Short Sale on Vacant House

A little history.

I have a house that is jointly owned by my ex-wife and I. She recently vacated the house and I am to take over the payments, physical possession, etc. I have a house that I live in and have no plans to move into the vacated residence, it has been on the market for a few months but has had very little interest.

The ex-wife never took care of the house. I have had an appraisal, inspection, and repair estimates done in the past month or two. The appraisal came in at $258k, and did not factor in the home inspection results even though I provided a copy to the appraiser. The repair estimates based on the inspection amounts to over $20k. The listing agent feels that the $258k is really high for a home in its condition.

The current mortgage is ~$215k, the listing agent suggested I offer a short sale of $180k or so to the bank, Wells Fargo, to purchase the house. Does this sound like something that is reasonable?

I am not planning to put a dime into the house, mortgage payments, repairs, anything, unless I can purchase the house at a good price and get the Ex off the title.

If it were me…

I would go forward with a short sale. You however can not be the one to negotiate the short sale if your name is on the loan unless someone else is buying the home. (if that person is a relative it’s not a good idea to offer that info.) The bank is not going to allow you to buy a home you already own at a discount of the note value. But they might take less if they think you can not pay back what you owe. This doesn’t mean you can’t be the one to buy it back, it just means you can’t let the bank know your the one buying. An experienced short sale negotiator knows how to do this. I’m sure someone here at the REI Club can negotiate this on your behalf…cough, cough, slondeau, cough, cough. :wink:

Once the short sale pkg is submitted they will (or should) do an appraisal or BPO. When that agent comes to the home to assess the value of the property it is your job and/or the negotiator to influence them. You want them to come back as low as possible. You want to point out everything in that house that requires money to fix it, the more expensive the better. Health and city violations are always helpful. You can have the property reappraised after you get the short sale approved and the repairs completed.

If I am unable to complete a short sale on this property and wind up letting it go to foreclosure, is it likely that the bank would forgive any shortfall? I’ve been told that banks normally issue a 1099 for the difference, is that true or do they come after the mortgagee?

That is going to depend on what type of loan you have, recourse or non-recourse, and if the bank reports at all. Sometimes they will pursue their losses and sometimes they won’t bother. It depends on what the company policy is and whether or not they believe you have any way of repaying anything. If they think you have money that they can get, then the chances of them coming after to collect are greater.

Do you think that since I had an appraisal done and it came back to be higher than the loan balance by about 40k, that the following would prevent the bank from being able to come after me even if they are in a loss position after foreclosure?

From the Georgia Code: 44-14-161:
(b) The court shall require evidence to show the true market value of the property sold under the powers and shall not confirm the sale unless it is satisfied that the property so sold brought its true market value on such foreclosure sale.

I think it means that the bank can not purposefully sell it for less than the FMV or loan balance, if FMV>loan balance, and wind up in a deficient position, if they do, they will not have recourse against the borrower. Is that a correct interpretation?

I really couldn’t answer that 100% because I am not an attorney and I don’t work Real Estate in GA. The way it generally works is that if the lien holder forecloses and sells the property for more than what is owed, the difference (profit) must be paid to the homeowner.

I know they can sell the home for what they are owed, but I’m not sure if they are allowed to sell for less than FMV. Keep in mind they are only concerned about recouping their losses, not in turning a profit. Again, you would need to ask a licensed attorney in GA.

Good Luck!