First of all, I would like to thank the members and moderators of this great board. Your postings have educated and inspired me greatly.
I’m a new investor and just received my first call from a seller in foreclosure. This is what I know so far from a preliminary phone conversation: He currently owes: 575K on the loan
Two mortgages: One for 460K, and the other for 115K. =
575K total encumbrance.
a. First mortgage initiating foreclosure. $2702 a month mort.
payment
b. Second mort. Is 1249 a month
c. Seller behind on both mortgages for 4 months = $15,804
past due.
Two houses on the property/deed.
a. One is 3 bed 1 bath, the other is 1 bed 1 bath.
b. Property values in this area are running at about 525k on the
low, to 625k on the high.
From what I understand, a deal is prime for SS if the load is “upside/down”. In this case, this is not necessarily the case, as the load is 575K and property values are within this range.
MY QUESTION:
Given the facts, how would you experienced investors look at this deal? Would you be looking at it in terms of SS, LeaseOption, Subject-To, etc.? Any constructive comments and suggestions would be greatly appreciated here. I’m meeting with the seller tomorrow and will keep you guys in informed.
I am not an expert but think you really need to get a better idea of the price of the home. Whether the home is closer to the 525 or 625 range will ultimately determine how you approach this deal.
If the home has no equity or very little equity, you will have to short this one. The property does not necessarily have to be upside down to do a short sale. You merely have to convince the bank that the property is in fact upside down. But, before you do anything you will have to get a better idea of the homes actual value. You cant make a good decision with bad or incomplete information.
I am not an expert but think you really need to get a better idea of the price of the home. Whether the home is closer to the 525 or 625 range will ultimately determine how you approach this deal.
If the home has no equity or very little equity, you will have to short this one. The property does not necessarily have to be upside down to do a short sale. You merely have to convince the bank that the property is in fact upside down. But, before you do anything you will have to get a better idea of the homes actual value. You cant make a good decision with bad or incomplete information.
Thanks Gregg,
You make some good points. I see what you are saying in terms of presentation to the banks. I was also looking at that second loan of 115k. If the first loan forecloses, wouldn’t the second loan be wiped out if this goes to auction?
Perhaps the key here might be targeting the 2nd positions. What do the rest of our experts think??
Yes, the 2nd is the “target”. Assuming even the low end value of 525K the first at 460 likely won’t budge. And you are correct, if the first forecloses the second will be wiped out. So the challenge is to convince the second to take pennies on the dollar.
Thanks for the constructive/informative responses Gregg and SwgProp! After meeting with the seller, I learned that a previous investor had already attempted to short this loan.
Curious how Notice of Default was filed only a few days ago, yet seller/investor already tried to SS.
Anyway, I’m going to paint a depressing picture for the 1st lender to try and short this loan (460K). I’m also thinking about tactfully scaring the 2nd position with threats of foreclosure and the prospects of getting zero monies on their current loan (115K).
QUESTION:
Should I wait until a month before the auction before approaching the 2nd position with my offer of pennies on their dollar for their loan? Or should I start negotiations now?
Is the second lienholder a financial institution? No need for tact, lay out the facts, they are quite familiar with the scenario by now. They may be more inclined to negotiate as the sale date approaches, but bear in mind that most institutions need up to 30 days to make a SS decision.
you may want to have something in writing b/w you and the seller that you advised him/her to seek legal or tax advise on the ramification of a short sale. (since you are the investor the courts will consider you more knowledgible than the homeowner.) just a thought.