k and your friend 400k.

Then, if you both can agree on
A) today's value and
B) the exit value in say 2-3 years and
C) the rent in between

then ( and only then ) get the legal side organized.
 

Sherilynn

Senior Forum Member
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Oct 22, 2007
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www.qdhomequest.com
#3
Wow! Thanks, Thomas, for the high praise. :)

Akinyioj, this is a complicated situation, and it is a great idea to ask for guidance.

First and foremost, please always remember: while money can't buy friends, it sure can lose them. Ask yourself if you really want to put yourself in a situation where you have a controlling interest in your close friend's financial future. If she falters, are you going to be willing to do what needs to be done? Specifically, will you be willing to evict your friend (and possibly have her forfeit her option payment to you)?

People don't change habits easily. She got herself into financial difficulty once, and it is quite possible she will keep the same habits which got her in trouble in the first place. If so, she won't be able to buy the house and you would eventually need to draw a line in the sand.

Regardless of the friendship, there are always potential complications when buying a house from a seller and offering a lease option to that seller to buy the same house back. It can be viewed as predatory and requires extreme caution.

I agree the property is likely worth closer to $300k than $400k, especially considering it may actually be illegally suited (since very few side by side duplexes in Edmonton are able to have legal suites).

Another possible solution is for the friend to sell her property via Agreement for Sale. This could help her avoid foreclosure while also saving the cost of mortgage prepayment penalties and realtor fees. Avoiding foreclosure may be your friend's best hope, since foreclosure seems to have the longest lasting negative effect on future mortgage applications.

I would be happy to discuss the situation in more detail, if you like. Feel free to email me or call me.

Sherilynn@QDHomeQuest.com 780-756-4578
 

akinyioj

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Oct 10, 2014
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#4
Thank you both Sherilynn and Thomas for the wisdom.

I did mention this option to my friend in passing and truly, I quickly got nervous of the possibility that she may fail to make payments at some point, seeing I m her friend, and that that would be a tough one to resolve. I prefer to keep the relationship than to get the money, if I were to choose, but I would like to help her avoid foreclosure thru a win win deal.

Should she be interested in my offer, I would have to proceed very cautiously, or maybe decline it and make a referral to QD Home Quest, or JV with someone who can look at the situation more closely to gauge the feasibility of a win win win situation. A JV would tripod stakeholders, thus distancing the deal away from friendship and into a strictly business transaction. Your thoughts on the options?
 

Alvaro Sanchez

Ottawa-Gatineau Investor
Registered
Jun 5, 2009
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Ottawa
AlvaroSanchez.ca
#5
Stay away from these cases where the person wants to do an RTO but in fact they need a refinance. There are people who specialize on these cases so ask her to contact a mortgage broker. Unless of course you want to help your friend and if you do, note that this would not be an money investment but perhaps more that a friend bailing out another friend.
 

Sherilynn

Senior Forum Member
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Oct 22, 2007
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#6
A JV would expect a good return on his investment, possibly resulting in a price and terms out of reach of your friend.

And I don't believe it is possible to separate friendship from business when it comes to large sums of money. If all goes well, then it's a moot point; but if anything happens and you must evict your friend and keep her money, your friendship would be over.

As I mentioned previously, if your friend still practices the same habits that caused her financial difficulty, she is destined to fail. In almost all cases, it is a better idea for the person to sell and then either rent or buy a less expensive property.

Feel free to call me to discuss specifics.
 

akinyioj

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Oct 10, 2014
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#7
I think I will stay away. Thanks asanchez. Thanks Sherrilynn. If anything comes up, I will call you Sherrilynn. Thanks again.
 

neill

Airdrie, AB
REIN Member
Oct 22, 2007
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Airdrie, AB
#9
One other comment post-decision: we were advised early in our training to not RTO back a property to the party that it had been purchased from, mainly because if there was a disconnect down the road, it could become a whole lot messier - and the person trying to help could be painted instead as a person taking advantage.