New to foreclosures

[CAMCAT]

I was at a seminar and heard them discussing foreclosures and would like a little clarity. If I offer a bank say $70k all cash offer and it is rejected. The seminar said then to offer $70 and ask for like a $20k repair loan from them. Something like I scratch your back you scratch mine. Does this make since and what type of loan would you ask for?

[javipa]

Banks can do just about anything they want with a foreclosure when it comes to price and terms.

Things that influence a bank's flexibility include at least the following:
How long they've owned the property.
How much equity they captured, if anything at the time of auction.
What time of the year (Christmastime when they need to clear their books)
Demand for the property (numbers of offers they've received, and the amount of the bids)
The relationship you have with the gatekeepers, and how many deals you've done, or they believe you will do.
Your track record with the lender (not pulling out of an agreed deal at the last minute, etc.)
How well you develop a relationship with the lender's gatekeepers (their agents, their officers, and their toadstools/minnows at the bank).

Did I mention anything about relationships?

Meantime, just ask the bank what they would consider by making the offer. 

Many years ago, I asked a small-town bank to finance their a 10-unit fixer/foreclosure, including the repairs, AND finance another apartment project I wanted to buy, IF I took their 10-unit piece of crap (in the sticks) off their books.  They agreed.  Unfortunately, I got the financing I needed on the apartments, and abandoned the 10-unit deal.  That was STUPID on my part.  I still can't believe I did that.  Here I could have owned two projects, with one with 120% financing (approximately).

So, yes, if the deal makes sense, and solves the bank's problems, and they believe you're a reliable 'partner' in their solution, they'll agree to terms. 

Frankly, I'm not understanding exactly how your offer benefits the bank exactly, other than earning interest on a second ...on a property they don't want to fix themselves ...much less take a discount that reflects a $70k price...

BUT it's worth a try, if it makes sense to you, and solves the bank's problems. 

If this was an insured loan, likely the bank will have to convert the loan to a portfolio loan to you, in order to make the terms works at all.  Just saying.

[CAMCAT]

Javipa,
 What is the best way for me to go about this? The asking price is 95k. It is listed with 1228 sq ft. I went to the city and 200 sq ft is not permitted. Previous owner did a failed attempt to make attic space a play room. It will have to be made back into an attic space.The bank brought it 2 months ago for 71k. They previously had a multiple offer about two weeks ago. They rejected mine and excepted the other. After inspection the other buyers could not replace the roof. They offered 90k is what the realtor told me. However, with the 200 sq ft less I think the most the house would sale for would be about 103k after flip. We have a golden relationship with our local bank but have been having to go through a realtor for this. Any thoughts would be greatly appreciated.

[javipa]

Javipa,
 What is the best way for me to go about this? The asking price is 95k. It is listed with 1228 sq ft. I went to the city and 200 sq ft is not permitted. Previous owner did a failed attempt to make attic space a play room. It will have to be made back into an attic space.The bank brought it 2 months ago for 71k. They previously had a multiple offer about two weeks ago. They rejected mine and excepted the other. After inspection the other buyers could not replace the roof. They offered 90k is what the realtor told me. However, with the 200 sq ft less I think the most the house would sale for would be about 103k after flip. We have a golden relationship with our local bank but have been having to go through a realtor for this. Any thoughts would be greatly appreciated.

ISSUE:
You're buying a 1,028 sqft house not 1,228.  That two hundred sqft makes a huge difference in value.  Don't pay for what you're not getting.

ISSUE:
Now the bank knows about the discrepancy over sqft-age, and this should be used against them in your offer.

ISSUE:
Now the bank knows about the bad roof.  See above 'issue' and do the same with the roof.

ISSUE:
Your offer should include a cover letter that explains/justifies your offer, and why it benefits the bank to accept it.  For example, you would list and summarize the defects in the property; the roof, the mold, the dry rot, the illegal attic conversion, the discrepancy in the square footage, the cracked driveway, the dirt-for-a-lawn, the tree stump, the dilapidated kitchen and bath, the sagging porch, the cracked windows, the doors that won't shut correctly, etc. etc.  Then you say, as a result of these conditions, and the comps I've found (list, or don't list the comps, depending on what will help you the most) the best price I can offer is, "You pay me $10,000 to buy this hell hole." 

ISSUE:
You do not have a golden relationship with the bank.  You have a business relationship with the bank's agent.  Not the same thing.  If you had a golden relationship with the bank, you wouldn't be farting around with an agent's interference.

