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One of my BFFs is about to make a tragic mistake, and I really do not know how to stop her. A little less than a year ago, she filed for bankruptcy. Now she's looking at purchasing a home that was foreclosed on — good price, but the property value probably won't hold steady, given the area in which it's located.
She found this ... I don't know what to call it, really. A place that purportedly helps people with bad credit get home loans. They told her that they'd get "investors" to buy the property for her, and she'd make the payments to them. Catch is: She has to pay this place $99 a month for two years for "credit repair." Now, we all know that credit repair is a scam, right? Ain't nothing you can do about a public record (bankruptcy) on the records.
I write articles about personal finance, but I have never heard about this type of arrangement (yet). What type of scheme is this anyway? Something tells me that the interest of her "loan" would be through the roof, too. Any advice to pass on?
If you could get the name of the company, we could look it up and see what they're about. Hard to imagine anyone giving a mortgage to someone who went bankrupt so recently. Why wouldn't the investors just buy the place for themselves, if they thought it was worth investing in? Maybe some kind of a rent to own thing?
If you could get the name of the company, we could look it up and see what they're about. Hard to imagine anyone giving a mortgage to someone who went bankrupt so recently. Why wouldn't the investors just buy the place for themselves, if they thought it was worth investing in? Maybe some kind of a rent to own thing?
From the OP, it does sound like the investors are buying the property. Seems more like a lease/purchase arrangement while they work on her credit.
Quote:
Originally Posted by supernaut112
...They told her that they'd get "investors" to buy the property for her, and she'd make the payments to them. ...
Be Free, they're likely doing a sandwich lease of some sort. If not, I guess they feel her credit is good enough that she'll be able to close as soon as the bankruptcy drops off.
If you could get the name of the company, we could look it up and see what they're about. Hard to imagine anyone giving a mortgage to someone who went bankrupt so recently. Why wouldn't the investors just buy the place for themselves, if they thought it was worth investing in? Maybe some kind of a rent to own thing?
That's what I'm thinking, too. If "investors" purchased the property, they take title. If they take title, and she takes the mortgage, that sounds like it's all kinds of wrong. The credit repair fee is what mystifies me. By law, these places cannot charge an individual until they perform the services they agree to perform.
That's what I'm thinking, too. If "investors" purchased the property, they take title. If they take title, and she takes the mortgage, that sounds like it's all kinds of wrong. ...
You need to get a copy of their agreement to see how it's structured.
Be Free, they're likely doing a sandwich lease of some sort. If not, I guess they feel her credit is good enough that she'll be able to close as soon as the bankruptcy drops off.
That's what I initially thought, but don't investors look for properties in desirable areas for this? She's looking at a manufactured home in a small, rural area. It's in decent shape, but this is not a property that I personally would invest in, given what and where it is.
It would be a non-owner occupied home, so the interest rate would be higher for the investor, but only about 1% or less. But they could charge her whatever interest rate they wanted to (predatory lending), since it would then be an owner-carry type sale. In other words, they buy the house, and either do a lease purchase agreement with her, or actually sell it to her as an owner-carry on the loan, either way, the terms can be whatever everyone agrees to. The terms will always favor the seller (the investment company), and usually favor them A LOT.
If it is done as a lease purchase rather than an owner carry, it will continue to be non-owner occupied, and the insurance will be higher, and she won't qualify for any property tax breaks that owner occupants would get, so the payment would be higher.
I'd want to know what guarantees were in place for the credit repair. In other words, after paying them $99/month for 2 years, if her credit was still not good enough to buy the house, I'm guessing the paperwork says she is in default, and loses everything, which is totally unfair.
So, is it a scam? Maybe, maybe not. Is it a good idea? Probably not. But if she does want to go forward, I can't stress enough the importance of having the paperwork reviewed by a real estate attorney (her own, not the sellers) and renegotiating for fair terms.
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