I’ve been dealing with a bank and a homeowner going into foreclosure for almost two months now and just had the short sale we were working on fall through. I’m wondering how feasible the stories I keep reading about really are where homes are being purchased via short sales for 80% to 70% below market value?
With this deal, the homeowner owed about 125K plus, $5k in R.E. taxes and according to the bank about $13K in arrears, fees & costs. My due diligence conservatively valued the property from current comps at 135K with 130K being my starting point to deduct potential holding costs, repair costs, closing costs to both buy and sell and realtor fees. I offered the bank $90,500.00 and they provide clear title, feeling that if I could purchase, hold, fix and sell quickly, I could make a conservative $10K. The bank countered with 138K. The sale is June 1.
I’m wondering how much the BPO affected the sale fail? The agent was extremely negitive to me when he inspected the property. He wouldn’t give me the time of day, told the owner that they should have listed the property and was very opinionated about the value of the property. His price opinon came in at $150K, an amount that is not supported by current comps.
Any advice or personal experiences positive or negitive would be appreciated.
Welcome to short sales course 101. I had the same thing happen. I offered $40,000 on a duplex that I actually owned. It was to be a short payoff. I went thru BK that the property had been stripped and needed $20,000 in repairs. The tax appraisal was really high at $54,000. I was offering the original loan amount plus the taxes they paid for the past 3 years. I knew there was no way they could say no. I actually thought I was paying too much. They turned me down cold after months of not even returning phone calls.
After the foreclosure I saw it for sale at $43,000. Some one bought it and hauled off the trash, cut the grass and got out a spray rig and painted the rotten wood and all. He was a quick buck artist. I do not know what he paid or the outcome but I waisted a lot of time at the start of my comeback into REI. Several deals like this in a row and I had to stop and regroup. It is a frustrating business sometimes.
There are deals out there. Short sales are a bit harder than they are promoted to be as you learned. My experience with several I tried was to wait for the REO. I bought one at $24,000 that the loan balance was over $120,000. We are spending over $60,000 in rehab but it should net us $150,000 at the closing table.
Looking around a bit, you’ll eventually see all the jargon spelled out for you. Here’s a quick list. (…probably can be found elsewhere on this board, but don’t know for certain…)
REO stands for Real Estate Owned by the lender. This simply means that the bank or mortgage company has already foreclosed and taken possession of the property. Most banks don’t want property, they want their money back, so they’ll be trying to sell it.
Some other terms you might see here are:
NOD: Notice Of Default – This is a non-judicial document (usually filed by a Trustee). LIS: Lis Penden – This is filed by an attorney, and indicates that a lawsuit is imminent.
(Note: each of these is considered “pre-foreclosure”. The homeowner is still in control of the property, and may be looking for solutions to his problems.)
NTS: Notice of Trustee’s Sale – This is simply a notice of public auction. NFS: Notice of Foreclosure Sale – This is signed by a judge, directing a Trustee to sell a property at public auction.
(Although these are still prior to foreclosure, you’re under a definite deadline once the auction date has been set, plus you have to insure (in writing) that the lender will stop the foreclosure process once the debt has been brought current. Additionally, homeowners tend to be in various states of mental turmoil as the reality of losing their home sets in – an “interesting” negotiating time. OR your can simply wait and try to outbid everybody else during the actual auction.)
Hmm, guess I’m tipping my hand which market I like, huh? (grin)
Also: MLS: Multiple Listing Service – This is a computerized data base (accessible to licensed realtors) which lists all properties currently on the market. It can be filtered by location, price range, number of bathrooms, or just about any other criteria you can think of. In my (not particularly seasoned) opinion, the most valuable data here is simply how long a property has been on the market.
Fortunately I have not had the experience of losing a Short Sale Deal. When you negotiate these short sales, first rule, DO NOT INSULT THE BANK with a ridiculously low offer; secondly, check the foreclosure listing to see what the minimum bid is and don’t go below that figure.
See, what the bank does is calculate there loss if the property actually goes to Sheriff Sale, and you want to offer them at least $1000 to $5000 more than what the minimum bid is, because if you can’t seem to make an offer that is better than what they we get at the Sheriff sale, then they won’t even entertain your offer.
Also, just to let you know the BPO is only part of the decision to accept or decline the offer, it’s up to you to know the area and the true resell value in order to sway them to your offer.
Also, when doing short sales it’s good to know that the bank will take at least 25% less than what is owed on the property, and can go as high as 70% depending on the condition.
Right now, I’m negotiating with a bank on a property that’s owed about $34k and the bank wants $10k, my fee is $3k and the back taxes are about $3500. The property is only worth about $10k in it’s current condition. If the investor was to buy this property based on the figures given, they would be paying roughly $17k, the ARV is $75k and the property needs about $40-50k in repairs. So my counter to the bank is $13k with all the fees, closing costs and back taxes being paid out of the $13k.
When the deal is all said and done, the bank should walk away with a little over $3k. You might laugh at that and think that this is a ridiculous offer, but prior to contacting the bank, they had charged the debt off and told me personally that they had no intentions on buying the house back, so if we wanted to get the house at the tax auction, we could and they would not be sending a representative to fight for the property. So, here they are willing to let the property go at the auction and not receive a dime. So offering them something rather than nothing is a good deal to me.