Short sale deal?

Foreclosures, Short Sales, Tax Foreclosures
1

Hello all, I was contacted by a homeowner that has an adjustable rate mortgage that is about to adjust and he will be unable to make the payments. Here are the numbers:

Owes - 530K
Current Mo. Payment - 3600
New Mo. Payment - 4500
1st Mort. - 2295 mo. (going to 3245 mo.)
2nd Mort. - 815 mo.
Comps @ - 530K

The two mortgages are held by different lenders. The owners are current on their payments but won’t be for long once the rate adjusts on the first mortgage. The second mortgage is an interest only w/ 4 yrs. left on it. They have refinanced the home a couple of times and now are unable to refinance the home further to get out of this situation. They tried to sell the home with an agent on the MLS and were unsuccessful even after multiple price drops, $649K to $579K. They now are just trying to save their credit and get out from under the home. I understand that most lenders will not do a short sale until the loan is in default. On the surface this seems like a short sale candidate, although I have never done a short sale.

My questions are these:

  1. How would you all handle this “deal”?

  2. What are the hurdles with the two seperate mortgages?

  3. If the deal went through, would you advise leasing back to the current owner (they have expressed that interest)?

  4. Any other thoughts or advice would be appreciated?

Thank you,
Brewer

2

I know this is contrary to being an investor but the first thing I would do is to have the home owners call the bank and tell them there problem. Then they should ask the bank if they would work out a better deal on the mortgage. I did one similar to this with smaller number but same scenario. The bank was happy to work out a better interest rate and payment plan instead of going into foreclosure. What state is the house in?

Keith

3

The home is in CA. I think you make a good point about them contacting the lender and trying to work something out. They are a nice family and don’t want to lose their home (who does?). Unfortunately, these situations are becoming more and more common, people really got over-extended in the boom. Thanks for the thoughts.

Brewer