Hi, I am new to this whole short sale game. I was introduced to the concept from a company that claims to be short sale experts and to have done lots of them for 50-70 cents on the dollar. However, after a little investigation (and experience at this point), I am not sure if everything they represented is correct. I was hoping someone with experience (and no alterior motive) could shed some light on what is really the case when it comes to short sales. I actually started to submit my first short sale offer to countrywide in the last few days and one loss mitigation rep told me they MUST take a short sale offer on this home and even had me open escrow on the home before i even submitted an offer. The homeowner has already filed BK once and willing to do it again. He owes 348k on the 1st with countrywide and 79k on the 2nd with someone else. The home is valued at about 435k and the auction date is in 1 month. I am confused as to how much to offer countrywide. The company i learned from says start your offer at 50 cents on the dollar and dont exceed 70 cents, but then when I spoke to another countrywide loss mitigation rep yesterday she said they NEVER accept anything that is less than a 5% discount off of the owed loan amount and that they wont allow the 2nd mortgage holder to take more than a 2k payout. She said they wont even counter my offer if i offer them 175k on the the 348k owed to them. Not to mention when i spoke to the lender that holds the second and suggested i may offer 8k on the 78k payoff she acted like I was crazy. She said just go negotiate the 1st first and then get back to us. Also, would it effect my offer if i am financing the property as oppossed to paying cash? I am preapproved and can close in 10 days. Isn’t it weird that they would have me open escrow not even knowing what i plan to offer? Then of course I havent negotiated the 2nd yet but it sounds like they arent going to be to excited about 2k like countrywide supposedly requires. Is this loss mitigation rep just BS’ing me to try and induce a better offer? Is the company I learned from totally full of it? Anyone with real experience and insight into any of this would be greatly appreciated.
Heres my .02c, Countrywide telling you they must short sale this home and to open escrow is highly unusual. I think either that rep was misinformed or leading you on.
Given your numbers, 348k+79k= 427k owed. Home value 435k. Why would the 1st or 2nd short anything? Hopefully the home needs a great deal of repairs and the comps are very low. Otherwise there is no incentive for either position to short.
Starting your offer at 50 cents on the dollar might be good IF the present property condition supports it. Given the info present, it does not support it.
The rep that said they never accept anything that is less than a 5% discount off of the owed loan amount is lying.
If you can prove to the 2nd that the value of the home less then 348k they will come down to 2k. Since the 1st is telling you to open escrow and they must short this home do a 3-way call with the lenders and have the 1st tell this to the 2nd. I have not done this but read about that technique on this board.
What is the as-is value of the home?
I recenty got a 45k position to 2k. This was done with just a cover letter that explained the situation an ATR letter, sales contract, foreclosure filing from the 1st and MLS comps. I initially offered 1k and they vehemently rejected it. A couple of days later I called to plead my case, that was going nowhere. Then I simply asked how much do you want for the loan she told me she would call me back. 20 mins later she tells me they will accept 2k for the loan. My moral of the story is to keep trying. The way they turned down my 1k offer had me believing I had no shot at the deal. This all took 9 days.
Thanks for the input bovine. The home needs about 10-15k in repairs. According to the company that taught me about short sales…the banks will take a short sale offer to save their lending credit because they are very regulated by the gov’t as to how many foreclosures they can get without getting their rates penalized, etc., and as the foreclosure rate increases nationally the banks are forced to negotiate more deals to save their business. Doing my own research and seeing your response, “Given your numbers, 348k+79k= 427k owed. Home value 435k. Why would the 1st or 2nd short anything?” does that mean what i was taught was incorrect and the banks will only accept/entertain a short sale if the homeowner is upside down? If that is the case wouldn’t you only ever achieve getting a home back down to fair market value which would defeat the whole idea of getting a better deal via short sale?
I also dont quite understand your comment, If you can prove to the 2nd that the value of the home less then 348k they will come down to 2k. Are you saying the 2nd would come down if the home in total is worth less than the 1st mortgage? Of course that isnt the case. Do you think countrywide will tell me what they are willing to accept on the 1st after i make my 50 cent on the dollar offer or will they not even negotiate further? Or do you think i am just wasting my time with this deal? Definitely a little confusing… 
Thanks again for all the insight.
bebebe-
Dont give up. You may not get the discount you want but you might still be able to turn a nice profit. You will not get Countrywide to discount 50% from a 348k note on a home worth 435k. As you said lenders need to keep as many defaulted loans off their books as possible but they will not just give away a home. The lender has thousands of defaulted loans with zero/negative equity, they can and do short these all the time. Your place seems to have a good deal of equity so CW has little to lose at auction.
