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Difficult Dealings in the D: What Two Gals Dealt With To Buy

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Work is underway at the home that two current Colorado residents purchased for $24,500 so that they could ditch the west and make a life in Detroit. Enjoy the dumpster-adorned shots taken yesterday as the building gets gutted and expect good things: in this couple of two lovely ladies one is an Architect. They estimate it will take $65,000 to get it habitable so clearly, the home has seen better days. In fact it used to be owned by famous composer Arthur Herzog, Jr., who is known for working with Billie Holiday. Unfortunately, the current owners did not have an awesomely famous seller to buy this from; they had to deal with a company in Florida. Most of what they learned about the sellers came from small talk at the first closing they had scheduled (where they failed to close). The Florida-based investors got into Detroit home buying to supplement their retirement. They met some guy at a convention in Las Vegas that was operating a similar business in that market, and that's where they got they idea.

Basically, the sellers in this case buy homes in bundles off an auction block and each group contains some crap houses and some decent houses. In an email interview with Curbed, one of the new buyers explains the business this way.

They "help" people who can't get loans through regular channels get into a house (or stay into the very house that got foreclosed on them) and "sell" it back to them. Basically, these guys make a lease-to-own agreement which make the tenant/buyers responsible for repairs and upgrades. As soon as they can't make the payments (which often happens) these guys get the house back (including improvements, if there are any). Of course, what the guys don't say, is that this last scenario is often what happens for people who aren't stable enough financially to have got loans through normal routes in the first place. What is crazy is that these guys see themselves as some kind of altruists, helping people that no one else will help. So what is it like to buy from these characters? Here are some lessons these gals picked up about the Detroit process and its challenges.

Part 1: Lending Hurdles
If you've never bought in Detroit before, you may not be aware of how difficult it can be to secure a loan. Yes, the properties are cheap, but most people don't have enough cash on hand to do the entire renovation so they are still needed. This middle class couple got stuck for a while because they found themselves in the type of territory where they were getting too cheap of a house to borrow against it, while they made too much money to qualify for a government-backed loan. This can be a real project killer and also one of the reasons speculators scoop more homes than average, well-meaning people that cannot handle the bank headache. Eventually, the couple lucked out with a connection to a friend's mom that worked at a bank and helped them out. Bottom line: Detroit home buyers don't always get the bank-support that financially secure adults in other places might expect.

Part 2: Insurance Options
Here's a suggestion to help the local real estate market improve its sales: do something about the insurance situation. These buyers found that there are only two places in the whole of Michigan that will insure an unoccupied property and that they charge two arms and two legs for it. Having more options here, perhaps even a city-backed insurance program would have really helped them out.

Part 3: Closing Drama
The Florida sellers showed up to the closing on this house without the owner's policy of title insurance, a document that should say that a professional has reviewed all liens on the property and verifies that the buyers won't get any surprise bills from the IRS or for unpaid work. Pretty important when you consider that the sellers had failed to pay $13,500 in taxes on the property and therefor did not seem all that trustworthy on financial issues. The sellers tried to convince the would-be buyers they did not need it and this sounded fishy so they decided to walk away from the deal that day. And they were pissed at the time. Fortunately they learned from a local lawyer that the failure to provide the title insurance means the sellers are in breach of contract. The lawyer served them a notice and thankfully they respond without dragging this into court which could have taken another 6 months to a year and cost $7-10K.

So at long last, another Detroit fixer-upper is bought thanks to incredible perseverance. Sure, the average buyer likely won't face all these issues all at once but you can bet buyers in Royal Oak don't put up with half of this shit. So we'll say this, Detroit buyers that manage to rescue houses from slum lords when it might have been easier to just chuck the plans and move to the burbs deserve a warm welcome and a thank you. So to the Colorado ladies: welcome. Thank you.

· Colorado Couple Rescues Home With $13,500 in Unpaid Taxes [Curbed Detroit]