What is the best way to find out about short sale opportunities?
Call the bank on a property your interested in?
I’ve done several of these. This is what we did. Our first townhouse was next to one we already owned. We found out from the owner that she was in bankruptcy status, so the bank technically couldn’t foreclose on the property. We called the bank’s attorney and asked about the short payoff. He said techncially she still owned the property and that if she signed a purchase agreement for the “short sale” amount, then forward it to him and he would approach the bank. So, she owed $185,000 and we asked for $85,000 purchase price. They said yes - want to know why? Well if it went through the bankruptcy process (that takes a long time) then they’d get the building back and have to sell it (it would sit on their books for a long time) or they might not get anything for years. This was an 11 suiter. They took the deal. So we got a building that appraised for $210,000 for $85,000. Rehabbed it and now it’s worth $265,000.
The second one, we approached the lawyer the same way. He too said the same thing - if you get a purchase agreement from the homeowner, send it to me and I’ll show it to the bank.
So at this point, start with the current owner and ask them if they would sell it to you on short payoff - it would keep “foreclosure” from being put on their credit file because they sold it - doesn’t matter for how much. So you are actually saving them from 10 years of foreclosure being plastered on their credit record. Once you get it then send it to the bank’s attorney with a letter requesting a short sale.
You should not actively be looking for short sales. Trust me, you will find them. Shortsales are just another tool in your handbag. If you are only looking for shortsales your working way to hard brother. Plus the bank decides whether or not they will accept your deal. This gives others way too much control over your financial well being.
Just my two cents.
The traditional “short sale” is normally done with people who are in bankruptcy or foreclosure status. You wouldn’t be actively seeking “short sales” opportunities unless these are the type of people you are targeting to purchase from, which there are plenty of these in Cleveland, OH. In Cuyahoga County alone there are nearly 12,000 foreclosure cases pending because our court system is so slow at hearing them. This gives investors the opportunity to make a deal with the owner and the bank. Some of these cases have been sitting there for almost three years! Read the article here - http://www.cleveland.com/news/plaindealer/index.ssf?/base/cuyahoga/1116668004291430.xml&coll=2. So it really depends on where you live and who you want to target. For more information on buying property in Cleveland, visit my new website called - www.buyingincleveland.com.
Im an out and out newbie so pardon the naivete of my question, “How much on the dollar can one typically offer the bank on a short sale?” For example, if the current homeowner owes $100,000 and the fair market value is “give or take” $115,000, what is a standard offer?
Thank you for your time.
In my opinion, it really depends on the state/condition of the property and how long it’s been sitting in the court system. We got a deal on a 3 bedroom rowhouse for $20,000. The owner owed $63,000 but the property sat for so long empty that it was vandalized over time and it wasn’t worth $63,000. So the bank sent out an inspector who agreed and the bank said okay to the $20,000. So I’d offer whatever was reasonable for your pocket. If they don’t accept the first offer, then make them a second. Keep in mind that you’ll need a new purchase agreement with the owner in both offers.
Also, if the sellers aren’t in financial hardship with the mortgage, I doubt very seriously if a bank would take a short payoff.
First and foremost, thank you for your reply.
Hmmm…I think Im alittle over my head because I only understood 1/2 of your answer. Maybe my question was unintelligible.
I live in Austin, Texas and through my former job working for a developer I know of at least a half dozen families that are in preforeclosure (theyare two-three months payments behind).
My question to you or anyone and I stress this question is not “personal profit motivated”, “How much is a standard offer for a third party to make on a preforeclosure home?” Moreover, this question is knowledge oriented first and helping the families second.
Now bear in mind the following so that you have all the facts:(1) The families are still in the homes (2) The families owe on average $100,000 (3) The homes are worth on average $105,000 (4) The familes are on average 3 months payments behind.
here is a very powerful addendum: 1 home in this neghborhood of forty homes was sold in foreclosure for $65,000 last year. It was the only home to be foreclosed to this point.
I apologize for the lengthof this post.Thank you Abray and to anyone that can shed some light on the question, “How much is a standard offer (cents on the dollar) on a preforeclosure?”
