Badly needed help on Short Sale

Foreclosures, Short Sales, Tax Foreclosures
1

The lender wants to net $160K which is effectively 90% of what is owed on the house. I’ve heard that number is based the ROI the lender’s investors want on the loan.

It looks like the lender has completely disregarded the BPO (which I think came in around the 140’s). I’ve heard that when lenders do this, they don’t want to budge.

Note: the ARV is $190K in a healthy RE Market (here in TX that is now during the summer months). $10K is needed in repairs. There is $16K in tax liens on the property. So a retail buyer would lose $ buying on their terms.

What should I do negotiation wise? The loss mitigator gave me a verbal counteroffer of $160K. I do not want to negotiate verbally.

Help!!!

2

What bank how late are payments

3

If they are willing to negotiate verbally take that first. They know as well as you all the number involved in the deal. As the negotiator you need to continue putting those facts in front of them. I use this formula to decide numbers:

Fair Market Value (FMV): $ _____.
[?] This number indicates how much the property will appraise for after all repairs are made.
// This is the begining number we start with.

Rehab Expenses: $ _____.
[?] This number represents the total rehab expense. Include all sub contracted labor, material expenses, permit fees, etc.
// Subtract this number

Taxes: $ _____.
[?] This number represents all back taxes due to bring property taxes current. You can try to include the next tax payment past what is current, but the lender may not accept it.
// Subtract this number

Commissions: $ _____.
[?] This number represents all commissions to be paid. This generally is the Realtor commission, if there is one, but not always.
// Subtract this number

Closing Costs: $ _____.
[?] This number represents all closing costs including Title & Escrow fees, mortgage company fees, appraisals, ETC.
// Subtract this number.

Your Profit: $
[?] This number indicates your profit spread.
// Subtract this number

Jr. Liens: $ 1,000.00
[?] Subtract for Second Lien Payoff.
// Subtract this number.

Your Short Sale offer is: _____.
// This number represents what you should offer the primary lien holder.

Even when the numbers are black and white and it’s obvious to everyone what the situation is, some lenders will still refuse to listen to reason. I have found that those loss mit reps who have a high failure rate at collecting lost funds are not as willing to discount for you because they are under pressure for sucking at their job.

In this situation I always try to go up a level or two, or to contact other loss mit reps in the office and try to reason with them. I have had success in by passing the rep who is giving me headaches by doing this. Either their boss will take over, order them to accept it, or the case can get reassigned all together. But again, there are some cases where nothing changes and I move on to the next short sale deal.

Good luck! :beer

4

It’s an ARM with EMC.

Foreclosure negotiator, w/o my profit calculated, the costs come out to $45K. I’ve figured out that the lender could lose at least $70K if they foreclose on the house. However, if they accept my offer, they would lose around $50K & the house would be off their books.

5

Foreclosure negotiator- when you use that formula do you put it on your short sale packet? Do you literally tell them what you expect to make in the deal or is that part just implied?

Also, I assume that you meet with people facing forecloure regularly. If a person’s best option is just to put the home on the maket for say 90% of ARV and get a quick sale to pay off the note, do you just tell them that and refer them to a realtor or do you have some way of making money off of that also?

6

What you are facing is not uncommon. As you do more and more short sales you will learn which Mortgage Companies are more flexible. Some still have not gotten the message that they have made some bad loans.

My suggestion is to work on it for a while but some times you can’t make a dead horse get up. You may want to utilize your energies in finding another deal.

7

If I buy the house, I lose $. If the bank forecloses, they would lose about $80K when they sell it as an REO. If they accept my offer, they lose $40K.

So I’m going to let them know about those scenarios and await their response.

8

Have you sent them a written offer yet? If not, send them a bona fide offer, a preliminary HUD closing statement showing a net payoff to them and any other info they need. Let them know you’re serious. Provide proof of funds if buying all cash. And then if they still don’t budge move on. Don’t waste too much time trying to solve the unsolveable. As you hone your skills, you’ll want to get to the point where you have multiple deals in the works. Focus on how you can accomplish that (ie, business development) and have other deals to work with.

9

I sent them a written offer with proof of funds, HUD-1, the whole 9 yards. I’m negotiating the removal of a non-tax lien so that would add $ to the bank’s net. Then I planned on submitting a revised HUD-1.

10

Why would the removal of the non-tax lien add to the banker’s net? Why not your profit? :biggrin

11

Basically, I was going to keep the offer price the same & since the Seller was paying the tax liens, the net to the bank would increase by $10K in this case.

I might reduce the price, pay some of the closing costs and still have a little more room for profit, while the bank nets more than they would have on my 1st offer.

