I found out that a rental property owned by my sister is 2 months behind and she is about to let it go into forclosure. It was originally financed with an ARM and like so many others it has gone up and her payments with interest and everything else generate an extremely negative cashflow. She has only a few thousand in equity and the market in her area is way slow right now as well as saturated with houses for sale. Prices have dropped considerably over the last couple years, but it is still a nice and rather desirable area. She has asked the bank to renegotiate, but they have thus far refused. She is willing to dump the property and doesn’t care if she makes a dime on it. As it currently stands, she will lose it anyway.
I have only recently learned a little about pre-forclosures and short sales, but I still don’t know much. I figured this may be an opportunity to learn as I already have a willing seller. What steps can I take? If I try to contact the bank will they even talk to me? I’d really appreciate any advice I could get.
Rental properties are more difficult to negociate a short sale; I would not recommend it as it would be more chalenging; also the only hardship you’ve listed is her payment reset and that wont help either…
Does it matter that she purchased it for herself initially and lived in it for a few years?
What about the fact that she recently went through a divorce?
Also, is being a relative any better or any worse?
YES YES YES! You CAN do a short sale for an investment property. The process with the lender is the same as for a primary residence. The only thing that will be different is that the investor/seller will not be excused or forgiven for the lender’s loss as they would have if the property were their primary residence.
Begin the short sale process imediately. Send the hardship letter and financial statements to the lender and get assigned to a loss mitigation speciallist as soon as possible. If you can find another investor to buy the property, you may not even need to distrub the tenant. The new investor can just take over being the new landlord once the escrow has closed.
HOWEVER…if you have to list the property on the open market, you NEED to give notice to the tenant asap and make sure that they will cooperate with appraisers, etc and make the property available for viewing for buyers.