Lenders will short even if even if there is equity in the home. You just have to point out the reasons why they should. CW will conduct a BPO and that will tell them how much the home is worth to them. If you are going to get a discount this is where you have the most influence in regards to price.
IMO It seems the best you will be able to do is short the 2nd. The second will come down if you can show them that the home wil not sell for more than whats owed on the 1st. Go to them and present convincing evidence that they will lose everything at auction. Submit a 1k written offer to the loss mitigator and ask them to submit your offer for approval. If they dont call you back wait a few days and contact them again asking about the status of the offer. If the answer is no, submit another written offer for 1.5k. Hold off for a few days, if answer is still no, submit written offer for 2k. Hold that line for as long as you can. Go up only if it makes since.
Could you still make a good profit if you just shorted the 2nd for 2k? What are your goals for this property? Do you have the home under contract?
Banks are in business and make decisions based upon the economics of the deal, usually. Yes they are heavily regulated and the government does not like it when a banks has too many non performing assets (foreclosures, REO etc.). Beyond that banks do not have a limit on how many foreclosures they can take back, if they own the loan and it isn’t performing then they foreclose to protect their investment.
Thanks again for the input guys.
So Bovine, you sound fairly experienced…have you done alot of short sales? Based on the details of my particular situation would you recommend even offering a short sale to CW at all? Maybe 90-95 cents on the dollar? Will they negotiate with me after that point or will I have to start from scratch with a whole new offer?
I was thinking about how I might convice the 2nd to take 1-2k based on your recommendation…and i was wondering if you have any suggestions? I was thinking about it and wondering if there might be a way to get a hold of the local auction performance reports that shows homes being auctioned way under the bpo amount?
To answer your questions we could make a decent profit if we just shorted the 2nd. We would like to be able to flip it within 90 days and make at least 50 - 75k profit after all is said and done. We did sign a purchase agreement with the homeowner for 50 cents on the dollar. We have not submitted it to the lender yet and can get it revised if necessary. Any further advice would be great!
also Bovine, I was under the impression that the person who holds the 2nd got nothing if it went to auction…based on what you are saying it sounds like the get paid after the 1st has been repaid in full, is that the case?
Bebebe
I wish I could tell you that I had all this experience with short sales but I do not. As of yet I have completed none. I have worked on 3 in the past that did not work out and I now have 4 that I am working on. So far 1 is working out. The lender and I are in agreement and I am waiting for the homeowner to move so I can close. My only education has been this and a couple of other sites. I read and re-read the archives and ask lots of questions.
Foremost I think you need to work on getting that 2nd position down to 2k or less. At the same time offer CW 80% of their position. If they reject, submit another for consideration a couple of K’s higher. Choose a ceiling for yourself and stick to it. Have you learned to write up a hud-1? If you will be submitting offers you should learn to do it. It does not have to be 100% accurate just estimates. Make sure you have all of the items the lender requested in the short sale proposal. I put “subject to approved loan payoff” where the price should go on the purchase agreement. This way I can send the same contrack to both lenders or if needed sumbit the PA multiple times. I have read on here that some lenders want a number on the contract, I have yet to run into this.
To answere your other question. The second does not always get wiped out completely at the auction. I think the food chain works like this, past due taxes and goverment leins. Next comes the the 1st mortgage and then the 2nd position. After that everybody else. Correct me if I am wrong.
Since this home has a good deal of equity CW will bid the home up to the amount owed and then if other bidders “investors” are present they will bid the house up even more. This is what the 2nd hopes will happen because this is where their money will come from. This just might happen if others know the value in the home.
Keep asking those questions thats the only way we all learn. I’m sure others are welcome to chime in with useful info.
What is BPO?
Thanks
“According to the company that taught me about short sales…the banks will take a short sale offer to save their lending credit because they are very regulated by the gov’t”
The company that taught you about short sales doesn’t know what they are talking about. The majority of loan servicers - Countrywide being one - do not own the loans they service. Typically they are pooled into mortage backed securities. The servicer has a fiduciary responsibility to minimize the losses to the security holder but they are not going to incur the loss themselves. So no, their “lending credit” is not going to be impaired.
Most large servicers are going to have fairly standard procedures when it comes to short sale analysis - they are not going to take $.50 on the dollar unless it makes economic sense.
bebebe,
If this company that you took your training with didnt expalin a BPO, I must ask about their credability. That is a term that should be explained right up front as it is the one thing that will impact your short sale deal the greatest! (Buyers price opinion). Not being sarcastic at all, just concerned. I suggest that you take a training course. I have several that I believe are the best! Email me and I will gladly send you their names. If that is acceptabel on this site. Thanks so much!
SORRY BEBEBE! Wrong message for you. about the BPO. Thanks.