Thanks for the feedback…After getting the Auth to release letter and contacting the bank this deal was not so promising…They owed 11k just to get the loan back current…The lender had changed the locks on the door and winterized the home in the past week. Probably b/c they received no correspondence from the owner. With all of the work that needs to be done, I think this one is a little too much for me to take on…What makes it worse, the owner has another property in similar condition with 7-8 past due payments…Talk about ugly…Thanks for all the feedback though, it was much appreciated
This deal has arisen from the dead just when I thought it was over…
Quick question the BPO is set for Wednesday morning…Fingers are crossed…
Up until this point the lender holding the 1st has not budged but they seem as though they are now ready to play ball… The payoff on the first is about 165k…
The lenders on the 2nd has wanted to play ball from day 1, the payoff on that one is around 37k…
If the BPO comes in too high for me to do anything with on the first but the lender for the 2nd is basically praying that a short sale goes thru to get the numbers off of their books, what is my angle?
Do I even have one? I figure if I can get them to discount the 37k down to 15k, that is a 22k spread that has just opened up but I really don’t know how negotiating that can put $$$ in my pocket…
All of the SS deals I’ve seen, either both lenders on an 80/20 loan play ball and I get paid from assigning to my new buyer after I get bank approval or they only have 1 loan and again I get paid an assignement fee…
Please advise if I can make $$$ on getting the 2nd discounted…Probaby right under my nose 
and I don’t see it
Luxx
Luxx,
Can you tell me what an authorization to release form is. Thanks…David
Re how to make money on discounting the 2nd, you might have your angles confused.
Shortselling the 2nd lets you own the house for less than payoff. The goal is to profit from your position as homeowner.
But “discounting” the 2nd lets you own the NOTE for less than it’s FACE VALUE. The goal is to profit from your position as note holder.
To do that, bring the 1st current so it’s no longer a foreclosure threat, then start your own foreclosure on the 2nd–for full face value.
Those two angles are radically different, but are easily confused at first since they both plan on discounting the 2nd position.
Pr1me, thanks for providing clarity… I will contact you offline as I still have a few more questions on the 2nd…Or if there are anylinks you can add into a post with more on the process it would be much appreciated…
Realtyman, the authorization to release is kinda like the password that lets the keeper of the castle lower the drawbridge… It’s a 1 page doc that says that the homeowner authorizes you the right to ask questions regarding the loan…Balance, apr, past due payments, loan maturity, any and everything is fair game…It is the one common denominator in most creative real estate processes. If you google it , various forms should pop up and that should get you started…Make sure you get them signed and dated but they do not have to be notarized…And they should include Loan #, property address, buyers full name, and social security number…
Also keep in mind if it is an 80/20 loan you will need an auth letter for each loan
In a short sale, the Bank appraises the property and it must bring 82% of the appraised value. If you ask for 3% closing costs, and there are Realtors involved, you need to count that in too. It is their APPRAISED VALUE that counts.
Jan
Wildfire, just to make sure we are on the same page, you mean apraised valeue after repair or AS-IS? Because all of the stuff I’ve seen and read (I’m still working on my first SS), says make your offer based on a % of the the After Repair Value…Please advise…
Luxx
Wanted to share my current short sale experience. We are about a month off from the auction. The appraisal that was done by the bank came in at 214k. The house is very nice and needs no repairs. The balance on the note was 211k but that was before all arrearages and is now around 220k I believe.
Started offers at 170k then 180k then 186k. The first time they countered at the appraised value of 214k. Then we got down to 192,600 and they will not take a penny less and will not pay any commissions out of this. Doing the math based on appraised value. This short sale comes in at 90%.
This is also in Colorado where as of March we have the highest foreclosure rate in the country.
Sean, how is the short sale going? I am actually working on one with another member of the forum currently. The deal I based this original post off of basically died, but the deal I am working on now is actually pretty similar…At 90% is the short sale worth you doing on your property? Or is it cheaper and less of a headache to just walk away from?
you wrote "Thanks REO, lucky for me I am a licensed RE Agent…Although I am currently inactive and the only deals I seem to close are my investments or deals for my friends in which I split the commission with them, and it is still not worth the headache "
Liscening laws prohibit spliting commissions with an unliscened person. You could lose your liscense.
