An Uphill Battle
An Uphill Battle
Location: Madison, Miss.
Square footage: 2,423
Lot size (square footage): 21,780
Year built: 1996
Extras: Quiet cul-de-sac in a sought-after community, good school district, and completely remodeled with upgrades, such as new appliances, countertops, and tile.
The Madison, Miss., house was the kind you'd see in a homes and gardens magazine, says Susan Dorroh, a sales practitioner with Residential & Acreage Group LLC in Brandon, Miss. But the listing's 7-inch slope was a huge blemish on an otherwise picture-perfect view.
Foundation issues are common in the metropolitan Jackson area, and local guidelines allow for a 3- to 5-inch slope in one direction. But two separate parties had already walked away from listing contracts with this house because of the 7-inch slope. And the home, which normally would sell within 44 days, according to Dorroh, remained on the market for more than 40 showings and four months.
"It was like trying to sell a car on a lot with four Honda Pilots," Dorroh says. "Three of the cars have dings. One of them doesn't. Most buyers are not even going to get into the other three. They are going to walk over to the one with no dings and drive off."
Finally, a buyer who didn't mind the slope appeared. However, another problem then emerged: With two late payments in his current mortgage, he was unable to qualify for a traditional loan.
"He loved the house and had $41,000 in proceeds from the sale of his current home," she says. "But he needed about 6 months to repair his credit and was looking for a lease purchase. Typically, a lease purchase is not a good deal for the listing agent."
Also with a lease purchase, the seller has to carry the insurance and pay the taxes on the property, she notes. Plus, "the person leasing the home does not always end up buying the property," Dorroh says.
How did you overcome the challenge?
DORROH: My sellers agreed to do an [all-inclusive or] wrap deed of trust and a promissory note with a balloon payment in 12 months. In this case, you wrap a second deed of trust around the first mortgage.
So the buyer takes a loan from the seller — a second loan — and signs a promissory note back to the seller. The seller uses the payments on the second to pay the first mortgage.
When the buyer pays off the second at the end of the term, the proceeds pay off the first loan and the seller gets the balance. We used to do this a lot when interest rates were high in the 1980s.
The buyer purchased the property from my seller and put $25,000 down. It's kind of like owner financing, but the seller doesn't get all the money up front. And it provides protections to both buyer and seller. The title is in the buyer's name, so the buyer has a vested interest in making timely payments on the property.
After 12 months, the buyer's credit is restored, and the buyer uses a new loan to pay off the original seller's note. You have to get the lender's approval to do this. But if you have a seller with good credit and a good relationship with the lender, you can get that due-on-sale clause waived. That's what prevents people from doing this in most cases. But if you have a strong creditworthy seller, the lender will often waive that clause. My seller was a doctor. He had good credit and good income.
The buyer gets title to the property and a home that's essentially his. With a lease purchase, you're still not really thinking this is your house. If the buyer makes any improvements to the home with a wrap deed of trust, he is building equity. He gets the tax benefits of ownership. And he is paying a mortgage on time and repairing his credit.
The term of the note was one year. So at the end of one year, the buyer refinances. This is perfect for people who are just a few points off on their credit score. If they do something like this, their credit score pops back up. Not every seller is willing to do this, but it worked in this case.
What was the selling price?
DORROH: We listed the home for $263,000 in February 2009. We adjusted the price according to the slope and closed for $239,900 in July.
How did you market this property?
DORROH: I did all the marketing on the Internet, Realtor.com, and the local MLS. I spent about $300 marketing the home.
What was the housing market like at the time?
DORROH: The market had started to slow down a little because the banks had just begun shutting down the financing.
How did you find a buyer?
DORROH: The buyer's agent brought the buyer to me. They saw the property on the Internet. The only reason I knew about this buyer's particular situation is that I followed up with every showing and called back every sales agent that came to the property. If I hadn't done that follow-up work and talked to his agent, I would never have uncovered that particular buyer's need.
And if I hadn't figured out a creative way to fulfill that need, the deal would have never happened.
What's the biggest factor you attribute to closing the deal?
DORROH: Thinking outside the box, being creative, and following up on every lead. Buyers were afraid of the slope. The mortgage company was afraid of the buyer who wasn't afraid of the slope. But the seller took a risk on the buyer. And I found a creative way to pull together the financing.
What lessons did you learn?
DORROH: This transaction substantiated the fact that anytime you have a listing, you must stay on top of the buyer's agent and help that person sell your house.
You have to work hard in real estate. It is not easy. I work longer hours and take bigger risks than in any other job I've had. You have to have good negotiating skills and be able to showcase your value. I am not afraid to hit people between the eyes with the right stuff. And I back everything up with facts.
You need tenacity to make it in this business. I tell my clients that I'm in the business of selling houses, not listing houses. If they aren't going to price it right and be reasonable, I won't take the listing.