ISSUE:
This deal is likely too fresh for the bank to get desperate about selling.  Remember, the bank officers have to 'sell' the price they accept to their head honchos ...and then get approval of whatever they accept.  Never mind they probably believe they can liquidate this property without further loss, selling through the agent with which you allegedly have a 'golden relationship.' 

The following story illustrates how 'golden' your relationship 'is' with any agent:

Two Banditos, Juan and Pablo, held up a gold-carrying stage coach near the border and robbed the passengers of their chest of gold.

Later the Sheriff caught up with the Banditos near town, but the gold had vanished.

Unable to speak Spanish, the Sheriff called for Enrico, the town land broker, who spoke both Spanish and English to translate for the bandits and himself, and find out where the stolen gold was buried.

Enrico happily obliged.

When the Sheriff asked the Banditos where they buried the stolen gold, Enrico relayed the question, but the bandits wouldn't talk.  Enrico informed the Sheriff that they wouldn't cooperate.

So the Sheriff pulled out his six-shooter, spun the revolver, and told Enrico to relay the message that the Banditos had exactly one minute to fess up, and reveal the location of the buried gold, or he would shoot them each in the head.

Enrico relayed the Sheriff's threat, and so frightened the Banditos that they gave up the location of the gold, explaining that it was buried under the Oak tree in Dead Mans' Gulch.

With that new information Enrico turned to the Sheriff and said, "The Banditos say, 'Go ahead and shoot!'"

ISSUE:
What is the going discount on rehab flips in your area.  In my area, investors will gladly buy at 85% of ARV, less repairs.
What is the repair estimate?
What is the actual ARV on a 1,028 sqft house of the same age, beds/baths, and location?

ISSUE:
You need to absorb what I've submitted and let that inform your offer and negotiation.  At the same time, the bank simply may not be motivated enough to accept a profitable offer from you. 

ISSUE:
You've got about three bites at the apple, before you need to move on.  This means, starting low, and moving up to your highest and best offer (and stopping), and finally monitoring the deal until it sells, or you make a followup offer every thirty days, or when your 'golden' agent suggests the bank is likely to accept your last 'best' offer.  Either way, it's a waiting game.

ISSUE:
There's more than one way to negotiate an offer with a bank, and the more ways you can come up with, the less the 'golden' agent can read you, and telegraph to the bank what you're actually doing/thinking.  Remember Enrico?

ISSUE:
There's an unwritten rule in real estate negotiations that says you will agree to a price that falls in the middle of where you and the seller started.  That is, if the seller wants $100,000, and you need to be at $80,000, then your opening offer should start at $60,000.  This way, you can make the seller work to accept $80,000 and feel good about the deal.  Same goes for you.  Everybody needs to feel like they did the best they could do to strike a deal.  If not, a closing is less likely.

FWIW




 

[marksmith]

Banks can do just about anything they want with a foreclosure when it comes to price and terms.

Things that influence a bank's flexibility include at least the following:
How long they've owned the property.
How much equity they captured, if anything at the time of auction.
What time of the year (Christmastime when they need to clear their books)
Demand for the property (numbers of offers they've received, and the amount of the bids)
The relationship you have with the gatekeepers, and how many deals you've done, or they believe you will do.
Your track record with the lender (not pulling out of an agreed deal at the last minute, etc.)
How well you develop a relationship with the lender's gatekeepers (their agents, their officers, and their toadstools/minnows at the bank).

Did I mention anything about relationships?

Meantime, just ask the bank what they would consider by making the offer. 

Many years ago, I asked a small-town bank to finance their a 10-unit fixer/foreclosure, including the repairs, AND finance another apartment project I wanted to buy, IF I took their 10-unit piece of crap (in the sticks) off their books.  They agreed.  Unfortunately, I got the financing I needed on the apartments, and abandoned the 10-unit deal.  That was STUPID on my part.  I still can't believe I did that.  Here I could have owned two projects, with one with 120% financing (approximately).

So, yes, if the deal makes sense, and solves the bank's problems, and they believe you're a reliable 'partner' in their solution, they'll agree to terms. 

Frankly, I'm not understanding exactly how your offer benefits the bank exactly, other than earning interest on a second ...on a property they don't want to fix themselves ...much less take a discount that reflects a $70k price...

BUT it's worth a try, if it makes sense to you, and solves the bank's problems. 

If this was an insured loan, likely the bank will have to convert the loan to a portfolio loan to you, in order to make the terms works at all.  Just saying.

Great explanation Javipa.
Really appreciable. Thanks for sharing the post.