I would have to defer to someone else who can actually “pinpoint” a dollar amount. In one of our preforeclosures, we just offered to take the property for the balance owing and pay his arrearages and the bank agreed. The balance on the mortgage was $63,000 and the fair market value of the property was $98,000. This is a two family, 3-bedroom each home and we get $1,500 per month Section 8 rent in total. If someone can share an actual amount or percentage I’d like to know too.
Great answer Abray:
But my next question, “if the homeowners owed $63,000 and the property was worth $98,000, why wouldnt they (the homeowners) sell/lease the home themselves?” Especially to save foreclosure.
I know of a lot of preforeclosures where the spread/equity is between $0-very little. In that case, can you offer the bank involved in a preforeclosure $75,000 on a $90,000 loan? I think the answer is “no.”
Im a little confused if you can write offers, with any success, on preforeclosures at significantly less than the payoffs?
Thanks in Advance
That’s why I say each situation is different. Where one bank WILL do something, another WILL NOT. The bank really just wanted to foreclose on him because he made too many promises and never kept up with his payment arrangements. So, we stepped in - offered a land contract to buy the property and to pay the arrearages in advance, which we did. The land contract secured their interested that they could now rely on us to pay or foreclosue on us. We took the land contract and refinanced the house. We didn’t even do a traditional buy. It was refinanced into our names and the process took about 30 days total. We used Wells Fargo for the refi.
Abray I am new at this and I have a Question for you. If I wanted to shortsale a house and say they owed 300k and the bank took 200k how much would it cost me to do the shortsale up front and I would also Wholesale it.So what I am asking is what are the costs to me up front or is there any costs and what are they because my problem is having the lac of money and what kind of time frame doe’s a shortsale take on an average. Do you know anything about Colorado. Thanks
You have several questions within one. So here it goes. It depends on who you do the short sale with. Some ask for “earnest money” upfront and some don’t, but usually it’s a small amount. In my case we gave $1,000 and that was it. The other part of your question really depends on who your lender is and what they finance. Some hard money lenders I’ve dealt with can do 100% on non-owner occupied triple, double or single. If it’s four units or more, then they probably will go 85% or higher. Since your’s deal is a single, you should be able to do 100% with no money down, however you’ll still need to pay closing costs. Normally you’d ask the seller to pay the closing costs for you, but since it’s a short sale and the seller probably doesn’t have any money, they won’t help you out. So you’ll probably need some money.
If there’s anyone out there that can do it with “NO MONEY” whatsoever, I’d sure like to hear it.
I’m a little unclear on whether or not the owner’s are paid anything. For instance, you mentioned that an offer was presented to the owner’s and then to the bank. Are they two separate offers are a single offer that must get the approval of the owner and bank in order to be ratified? ??? Thanks in advance for your help.
Before the bank can accept a “short payoff” offer, you must have a purchase agreement with the current homeowner for the short payoff amount. Now, although the banks will give you some type of document to sign saying the owner “was not” paid anything - most people offer the current owner some side money to do the deal. The amount really depends on the seller and buyer as to how much and if it’s reasonable. It also depends on how desparate the seller is. On one deal we only paid them $1,500, but on another deal we paid them $3,000. But, you don’t pay them until AFTER the bank has accepted the short payoff arrangement and you know you have a solid deal. You also want to wait until you CLOSE. That’s my personal feeling because no one can make a SELLER sign papers. Did you know that? No one can force a Seller to go and complete the closing. They can actually hold out until you give them even more money. So if you hold back on the initial amount and have a deal that they’ll get paid once you close, then you are okay. If you pay up now, they can hold you hostage at closing time for more money. I know of people who gave the seller the money first only to have the bank reject the short payoff. The seller wouldn’t return the money. Also, right before one of our closings, the seller came up with this “well, I have to miss a half a day of work and I don’t get paid for time I miss.” In essence, they were saying they wanted to be compensated for missing work to go sign the closing documents. So we paid her $150 extra to go sign. So make sure you wait until the offer has been accepted by the bank and you close the deal.
Thanks for the excellent explanation Abray. I can now say that I understand short sales.