Satisfy the seller #1. Post 223

Coach Mitch’s REFLECTIONS™

In order to satisfy a seller, I was asked by a student how to put together a transaction when the tax delinquent owner wants to stay in the home.

The typical property I encourage students to seek are those properties with no liens or small liens, i.e. mortgages, judgements, etc. In this manner, the seller has the equity to give away, should their situation demand it.

Be the good guy

If you cannot create a transaction that will satisfy a seller, then you might want to tell the sellers that they can do a reverse mortgage. This is not your obligation. You are providing this good information out of the goodness of you heart.

Don’t you be the bank

Each tax delinquent has tried to do what they can to save their situation.

1. The tax delinquent tried to sell the home, but it did not sell.

2. The tax delinquent tried to refinance the property, but the bank would not do the loan, probably because the tax delinquent went to a credit bank versus an equity bank, and with their bad credit history, they almost assuredly would be turned down.

3. The tax delinquent tried to borrow from friends and family, but was not successful.

The tax delinquent tried everything they know to do, to no avail; therefore, you should be prepared when the tax delinquent asks you to lend them the money to pay the taxes.

It has been my policy that I do not lend tax delinquents the monies to pay the property taxes.

This is what I say,

“Thank you for feeling comfortable enough to ask for a loan. Sure, I have the funds; we could lend you the monies to pay the taxes, however it is the policy of the firm to not act like a bank. I’m sorry. That said, our expertise is in helping folks where the property has not paid the taxes. If I know about the situation, maybe we can help find a solution?”

Whenever you say, “No,” always offer a positive solution.

Understand the answer

When in a sales situation, it is very important to understand what to say and how to say it. Let’s break it down.

“Thank you for feeling comfortable enough to ask for a loan.” Here I pay a compliment, trying to put them in a good frame of mind. In reality however, I am a bit peeved, feeling that they have nerve asking a complete stranger for money. But I know that they are desperate and desperate people do desperate things.

Sure, we have the funds; we could lend you the monies to pay the taxes, I always try to start off with a “Yes,” that is, some sort of affirmative. I want them to know I do have the monies. Where appropriate, I use the plural, “we” to indicate that I have others to consult.

however it is the policy of the firm to not act like a bank. After saying, “Yes” it is then easier to say “No” and it is easier for the tax delinquent to accept a “No” because they have at least seen that you have considered the situation. This is a powerful idea and gives you credibility.  I use the “Call to Higher Authority” sales technique whenever I think I want an easy way to say “No” and still be viewed as a friend. “I can ask my (fake) business partner, but in the past he has always insisted on this policy of not lending. I would, if I could, but I can’t lend someone else’s money.”

I’m sorry. This should speak for itself. You have given bad info and you should acknowledge it. The tax delinquent didn’t really expect you, a complete stranger, to give them monies, but it is nice that you said “No” in such a considerate manner.

That said, our expertise is in helping folks where the property has not paid the taxes. If I know about the situation, maybe we can help find a solution?” 

I never say that “they” did not pay the taxes. I always say “the property did not pay the taxes.” We all know that the person owes the monies but it is easier to take criticism and disappointment if not it is not aimed at the person directly.

Whenever you say, “No,” always offer a positive solution. It is that simple. This is basic NLP, Neuro-Linguistic Programming. You are manipulating the sellers feelings by giving them hope just after turning them down for a loan.

Coach Mitch says, “Just Say ‘Yes!’ “

Even though they may not be able to afford it, and knowing that they owe a lot in unpaid property taxes, still, without a plan, without somewhere to go, often, the tax delinquent wants to stay in the home.

Here are several ways that you can own the property and have the sellers stay in the property.

1. Do a life estate. Buy property at a reduced amount in the name of a trust. Pay the taxes and owe the balance to the sellers on an agreement to trade the balance owed for a pre-paid rental credit. The agreement can be for a minimal amount e.g. an amount that will cover the taxes plus some repair expense. The sellers can stay in the property for as long as they live or for as long as the monies last. If they have Social Security, then the sellers should be able to pay all their other bills as well. Be sure that the lease requires the previous owners who are now tenants to pay for all repairs, capital and non-capital. You don’t want to bring the home up to code on your dime.
   1. Taxes = $20K  –  FMV = $100K  –  Purchase = $50K
   2. You pay $20K taxes and put the deed in a trust. You Owe = $30K on a rental agreement.
   3. Yearly taxes = $5K  –  Give rent credit = $500/m
   4. $30K owed = 5 years rent or life estate.

 

2. Do a purchase with refinance. Buy the property at a reduced amount. Pay the taxes and owe the balance to the sellers on a note. Allow the sellers to stay in the home for a period of time before they have to leave. At the same time, now that you own the property, you can refinance the property and pull the cash out, giving you back your cash and the monies to pay the previous owner in a lump sum if you wish.
   1. Taxes = $20K  –  FMV = $100K  –  Purchase = $50K
   2. Refi = $50K  –  Recover $20K taxes  – Pay = $30K

 

3. Do a purchase lease back, instead of paying the sellers on a note. You get the deed in a trust, pay the taxes, and then refinance the property to pull cash out. Instead of giving the funds to the sellers to pay them off, determine the fair market rent and give the sellers a rental credit against the balance owed for as long as the money lasts. All the refi cash is available to you.
   1. Taxes = $20K  –  FMV = $100K  –  Purchase = $50K
   2. Refi = $50k  –  Recover $20K taxes  –  Owe = $30K
   3. Yearly taxes = $5K  –  Give a FMV rent credit = $1000/m
   4. $30K owed = 30 months rent
   5. You have $20K + $30K cash in rents paid in advance.

There are many ways to do almost everything. Just put on your thinking cap.

This is an example of the type of coaching that Coach Mitch offers. Call anytime to discuss your future in real estate investing.

Good luck,