Not such a funny story, but maybe will inspire you to look beneath the surface... (next time I'll tell you about the time I got chased by a rooster in front of one of my private lenders,  soooo embarassing)

So I was doing the preforeclosure thing a few years ago. 

I had found this lis pendens deal in public records.  (sheesh I should be called the public record guy but that doesn't sell as well as the Private Money Guy:)) 

This was a 4 bedroom frame house with a two story garage duplex in the back.  It was in foreclosure owning around 49k but was tax assessed for 67k  So I initially it looked like a good deal. 

I was unprepared for the nightmare of a scenario that would unfold.  Turns out the property was in foreclosure, the borrower was in chapter 13 bankruptsy,  there was a 70k code enforcement lien and a demo order signed on the property due to demolish within 30 days.

On the other hand, I knew that the loan amount was under the tax assessment, and if I were to be able to stucture this right, there may be one additional benefit.

I had heard through the grapevine that the D.O.T. (dept of transportation) was planning to build a road in this area and that this property was smack dab in the middle of the planned roadway.

Now I had dealt with the D.O.T. and other municipality sales before, and each time I had absolutely made a living (I don't believe in killing:))  Just remember, this is the same government that reportedly spends a grand on a toilet seat!!

Well I had my work cut out for me, so I started with the lender, (This had been an owner finance deal)

I contacted the gentleman and offered him 25k for the mtg.  His inititial reaction was to turn me down. 

"Why should I sell this for less," He asked.  "I'm owed 50k, and if I wait, the D.O.T. will pay me off."

"Thats true," I replied.  "But, remember this property is under a demo order, and if you wait till the bankruptsy finishes so you can finish your foreclosure, you will only have a lot."  "At that point all the D.O.T. will pay is land value, around 25k."  "So you can take the 25k now, or you can wait a year and take the 25k later."

He ended up seeing it my way and gave me a payoff letter and a separate contract to buy the note.  (nothing down so far)

Second, I approached the City Code enforcement at a public hearing. 

"I need you to remove your lien and give me 90 days to rehab this property," I said.

"Why should we do that?" the board asked.

"Because," I replied.  "If you don't, I control the first mortgage on this property, and I will foreclose out your lien."

"However, if you remove this lien and allow me to rehab the property, you will have a running property to include in your tax base."

They ended up seeing it my way and reduced the lien from 70k to 1k and gave me the 90 days needed to fix the place. (Still no money out of pocket, just 2 payoff letters)

Finally, I contacted the trustee of the chapter 13. 

"I need you to release this property to allow it to be sold." I said.

"Why should I do that?"  was his response. (Whats with all these questions? I'm starting to see a trend)

"Why doesn't the lender just wait till the property is surrendered and then he can foreclose?"  He continued.

"Because," I replied.  "There is a demo order still in place and if this property isn't fixed immediately the place will be bulldozed."  "You guys are doing this to pay back the lenders and as you can see the property is over leveraged with the mortgage and the code enforcement lien so you won't get anything out." (remember all I have is a payoff letter, if I don't pay it off.  The lien still stands)

Well to make a long story short...er, He saw it my way.  He got a judges order to release the property from the bankruptsy for 2k and gave us the clear to close.  (Still no money out of pocket)

So to recap, I now have a payoff to the lender for 25k, a payoff to the code enforcement for 1k, and 2k to the BK court.  28k grand total.

I borrowed 53k from a private lender. (They don't call me the Private Money Guy for nothing) This gave me 24k to work with after closing costs. 

I put 11k into rehabbing the property, bringing it up to section 8 standards.  (this was primarily cosmetics, the owner had just let the liens accumulate at 50.00 a day.  It adds up)  I kept the balance, 13k, in my pocket tax free!! (proceeds of a loan)

I then rented all 3 units grossing 1800 per month. (800 for the 4 br and 500 for each of the duplex units) after all the bills paid, I netted over 1k per month.

Now this is where it gets fun....

One year later, like clockwork, I get a letter from the D.O.T.  Turns out there was a slight deviation from the original plan and they were not going to be taking the entire property.  They only needed an 8ft easment through my property.  Unfortunately, (for them) this easment was going to run through my frame garage duplex.

Their first offer was for 67k. which would pay off my mortgage and still allow me to keep my house and income.  I said, "NO." (you never accept their first offer)

"If you take this duplex, you will be taking away 2/3 of my income source."  "I have an income property," I said. "If you take this duplex, all I will have is a rental house, and besides, this place will also be backing up to a main road." (this is known as building a case for damages on top of property value)

They saw it my way, and we ended up settling on a price of around 97k.

But Wait, it gets even better.

I contacted my private lender and said to her, "I have an offer to buy a portion of this property." They will be taking the garage units but they will be leaving the main house intact which is worth more then enough to sustain the loan."  "If I pay you 13k would you give me a partial release of mortgage on this property." 

We have a good relationship and she liked keeping her payments going so... you guessed it, she saw it my way and gave me a partial release on the property for 13k leaving 40k on the main house which still cashflowed after paying the bills.

So lets recap again.  

I closed on the property for 28k, borrowed 53k.  kept 13k of the overage, cashflowed the property at over 1k per month for over a year, sold 8 ft of property for 97k-13kfor a partial release=84k.  By my math I made over 100k on a dinky little property that 90% of the investors out there would have looked at and after seeing the issues would have turned there backs on. 

The moral of the story is, don't sniff at the tough deals.  Look at the big picture and see obsticles for what they really are, opportunities!! 

Hope this stirs something in you,

Dave

The Private Money Guy

www.privatemoney4all.com

P.S. Around a year later, I sold the house as well for another profit.