I started working with a lady who recently had a chapter 7. Her mortgage shows as included in her BK. She is also had to get a payment plan set up a while back so that she could keep the house. She pays $1800/month now and only makes about $3400 before taxes. She owes about $140000 on the house and in good condition it would probably sell for somewhere between 185-215k. I originally went to look at the house with the intention of buying it and lease-optioning it back to her…BUT, when I came to see the house I found out that she had had a plumbing issue a while back and 20-30% of the walls are torn open, the master bath is completely dismantled, and half of the house no longer has carpet (they are just walking around on the sub-floor). Needless to say, I do not think the house would even appraise where I would need it to, and I do not even know if it is financible.
Here is where I need help. Every house is worth buying if you can buy it cheap enough. I have started communicating with the lender (Select Portfolio Servicing???) about a possible short sale and once I got a release letter from the owner they faxed me a short sale packet. I have never done a short sale before and need a little help.
These are the things the bank is asking for from me: 1. Listing agreement
With a realtor? Why? What is the need for this? 2. Offer or Purchase Agreement
The bank says they want me to send in an offer OR a Purcahase and Sale contract. Which would be better in order to get an eventual lower selling price? 3. HUD1 or Settlement Statement
I have no clue what this is. Help! 4. Pre-Approval Letter from Proposed buyer.
I can handle this one. 5. Tax Statement (if past due taxes)
Where do I go to get this? 6. Multiple Listing History with Comparables
Do they want comparables if the house is fixed up, or in the current condition? How can I do this without involving a realtor? Do they want the history just to see if the lady ever tried to sell the house?
I have never done this before, and I need some directions. In addition to my other questions, How should I handle this situation? What is the best way to deal with the lender? How low should my offer be and still be taken seriously?
Thank you, I hope to get a lot of responses. If you need more info, just say so.
You need to consult with someone experienced in short sales - and pay them for their time.
To have any success of negotiating a short sale, you must send a very complete short sale package back to the lender. It must not only be complete but structured in such a way to make the lender want to accept your offer. And of course, you must structure it in a way to give you a profit.
Short sales are tons of work with a small chance of coming to completion. I’ve found that some lenders want to own RE, especially in high appreciating areas. I would focus on structuring a sub 2 and then flipping to another investor. I’d also make her pay me for taking over the home.
Regards,
Dave
I would look at doing a sub2, but I do not think the house is a good enough buy in its current condition. Also, the payment is on an adjustable mortgage and is way too high for the amount borrowed. The only way I can buy the house right would be to do a short sale. Can any Guru out there please help me with my questions?[/glow][/glow]Ryan
Why consult a short sale expert… All your doing is sending the information to the lenders. You can do all the work. The lender will either accept your offer, counteroffer, or reject.
Real estate agent – if the house was listed with an agent, even better. That means the house did not sell at market value. If the property was listed with an agent, include that with your package.
A Hud 1 or net sheet… which is real easy… if you need assistance go towww.easyhud.com.
Last two years of sellers tax return.
In addition, you want to get the estimate on how much it will cost to fix the property.
No need to go with a real estate agent to get comps… you can get that online from numerous website.
Thanks Cliff.
I have seen a lot of people comment that it is important to not let the current owner continue to live there. Is there a legal reason, or is that merely because sometimes it can get messy?
Ryan
Short Sales are more than just sending info to the bank. It is much harder than I once thought it was.
As far as letting the owner stay in the property…it depends on the eviction laws in your state and what agreement in writing you will have. Be careful here…this could bite you in the rear.
In some states its hard to get people out when they have or had an “equitable interest” because it does not follow the normal eviction process. You may have to sue to get them out. Check your state laws or talk to an eviction attorney.
The listing is tricky. You want the house listed as low as possible because you want the BPO to come in low to justify your discounted numbers. The Bank will rely on BPO (Best Price Offer from an Agent) for the sales price.
Your offer should be close to that BPO number less the repair /rehab costs . A certified inspector should document what needs to be done including photos. A contractor should estimate the inspector’s repairs plus upgrades or rehab costs.
