Investor making an offer on a short sale

I like this property in my area. It is subject to short sale approval and it needs a lot of work. It is on the market for $199k, down from $329k. There is an $80k Home Equity Loan in first position, then a $175k and $40k home equity loan from a different lender. If I put at least $125k into it then it would be worth $275 - $300k so I would want to get it for around $100k. The $80k lender in the first position would be satisfied but do you think the Bank of America (the second) would be up for taking that much of a hit? Do they have any say in the process or does the lender in first position make the decision (in which case I would offer $80k)?

Edited: 06/26/2010 at 10:04AM

James Harkness

Real Estate Lender · Philadelphia, Pennsylvania

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Oct 14 '09, 02:33 AM

There are too many variables here, but I doubt that Bank of America will excuse the debt owed to them. Even if they did, the seller would take a hit on his/her tax returns for the amount of the excused debt. This sounds like it may be more complicated than you think.

Edited: 06/26/2010 at 10:04AM

Patrick McCafferty

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Oct 14 '09, 11:04 AM

Thanks. I would say I am too uninformed regarding the process to know how complicated it is. I appreciate your response. I guess I am just wondering if the lender in first position has absolute and final say regarding the sale and the lender in the second position's only recourse would be a deficiency judgement? Or does the lender in the second position have some say on the selling price.

Also, concerning the tax burden for the forgiven debt wouldn't IRS form 982 help alleviate some of that obligation if the sellers liabilities outweigh their assets (which I am very sure they do)?

Edited: 06/26/2010 at 10:04AM

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

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Oct 14 '09, 11:35 AM

What puts the first lender in the position of strength is the foreclosure rules that basically say that when the first forecloses, the subordinate liens are at risk of being paid nothing.

Getting paid as much as possible on their non-performing loans is the goal of these subordinate lenders. Sometimes, that means taking whatever amount that the first position lender permits.

Now, since in the case you present, the first position lender would be paid in full, they will not participate in the short sale. Leaving you with the second position lender calling the shots as to the amount of discount that will be permitted. As James indicated, you might not find them willing to budge enough.

Now, you did not say which lender positions are foreclosing; it could be that the first position lender is being paid and that loan is current, or it could be delinquent and the first is foreclosing. This could make a difference.

The third position lender is the one who is getting wiped regardless; in a short sale, they will be lucky to see $1000 allowed to be offered to them, since the second is going to be taking a cut (first is not at risk in this case).

Edited: 06/26/2010 at 10:04AM

Patrick McCafferty

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Oct 14 '09, 11:56 AM

Wow, great information, thank you!

If it is the first position lender foreclosing could it make sense to ask them to short sale for $1000 less than they are owed so it is in fact a short sale situation for them and would that take the 2nd position lender out of the equation?

Edited: 06/26/2010 at 10:04AM

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

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Oct 14 '09, 12:58 PM

You can try to ask for that, but my guess is the first isn't going to short this at all. If they did, they would typically stipulate what the subordinates will be allowed to receive.

Now, sometimes the subordinates get stubborn, and insist on minimum amounts above what the first has allowed ... That is another discussion.

Edited: 06/26/2010 at 10:04AM

Patrick McCafferty

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Oct 14 '09, 08:48 PM

I appreciate the help. I will do a little more research.

Edited: 06/26/2010 at 10:05AM

Jacqueline Lerner Aderman

Real Estate Investor · Tigard, Oregon

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Oct 17 '09, 08:46 AM

I have a question. I am in the process of "beginning" short sale negotiation with BofA on a non-owner occupied property.

can I get CMA's myself without contacting a realtor for that info? if so, other than zillow, what would you recommend?

thanks,
Jackie Lerner Aderman

Edited: 06/26/2010 at 10:07AM

Justin S.

Rehabber · Chandler, Arizona

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Oct 17 '09, 10:05 AM

can I get CMA's myself without contacting a realtor for that info? if so, other than zillow, what would you recommend?

I use fidelity national title reports, contact the marketing department at the title company you plan to use. They will set you up.

