I could really use some advice on helping out these folks in preforeclosure.
This is a newly wed couple who are 2 months behind payment and heading toward foreclosure. She had her stepfather co-signed the loan and now his credit is in risk of being ruined, and he does not know it yet. I am initiating the short sale this week. The house is in good condition and amount owed is 404k. The house is currently listed, and the seller did not notify the agent that they are behind on payments.
I told the seller that I cannot deal with her until she cancels the contract with the agent. She said she will cancel it once the short sale is in progress, only because she wants to see if she can sell it in the meantime. So it makes sense to me and I don’t see any legal issues with it.
The issue is that I don’t think the bank will give me a good deal on this house. If 404k is the amount owed, my very conservative estimate of the bank’s acceptance price would be 380k.
My question is:
If I get the house for 380k, how long will the bank give me to find a suitable buyer? Can this time be extended? What if I can’t get a buyer in the given time?
When will the bank decide to put the house up for foreclosure? I’ve heard of houses that are 10 months behind payment, but have not been repossessed yet. Plus, since I’m working a short sale, I would think that the bank will extend the time before heading toward foreclosure(?)
Is it possible to work out some sort of deal with the agent, where he can save the contacts of interested buyers, that can be contacted at a later date once we receive the reduced price from the bank? The agent is on good terms with the seller, willing to help.
It’s now my duty to help this couple, even if I don’t make any money from this deal, so any best-outcome advice would be appreciated. Please help….
First thing I need to say is that I am no expert. Now that I have said that, you never said what the house FMV is. Can they afford the payments now or is this just more than they can handle? Have they called the bank and talked to the lost mitigation department to see if they can get payments tacked on to the end, they will need to show that the problem that put them behind is solved to do that. They maybe should contact the father in law and ask for help if the problem is solved that put them behind.
Can you find a buyer right away? I would try getting an option on the house with a right to show contingency and see if you can find a buyer if the FMV is high enough to sell above what is owed.
Just my thoughts
Keith
Gosh - I see a real legal issue here. I f I understand your post correctly, the property is currently listed with a brokerage. This means that the sellers and the brokerage have entered into a contract - a covenant - to sell the property. The seller agreed to sell the property and the brokerage agreed to try to find a suitable buyer for the property. This listing agreement - this contract - is for a specified time. How does the seller hope to cancel this agreement? It takes two to form a contract and it takes two (sometimes three if a judge becomes involved) to cancel it. If the seller agrees to a short sale with you hasn’t she already breached the contract? Usually a broker will track such cancellations and if a sale resulted in a specified time they would sue for commission.
Keith, the FMV is about $420k and they have it listed for $429k. If it sells at $429k, then they barely make the mortgage payoff and things could be okay. They can’t afford the payments now, nor can they catch up to their missed payments. I also don’t have a buyer right away willing to purchase the house and since the house is listed right now, I don’t think I can circumvent the agent (?)
Teksch, the seller said that she would call the agent and explain her default situation and have him cancel the contract. She said the agent was willing to help and highly doubts that he’ll take any legal action considering she’ll be selling the house, but not making any money from it or paying commissions to anyone through a short sale. I agreed to initiate a short sale with the seller, but the house still has a chance to be sold. Therefore, if it is sold, then the agent will be happy and I will cancel the shortsale. My time will be wasted, but at this point, I just want to help the seller get out of her situation. You bring up a good point, and if it is a legal issue, I highly doubt the agent will want to sue for the commission, given the seller’s situation.
NJ: Here’s my response in the order of the questions asked:
If your exit strategy is to sell the property retail, get a real estate agent to list it for you. Recommend that you list the house at < FMV to entice a quick sale, but you still profit. To give yourself some time, you may have to buy the house yourself. You must include a proof of funds with the SS package anyway.
Depends on the bank. Most will postpone or move back the 4-closure date while a SS is being processed.
See response #1.
If the seller doesn’t want to cancel the contract, then perhaps you can use the agent as part of the SS. It will cut into your profits though.
RGchamb, that’s great. But do you recommend a way to contractually get into an agreement with the agent so we can all work together? How would I base this deal so the agent gets paid and I get paid as well? Is that even possible to work with an agent while in the process of a short sale?
I don’t think I can buy the house myself, because the bank will most likely not give me a big discount off the mortgage and I don’t want to be stuck with the house.
Get the agent to drop his/her commission but keep them working on a sale at close to FMV pending your short sale with the lender. Get your best price from the short sale and by then the agent should have a buyer. You will make less profit but should move quickly and you can concentrate on the short sale and the agent can take care of the buyer. Keep the agent up to date on the price you are getting from the bank so they know what the offer from the buyer needs to be. If this works out you may want to add the agent to your team of players. I have used this method before and it works well for me. My agent takes half commissions on deals because she knows she will have several deals a year that will come from me like this. I also get many leads from her about people in this situation that the real estate agency doses not want to help that much.
As far as the SS is concerned, the agreement would still be b/w the Agent & the Seller. You would be the buyer on the contract, the Agent would be on the contract to get the commission.
