Short sale on 100% financed homes

Foreclosures, Short Sales, Tax Foreclosures
1

I got a question??

I do not do alot of short sales as I been working on rehabs for awhile now but of course the market changed alot and I need to adapt to something else.

I was talking to a realtor (but not local to me) and he mentioned best short sales are the ones with 100% financing that has PMI insurance. He will not do any other types and typcially completed in 6weeks with most banks.

His reasoning is with PMI the insurance co will pay the bank 20% of the note and then you can normally get another 15-30% discount on the remainder of the note from the bank…

Example…you owe $200K with PMI…
Ins pays bank 20% which is $40K leaving balance of 160K. Then you can ask bank for 20% of the 160K which is $32K, leaving a net sale of 128K which is about 65% LTV. In this senaior the bank is really only losing 32K which is about 16% which is not a major loss on a short sale. If dealing with 2 lien holders, you will never work for a 16% discount unless there is alot of equity in the home already.

So has anyone had experience in this type of S/S by using only mortgages with PMI? Also is there a way to get a list with only preforeclosures with PMI?

andrew

2

In theory, what you’re saying sounds okay, but most of the 100% financing deals that have been done recently were not one loan providing 100% of the money. Instead, they were 80/20 loans, and because the first was at 80%, there was no PMI.

To me, this is still an interesting scenario, though, because if the 2nd is held by another lender, then they should be willing to settle for 10% of the face value, or less, meaning you’re still creating equity.

3

If you can get the 20% off for the PMI and then an extra 10-15% from the bank consider yourself lucky, that is if the property is in very good condition and in a stable area. If many repairs are needed shoot for the 20% discount minus the repair costs.