Edited: 06/26/2010 at 10:07AM

Justin S., Wheelhouse Properties
E-Mail: wheelhouseproperties@gmail.com
Telephone: 4806780446
Website: http://www.wheelhouseproperties.com
Realtor, Re-modeler, Cash Buyer

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

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Oct 17 '09, 01:36 PM

Originally posted by Jacqueline Lerner Aderman

...
can I get CMA's myself without contacting a realtor for that info? if so, other than zillow, what would you recommend?

thanks,
Jackie Lerner Aderman

Jackie,

That question has been raised more than once in other forum sections on BP; it's not specific to short sales - it's generic to all real investing.

So here are some links to other BP threads that you might find helpful. A search of the site forums might get you even more alternatives.

http://www.biggerpockets.com/forums/48/topics/9211-what-online-comparable-sales-resources-do-you-like-

http://www.biggerpockets.com/forums/48/topics/3080-finding-comps-for-a-area

http://www.biggerpockets.com/forums/48/topics/2021-finding-comps

http://www.biggerpockets.com/forums/12/topics/28821-pulling-comps

http://www.biggerpockets.com/forums/34/topics/32875-lender-s-appraisal

http://www.biggerpockets.com/forums/12/topics/10826-where-can-a-get-good-comps-and-marketvalue-on-homes

http://www.biggerpockets.com/forums/12/topics/39786-sales-comps

http://www.biggerpockets.com/forums/12/topics/14794-what-do-you-use-for-online-comp-research-

http://www.biggerpockets.com/forums/12/topics/22356-what-website-do-you-use-for-comps-and-arv-

http://www.biggerpockets.com/forums/48/topics/9818-methods-of-looking-up-comps

http://www.biggerpockets.com/forums/48/topics/30688-understanding-zillow-

Edited: 06/26/2010 at 10:07AM

Karen Parker

Real Estate Investor · Tampa, Florida

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Oct 17 '09, 03:46 PM

Originally posted by Patrick McCafferty

do you think the Bank of America (the second) would be up for taking that much of a hit?

I've never paid more than $2K on a second and this includes B of A. If the house goes to foreclosure they get nothing and they all know this.

Edited: 06/26/2010 at 10:07AM

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

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Oct 17 '09, 03:52 PM

Originally posted by Karen Parker

Originally posted by Patrick McCafferty
do you think the Bank of America (the second) would be up for taking that much of a hit?

I've never paid more than $2K on a second and this includes B of A. If the house goes to foreclosure they get nothing and they all know this.

Karen,

I agree with what you said.

In this instance, the first isn't likely to short, so the short is going to end up negotiated with BoA for the second; that is why the advice given earlier in the thread said that BoA will expect to be paid more (the first isn't stipulating any limit on subordinate payoffs).

But the OP can certainly try ...

Edited: 06/26/2010 at 10:07AM

Karen Parker

Real Estate Investor · Tampa, Florida

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Oct 17 '09, 03:56 PM

Originally posted by Steve Babiak

Originally posted by Karen Parker
Originally posted by Patrick McCafferty
do you think the Bank of America (the second) would be up for taking that much of a hit?

I've never paid more than $2K on a second and this includes B of A. If the house goes to foreclosure they get nothing and they all know this.

Karen,

I agree with what you said.

In this instance, the first isn't likely to short, so the short is going to end up negotiated with BoA for the second; that is why the advice given earlier in the thread said that BoA will expect to be paid more (the first isn't stipulating any limit on subordinate payoffs).

But the OP can certainly try ...

I'd still make that initial offer and wait for them to scream.

Edited: 06/26/2010 at 10:07AM

Jacqueline Lerner Aderman

Real Estate Investor · Tigard, Oregon

38 posts
50 influence

Oct 18 '09, 05:44 AM

I have a preliminary title report on the property. Thanks for the links to other forums.

re: SHORT SALE with BofA. This is my first time dealing with them. When asked, I indicated I'm a private party interested in this property.

Edited: 06/26/2010 at 10:07AM

Brian Haskins

Real Estate Coach · St. Louis, Missouri

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Oct 18 '09, 09:24 PM

They both have to agree in a shortsale. As far as if they will take that low of an offer depends on who is negotiating the deal and how good they can justify your offer.

Brian Haskins

Edited: 06/26/2010 at 10:08AM

Brian Wall

Real Estate Investor · Santa Fe Springs, California

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Oct 18 '09, 10:23 PM

did you ever find out which position is foreclosing?

Edited: 06/26/2010 at 10:08AM by Brian Wall