I recently was discussing the purchase of a home in Cherry Hill, NJ with an investor. The seller was behind on their mortgage and owed slightly more than the property was worth. In this situation I would only be representing the buyer, but the seller would also be represented by a licensed agent. The offer that was made was to purchase the for the amount owed, subject to the existing debt. In this scenario the buyer would only bring enough cash for the closing costs. The seller would receive no cash, and their mortgage would not be paid off. The investor would sign a document agreeing to bring the mortgage current, and make regular monthly payments until the mortgage was paid in full. However, the seller would still be obligated to pay the mortgage in the event that the investor did not. The only recourse that the bank would have against the investor would be to foreclose on a property that was fully levered.
The question that I got from the other agent was, "why would anyone do this... ever?" I think that this is a legitimate question. The homeowner is taking the risk that the investor will not make good on his promise and their credit would continue to decline. In this case the sellers had already vacated the home, so they weren't risking losing their place to live. My reply was that with the investor the seller had a chance at making good on their mortgage payment and helping their credit, where without the investor, they were guaranteed to continue to miss their payments and get deeper into trouble. Also, the investor has nothing to gain from buying the house and then walking away, so there is a reasonable chance that he will be making the payments. The biggest reason that I've seen sellers accept these types of terms is that they just don't want to deal with the problem any longer. Sometimes sellers will even pay investors to take over, if they are upside down on their mortgage.
As with any transaction, it is always best to consult your attorney and your real estate professional, but in the end, sellers and buyers need to make the decision that they believe is right for them.
Joseph Cacciapaglia, MLERE
Realtor Associate®
R&I Realty
15 Potter Street
Haddonfield, NJ 08033
Office: 856.795.3111 x268
Cell: 979.218.2286
Jcacci1@gmail.com
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