Of course the only problem w/ the Agent being involved is they could bypass you and call one of their potential buyers & sell it directly to them. I guess this could be a situation where you might get the deed (Get the Deed people weigh in here please).
If the owner gets out their agreement with the Agent, then you can sign the Agent up once the SS is approved.
Most SS BPO’s come out to 80 - 90% of the FMV., then you could probably offer 90% of that & possibly get it accepted.
I’m working on a deal right now an Agent friend of mine told me about. She got the SS approved (some with my help) & I’m going to be the buyer. The Agent is listing the house but not putting it on the MLS (the know how to do this).
I’m going to buy the house using OPM, then I will use the Agent to sell it for me retail at slightly below FMV.
NJ: if you get the house for cheap enough & use OPM, then you should be able to do the deal no problem. Trust me, without using OPM, & I mean ALL OPM, I would not buy the house myself.
WaInvestor, so your approach does away with having a buyer’s agent, correct? If I understood correctly, the listing agent would have to find us the buyer, and drop his commission. Will his company allow him to drop the commission? I’m sorry for the newbie questions, but this is my first time in this situation.
The house is listed for $429k, they owe $404k, so my approach to the agent would be to list it for $400k, which should attract many more buyers. At this point, if the bank settles for $380k, I would have to do a double closing at the table, and basically buy it myself for $380k, and sell it right then to the agent’s buyer for $400k, and pay the agent’s comission with the $20k.
Does that seem like a correct overview to you? Please let me know what I am missing…
Rgchamb, I’m a little confused with your approach. I think it would be better for me right now to consider WaInvestor’s approach as it seems less complicatd.
What WaInvestor said. My message was posted just after his, so I missed it.
NJ: You may be about to get 80% of the FMV for a SS. This is because bank most likely appraise houses for SS at 90% of FMV, if not less. Then you could offer 90% of their appraised value. This would be a price of $340K. Might be a good starting point.
I’m currently learning about deed in lieu of foreclosure… can anyone please tell me if this is a good option for me? I’m not quite sure how it works… my situation is noted above.
If I can’t profit from this, I would at least like to have the owner walk away with good credit, and it seems as though a deed in lieu of foreclosure may be a good option.
A lender does not need to accept a deed in lieu of foreclosure, the the credit consequences to a homeowner are every bit as severe as having the house sold at auction.
I have to tell you that I am not as experience as many of the others on this board but here is how I would approach this one I THINK. Make your offer for the house on your contract to the real estate agent. Make sure you put an addendum in the contract that your offer is contingent on the banks acceptance of your offer. Then talk to the agent and tell them that you will pay half there commission if they find a buyer for the house at what ever price you set. You will have to do a double closing if you can not buy the house. Or go to a hard money lender and see if you can get the money that way as long as you think you can move the house fast. Have the owner sign your contract so you can use that for the banks SS package. You need to get the SS into the bank so you can get the BPO going and find out where you stand but I would drop my first offer some where down around the 330k you can always go up but never down! What is your highest price you will take you must know that up front and make sure you have the real estate agent on your side trying to help the people. It’s hard for me to say just what I would do unless I am right in the thick of it I do not know all the things going on in your area or the house conditions the attitude of the agent etc… Do the numbers and if the bank does not come in your range of comfort then you pass it up. Don’t get too hung up on one deal. Have confidence in your self and take control of the deal don’t let the agent tell you how it will be. Oh also make sure you put a contingency in the contract that you will be present at all offers presented to the buyer.
I use an agent a lot because I still have a full time job so my time to find a buyer is limited and would not do as well as she does. We do have a buyers list going and do some deal through that. But my agent is hungry and we work well together she understands that her main job is to pass leads along or referrals to folks they know they can’t help and she finds buyers very fast most of the time. I don’t have a lot of rehabbers in my area so most deals are retail buyers or land lords. She was the top sales person at her shop last year because of our relationship. She does not make as much on each deal but the numbers add up. I also have her list my deals when the bank wants a listing agreement then the bank pays her when it sells.
The seller can cancel the contract with the Agent if he wants. I know this because I am a realtor for over 20+ years. The next thing is you want the seller to cancel with the agent just so you can give it a go and see if you can bring a buyer to the table. I’d say that is not right. The seller is going into foreclosure, and if you have already come to them with a list of buyers, I don’t think you want them to take if off the market where it is getting national explosure for the best possible result. Its find that you want to make money but you are gambling with their finances, credit and anything else down the pike. I would suggest you ask her to have an open listing with the agent so that you and the agent can both try to bring a buyer to the table. The most power thing a seller has is exposure, and listing it with an agent giver her the best possible exposure to rescue her situation. I think everyone who wants to make money off of a foreclosure issues, has to realize you are gambling with someone’s life, their grief, their emotions, their future. And you should work in conjunction with the realtor, not eliminate them. Especially when you don’t have the experience or slew of potential buyers in your pocket. Have a heart.