12

I can’t think of any deal in which I have literally told them or showed them this formula. I may give it a try on my next deal though, just to see how they respond. So far I just put together my offer and all docs and I submit it. If they have questions, they ask.

As far as helping those when there is no apparent profit in it for me, yes, that’s exactly what I do.

I would say well over half of the homeowners I speak with about their foreclosure situation never goes further than our conversation. There are situations where it would be in the homeowners best interest to do something other than a short sale, so I tell them just that. I have a list of 8 of the most common options, often the only options, available to people facing foreclosure. You can view that list in my short sale forums via the link in my sig. Obviously not all 8 options are possible for everyone, so I discuss with them what options are best for them based on their situation.

There have even been a few times where I negotiate a forbearance or other types of loan modifications between the homeowner and the lender. When I chose the user name ‘Foreclosure Negotiator’ I did so because I really do negotiate all foreclosure aspects, not just short sales. Even if that means there is no monetary benefit or profit in it for me.

If the homeowners best option is to refinance, and it’s possible, then I introduce them to an honest loan officer within my network. If they are out of my location I’ll spend a few minutes looking for someone to help them in their area. If their best option is to sell the home, then I introduce them to a decent Realtor. I don’t ask for kickbacks or payment from the Realtors or Loan officers either. I only ask that they refer others who are in foreclosure and could use my help.

13

I have a formula…

50% of worth value…

Our job as investors is to justify our price… If youre just sending in a letter that says 100k on a 200k house it wont happen if you justify your price then you have a different outcome…

I have created an automatic utility to do all of the paperwork for me… in 30 minutes I can have a SS package out and to the bank…

14

Ok, here’s an update:

I got a $10K non-tax lien removed. So I counteroffered the lender’s $160K with $124K, which still resulted in an increased net from my 1st offer.

The lender came back with a counteroffer net of $150K. Keep in mind there are $22K in taxes owed on the property, so I would have to pay $172K (which is at least $22K more than the BPO) to get the house.

I just submitted a counteroffer of $130K. Mind you, my original offer was $129K. The net to the bank would be around $106K.

This time, I submitted a spreadsheet showing the Current Market Value of the House (based on what I think the BPO was) minus expenses the lender would incur in the sale of the house should the bank foreclose. When it is all said and done, the final number is a Net Recovery Value that the lender would get from the sale of the house.

I figured out that if the lender accepted my offer, they would save at least $15K from foreclosure. So I told them that my offer is a win-win situation for all parties involved.

I also provided documentation showing that the market is slowing down, and that Texas (where the house is) has the lowest average credit score in the nation (I provided documentation for that too), so the market will get worse before it gets better.

I expect lender to respond in the next couple of days.

15

Here’s an update:

The lender called back with a firm $150K net that they wanted. They don’t seem to care that there are $22K in taxes owed (3 yrs).

An investor like me won’t buy it b/c the house would have to be bought in the $130’s for a profit.

A retail buyer won’t buy it b/c it would have to be listed for $200K to net $150K (after closing costs, commissions, taxes, and 5% for negotiation are taken out).

Oh yeah, a house like this one might sell to a retail buyer for $180K according to the CMA. That’s after being on the market for 200 days & no repairs needed.

This house needs $12K in repairs to bring it to marketable value.

So it looks like the lender is going to foreclose and lose $60K on this property, where instead they could have let me buy it at my price and lose only $35K or $40K.

Go figure.

16

Banks rarely do anything that makes sense. Wait until they take it back and resubmit your offer monthly until they take it.

17

I spoke with some loss mitigation supervisors & they’re not going to budge on wanting $150K net. In essence the buyer would be paying the $20+K in property taxes.

There’s no way an investor would buy this house! So therefore it would have to be listed w/ an RE Agent.

So to cover some negotiation wiggle room, closing costs, commissions, the house would have to be listed at $200K. This would make it the most expensive house in the neighborhood. And $12K in repairs would need to be done to make the house comparable with others in the neighborhood that are listed.

So when I tried to tell this to the lender, they seem to be in dreamland. They think someone will buy it at the auction for $160K, in December, even though the $20K+ tax liens survive foreclosure.

And people wonder why lenders are writing off billions of $ from loan defaults.

18

If they won’t budge or you’re getting a lot of red tape, wait till it’s an REO. Right now a lot of subprime loans were packaged and sold off as securities, so the “lender” really doesn’t have the final say. Once it’s an REO you’ll deal directly with the people who can approve it. Obviously it would be nice to get the short sale done but in cases where the lender is being stubborn let them take it an pick it up as an REO.