have questions concerning short sale

Foreclosures, Short Sales, Tax Foreclosures
1

Hello, I am a new short sale investor and I have some basic questions on whether this is a good short sale deal or not. I think so but here it goes.

it is a newer home with no updating or work needed. it is currently listed fsbo on iggys house mls for ~ $260K the owners, husband and wife, both lst their jobs and the wife still has no work and they cant afford the new ARM adusted payments. they have already moved into a cheaper rental and are cleaning the home polising the hardwoods etc. they just want out. The homes in the area that are similar have been selling recently for $260/$270k. Its a 4 bed room 2 bath home ~ 1200 square feet, not sure if that includes basement. Recent appraisals however are more like $290k for similar homes in the area and some are on the market for this price. Sheriff’s sale date is coming fast. Their first loan that they have on the property is for $192k including penalties. they are behind 4 months on their ARM for this loan. The second loan is for $47k my thought was to negotiate the second mortgage down and then either subject to the first mortgage or use other financing until I can find a buyer. Obviously I need to do more due diligence on the prices values of this home but I wanted to see if this is a short sale candidate given that the house does appear to have some equity. As I would also like to offer the bank less on the first mortgage and not have to make up the back payments.

The other issue is how much should I offer the bank as this is a new house in good condition and I don’t want to lose out on this deal?

What is the best way to get this sale date postponed by the bank? Can I still have the sellers file chapter 13 in time? Sheriffs sale is in a month.

thanks,

Quattro

2

This is the formula that I usually use to figure my short sale offers.

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.

Keep in mind that the lenders are going to attempt to collect as much of their debt as possible. The loss mitigation representatives jobs are to keep loses low, this means taking the path with the highest return. If your short sale offer does not create as much of a return as they believe they can get otherwise then you need to look for another foreclosure, there are plenty out there. Not every foreclosure qualifies for a short sale. So don’t worry about “loosing out on this deal.”

If you already have an end buyer, or plan on buying yourself then you can generally postpone an auction by simply asking. If you convince the loss mitigation rep that the chances of closing are high, then they will not have a problem putting it off. But be sure you can perform, if you need to postpone again they are not as willing to do so a second time.

Unless the homeowner has a pile of other debt, and they plan on filing bankruptcy anyway (or if it is in their best interest to do so) I never encourage them to file just to post pone an auction date.

3

Thanks Matt,

I think if the numbers work out on this one I am looking at a liquidation value of around $260k with the appraised value ~ $290k shouldn’t I just pay off the first mortgage and back payments penalties, after I of course negotiate the second down to $1k ? I think I want this house for that value which would be ~ $200k I have financing set up for 2-3 years at 80% as a percentage of appraised value is $232k, interest only, so I would have that extra money to use for my business cash flow and I could lease option or rent the property or sell it and get more profit later. Sound like a possible plan? Or, would the bank expect more than their debt considering the homes FMV?

Quattro

4

The bank could not get more than what they are owed unless they foreclose on the property then are able to sell it as an REO for more than the previous debt owed. If you offer the primary the full amount plus all expenses then they will take it. If you bring the debt current, they will accept that as well. Their only concern is to repay the loan.

You may run into a problem with the second lien holder. I know many of them will not accept a short sale unless they see the primary lender accepting a loss as well. There is no way to tell how much of a loss they want to see the primary take, but the more the better. So in order for you to successfully negotiate a short sale with the secondary down to $1,000 you had better get the primary to accept a short sale as well.

This means that the property has equity in it. You now take the chance of the primary gambling on recouping more of their loss by foreclosing and selling as an REO than to accept your short sale offer. This is why properties that are over leveraged make better short sale properties than those with equity still in them.

5

Hey thanks again,

I understand, I will look at the numbers and see if the house truly has that much equity. If I negotiate a short sale with the primary of say the current loan amount minus closing costs and the back payments will that be enough of a loss for the secondary? Maybe there is no way to tell. Should I first negotiate with the secondary lien holder to see how far I can get them down before I begin with the primary short sale? I may only get one shot at this so I want to offer the primary enough but not piss off the secondary. Like you said this might just not be a good short sale. I will feel both loss mit reps out and see what I can come up with once I look at the comps for the property. I’ll explain to the seller that this might not work out.

appreciate the responses

Quattro

6

There’s no reason why you can’t negotiate a short sale with both lenders at the same time. Often, the primary lender specifically requires that all Jr. Lien holders accept $1,000 as a pay off or they will not accept the short sale. It really puts us as negotiators between a rock and a hard place.

In that situation I explain to the second where the primary stands. I point out that their own policies (the Jr. lien holders policies) reflect the same as the primaries in that when in the primary lien position all Jr. lien holders must accept $1,000 as a short sale payoff. Sometimes they’ll catch me and point out that they don’t have that rule, but most of the time I have found they do.

There’s no way to tell what the second lien holder feels is an acceptable loss on the primary’s part. I usually try to avoid saying anything that indicates what my negotiations are with the primary, but they generally specifically request to see the payoff letter from the primary before they will issue their own.

Submit your offer to both lenders. The primary will come back with a counter offer. Counter their counter on the phone. There’s no need to go back and forth submitting paperwork. Once they have your first offer you can do the rest of the negotiating over the phone. Once they indicate what number they will accept you will then need to re submit the offer reflecting that number.