short sale question regarding junior liens

Just got off the phone with lender (Bank of the West) who is carrying both 2nd and 3rd loans totalling $77K. They do not consider a short sale until I have a contract and HUD 1 sent over.

I thought I had to get the short first before selling the home? I have called the 1st (Wells Fargo) to ask for the short sale but have to call back in 1/2 hour to talk to Loss Mitt…please help.

Not sure what I should do next…thanks!

Lenders don’t look at short sales quite the same way as we do. As negotiators we look at a short sale as a job, or a way to produce income. Naturally we want to get a low purchase number from the lien holders, via a short sale, so we can then turn around and sell the home at a marked up price. For us, we want to know how much we can get the short sale approved for so we can give our potential buyers a solid purchase number. Thus, the interest generated would produce a purchase agreement.

The Lenders however look at a short sale as something they will accept only if there is already interest in purchasing the home. Should the lender foreclose and the property becomes and REO they will have it listed with a Realtor. The property will generally start off at a listing amount in the ball park of what they are owed and then drop every few weeks until sold. I say generally because some properties are obviously not worth what they bank is owed on them from the beginning.

When you approach the lender asking for a discount on a property they don’t want you to be giving them a ridiculous low ball offer. As much as you are attempting to create a profit spread in a short sale, the lenders are attempting to discount as little as possible. Because they have the final say in what price they are willing to accept for a short sale they require that you present to them an actual offer.

In the past negotiators would use John Doe, or another name of a fictitious buyer throughout the negotiation process. Some guru books, seminars, etc. teach this practice as well. They would say that Mr. Doe is interested in purchasing a property and all of the documentation required by the lender would be provided in Mr. Doe’s name. When a short sale was accepted or thought that it would be accepted the buyers information would change to an actual buyer.

Two problems with this. First, if there is no buyer ready to purchase then one must be found. Often the negotiator is unable to find a buyer within the necessary time frame, so the deal dies and all that work was for nothing, on both ends.

The second problem is that this is a simple case of fraud. A purchase agreement is a legal contract, regardless of what some may say. This is why some states are requiring a license of some sort to practice short sales, like an attorney or a Realtor. By submitting a purchase agreement to the lender with Mr. Doe’s information the negotiator is providing a legal document that has a fake persons name on it. You would be hard pressed to find a court that would not see this as an act of fraud. After all, this is misleading the lender by a fraudulent act.

My solution to this is to maintain a list of buyers for my short sale properties. If I do not have a buyer I let the bank know just that. I keep the bank in the loop with my advertising activities pertaining to the property. I show them that I am spending money (which I would spend anyway for advertising) and that I put forth every reasonable effort to find a qualified buyer, often more than what their REO Realtors produce. As offers come in, I present the ones to the bank that fit my intentions for the property. I simply control what offers the bank actually sees, whether it is all of them or not.

Thank you so much for taking the time to type up that information to let me know the ends and outs of short sale dealings with lenders. You sound like you really know your stuff. I have heard of people/investors submitting false contracts in order to get the auction date postponed. I would feel guilty from the get go doing that. I have made it really clear to the sellers I am working with that I can not guarantee that I will be able to help them avoid the auction.

I actually got told on this one to have the seller file a chapter 13 to stall the auction date. Now the seller would want and need to dismiss the house before I could sell the home. At that point, isn’t it on his credit too? Just does not seem like a good option to me.

I am getting my leads when they first publish for auction date. That really only gives me less than three weeks to find a buyer. Since it is my first deal…a seller who is willing to let me help him…I want to do all I can to sell his house. I am even tempted to put it up on MLS since I am a Realtor? Couldn’t I do that?

If I put subject to lenders short sale in the remarks, I would think that will cover if I am not able to get the lenders to work with me on the loan amounts.

what has been helpful on your end for finding a buyer quick? I have sold REO properties to investors for the past 5 years and plan to send out an email giving them the ARV, Repair amount (seeing the house for the first time today) and purchase price. What is the tricky part is pricing it not knowing what the lender will take for a hit. How do you get past that or price it?

I never advise a homeowner to file bankruptcy unless there is absolutely no other option. Bankruptcy is the LAST option any homeowner should choose. Keep in mind every situation is different as well. A person who has a substantial amount of debt that they simply can not pay back would be a good candidate for bankruptcy whereas a person who only has their property that they are not able to maintain the payments on would want to exhaust all other means first, such as attempting to sell the property or a short sale.

Using bankruptcy to postpone a foreclosure can cause more damage to the homeowner than there should be. Convincing the lender to hold off on the auction is always your best bet. If your end buyer is solid then there should be little reason they will not postpone the sale. The primary reason a lender will not postpone a sale is when they believe they may get a higher offer at the sale, as an REO, or if they just think you’re full of it.

I always put the property on the MLS as soon as I can. Even if you have a buyer already lined up this allows for other offers to be submitted. By showing various offers that are submitted via the MLS you can establish the value of the property for the lender. In short sales, you can influence the lender in accepting your offer by showing them you are marketing the property as well or better than the marketing it will get as an REO and using the offers as supporting evidence.

If you receive 10 offers from the MLS and 7 of them are lower than your offer to the bank then the lender is more willing to take your higher offer. I would not tell the bank there were 10 offers, I would only show them the 7 lower than mine. I don’t want them to know that someone is willing to pay more than me. This is assuming you even get 10 offers.

I agree. If it is pending a short sale I would state that in the MLS remarks/comments section.

Having a list of investors is always the quickest and easiest way to move a short sale. Generally speaking the investors will pay with cash also, and that always helps. I also use title companies, mortgage companies, newspapers, internet, and various other means of finding buyers.
As for figuring the price to offer the bank I will generally, but not always, take all the debt (taxes, repairs, Commissions, ETC.) other than the liens and subtract that from the appraisal value. Then I round it down to the nearest 10th. This is my quick way of figuring my offer price.

2 questions: Is it Fraudulent to control what offers the bank sees? Discarding the offers that you don’t like seems a little bit like cheating the bank.

2nd: Does the bank always know that there is an end-buyer? My assumption was that we did a double closing to shield the bank from this knowledge. I thought that the bank assumed that I was the end-buyer.

2 answers: I do not see it as being fraudulent nor can I find any laws in which it may break as long as you are not the Realtor representing the bank. When submitting your market compatibles do you submit all of them or do you only submit the ones that best support your case? If the individual who was submitting the offers to the bank was the banks representation then they would be required to submit all offers. The same is not required of a negotiator of a short sale.

2nd: The bank generally only knows what you tell them. If you tell them that you are the end buyer and they have no documentation to suspect otherwise, then you are the end buyer to them. A double close is generally done in a short sale in order for the negotiator to make their money. No lender in their right mind would discount their loan, then in the same transaction, allow any portion of the difference they just discounted to be paid out to a third party. So, we purchase the property ourselves at the negotiated short sale price, then we may possibly do some work to the place…or not, and then we re-sell the property at a higher price, thus successfully profiting the difference.

GooD Luck! :beer