Jan
Wildflower thanks for pointing that out. I miss spoke. When I do deals with friends and it’s been a while since I have done one, I will give them a gift in return. Much like some realtors send candies or gift baskets, I send something a litte more personable and it tends to be a little pricey. There is no actual check being cut or cash exchanging hands but I have been known to give some nice gifts…Bad word choice…
Luxx
Luxx,
The short answer on if it is worth doing at 90% depends. How much is your time worth? I am still plugging away at my short sale and I will walk away at closing with a check for $3400. People seem to be quick to “walk away” when headaches occur. In my opinion that is what differentitates great salespeople from people that barely make it, tenacity. So some people may say only $3400 that wasn’t worth all that work. But let me break the numbers down. I am pretty sure that I haven’t put more than 34 hours hours into this deal. So, that looks like about $100 / hour. I think that is pretty good.
A perfect example of giving up way too easy. I started this short sale with a partner as I wasn’t very familiar with the process at the time. He and I put in an offer at 170k they rejected it. Tried again at 180k they rejected it and he gave up.
I found out what the bank wanted, went out and found a buyer where I could make some cash and made it work.
ARV: After Repair Value. This is the retail “arms-length” value that the property would fetch in 30 to 60 days (at most) if it was in fixed-up move-in condition. This can be calculated by an appraisal or a Broker Price Opinion (BPO). A BPO is about 1/3 the cost of an appraisal, and most lenders will accept an independent 3rd-party (i.e., not your own broker’s) BPO instead of a full appraisal.
AS_IS: ARV - repair_costs. Get itemized estimates from 3 licensed contractors, use either the average or the lowest (the bank will want to see all of the estimates anyway so you won’t get away with using the highest estimate).
82% Rule: For FHA and VA (government loans), a cash offer of 82% of the AS-IS value must be accepted (according to my attorney, but what does he know?). For non-government loans, the lenders have their own rules and timetables for lowering their asking price.
NOTE: The 82% Rule applies to REO (post-foreclosure), but it may not apply to pre-foreclosure. It’s a good “rule of thumb” in either case.
btw: If you have a real estate license, you can also subtract your broker commission from the calculated price, but be sure to specify that in the contract addenda and in your cover letter. The contract should state the purchase price reflects subtracting your commission as a Seller concession in purchase price.
UGLY = 70%*(ARV-repairs) = 70%AS_IS
NICE = 82%(ARV-repairs) = 82%*AS_IS
Thus, 70% of the AS-IS value is the most you want to pay for ugly houses. If there is little or no fix-up, then your holding costs are much lower (you can immediately flip), and you can consider using the 82% calculation. If you are holding for rent, then you must calculate a price that will cover all of your costs and generate a positive cash flow after expenses and debt service (that’s a completely different calculation).
Remember, those calculations do not include costs for acquisition, carrying, disposition. Those extra costs are paid out of your gross margin in the calculations.
Thus, an alternative calculation is:
All_Costs = Repair_costs + acquisition + carrying + disposition
Net_Profit = If ARV > 130K, then 40K. Else 30%*ARV.
Max_Offer = ARV - Net_Profit - All_Costs
You may need to adjust the Net_Profit calculation, depending on how hot or cold your market is, or depending on the median price for a 3 bed, 2 bath, 2 car house in good condition. If prices are significantly higher (like Newport Beach California), then you may want something like:
Net_Profit = If ARV > 500K, then 150K. Else 15%*ARV.
Just work the numbers to be sure you don’t lose money if the property stays vacant/unsold for longer than you anticipated, or you encounter unforeseen repairs (like mold remediation).
If the lender won’t budge, then just resubmit the offer each month with the date changed until it is accepted, or until some knucklehead comes in with a higher offer and takes the property. (We have a lot knucklehead newbies here in northern Colorado who are paying way too much for REO. They overpay and under-repair, then their properties sit vacant on the market for months. Then they become motivated sellers. :-\ )
btw: Your offer must be for cash and you can include a contingency for 3rd party financing, but be sure to include a pre-approval (not a pre-qualify) letter that is conditioned only upon the property appraisal (not conditioned upon you qualifying). Forget about any “creative” financing; the lenders want all cash at closing and they want it fast. Your inspection contingency should be a “go” or “no go” choice; don’t come back with a “notice to correct” or a price reduction. You should already know the repair costs and factored that into your original offer. Also include a “property insurance” contingency to get out of the deal if you cannot get satisfactory (in your subjective opinion) property insurance.
Jeff you are right down the street from me! I am a knucklehead newbie from northern colorado but I don’t think that I have overpaid for anything yet. We should get together and chat sometime.