You can challenge the BPO with comps but they don’t seem to affect banks lately. A full licensed appraisal less costs may sway the bank.
If short sale is such a pain & as some say often difficult to accomplish
it sounds to me that generally speaking, if the market has been good & if the orig. loan was less than 90%, sub. 2 is they way to go - might not make quite as much money, but is easier to do - esp. if the buyer is going to resell right away.
Transferring equitable title to a land trust is specifically mentioned under Garn-St. Germain as OK. No DOS violation. Any subsequent transfer of beneficial interest is between the beneficiaries and trustee and isn’t a recorded event, since you’re now dealing with personalty rather than realty. IOM, if I buy furniture or a cow from you, would you record it? Same concept applies.
Regards,
Dave
Short sales are not that difficult. It is a lot of paperwork, and a lot of the success depends on whether the mortgage company is motivated to do a short sale. Send in the information the mortgage company is asking for. The reason they ask for the listing agreement is because they want to make sure that there was an effort to sell it retail and that effort failed. Remember the mortgage company wants to get as much of their money as possible. If it is in the shape you say it is, you should be able to get the short sale. Take pictures of all of the problems and include it with your short sell package, get estimates of the repairs (hopefully on the high end) and show how they will never be able to sell it for retail. When they have a BPO done, if you get that far, be sure to be there with the agent and point out of the things that are wrong
You cannot give the homeowner any money. The bank does not want to see the homeowner profit at all since they are taking a loss. I also don’t think you can let them stay in the home either (not sure about this)
the step I have not grasped yet is how to pay the bank ???
I know it is done by having either a buyer ready to pay off the loan or an investor lined up to buy the note & either as a back to back close. These are the steps or part I am worried about. I’m not looking for answers just handed to me, I have been reading & studying my brains out & still have trouble getting all of it
are there really hard money people or note buyers that will commit to a property in advance? most of the hard money people we have evr dealt with are local & very conservative.
can the ss negotiator advertise for a new buyer while in the process of negotiating the short sale?
Hi Drcpr,
My understanding of HML, any body correct me if I’m wrong. They genrally charge points up front, check your credit score and have an appraiseal done on the property which you will pay for. They will then tell you you what percentage tARV they can loan you as well as the poits to do the loan. Hope that helps
steve
There has been a few comments regarding the DOS (due on sale) clause.
A lender rarely calls for a DOS …it rarely happens, it can happen but as long as the payments are made on time, the bank only cares about getting their money.
Don’t let the fear of a DOS keep you from getting a deal. The bank would have to have a VERY good reason for calling the loan due.
You mentioned that you have the homeowner pay you to take over her home? May I ask why?
If the homeowner is having financial difficulties and are not able to pay on their home, why is there a fee that they would need to pay to you, for you to take over their home?
That’s a good question. Know why you don’t let the seller stay in the home after you purchase it? Because chances are, if they’ve defaulted on the loan to the bank, chances are, they will default on you. Not always the case but it can set you up, costing you money in the long run. Another thing, is the homeowner will still be attached emotionally to the home.
Even if they say they aren’t emotional about the home, they are in some way.
It’s just not a wise decision to have the original homeowner live in the house after you purchase it. One of the things you can remember is it depends on how motivated the seller is. If you have a homeowner who is not willing to give up their home, ask yourself if they are truly motivated or not.
lindi0637,
Now if I told ya that, I’d be giving my secrets away. Let me ask you, if you were $10,000 in arrears, facing foreclosure and on the verge of losing all your hard earned equity, might you be willing to pay me a couple grand to bail you out? Not recommended for the meek, mild or timid. My avatar is highly appropriate.
Dave
I just got a call from the Seller. I guess her roommate wants to move out, and she is contemplating just telling the bank to keep it. I asked her if she would just sell it to me for what she owes and I would help pay for her moving. Seems like an option, but I have a question. Do any normal mortgage lenders mind lending when half of the house is torn apart for renovation? Do any lend off of estimated value once work is completed?
Ryan
I’m not quite sure but I think (I could be wrong) that the lenders lend money based on the value of the home. I’m not sure what they do when a property is being renovated though. I do know that they lend based on the value of the property.
