REO Experts & Asset Managers replies welcome!

Question about realistic offers accepted by banks in this market. I've found a great possible property, retail value (?) about 700K, had been posted to sell at 569K, but I believe the mortgage loan might only be for about 207K per county tax records. It has already been taken back by the bank about 6 months ago. QUESTION: will banks do deals to get it off their books if the offer is less than the outstanding loan amount, or will they NOT because the retail value is significantly above the loan amt and they will wait to see if they can make money on it instead?

REO investors - what would you do?

More info....

I want to use this as my primary residence, so I would rather put in a bid as low as possible, and if the outstanding loan amount back to the bank is 207K, I'd like to come in under that, but the house is worth much more.

Also, since I must sell my current residence (plan to do so as a subject to so I get a decent amount in this lousy market) would I need a purchase contract in place on my current residence? Re: proof of funds to go with the offer, I'm hoping that the current bank will finance the loan, what would I use as proof of funds? send personal income/asset/liability balance sheet?

Edited: 06/26/2010 at 07:51AM

J Scott

Real Estate Investor · Atlanta, Georgia

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Icon_minipost Apr 07 '09, 12:22 PM

Banks will sooner consider offers below the outstanding loan balance than they would consider offers well below market values.

In reality, they generally let these things go for price *both* below outstanding loan amounts *and* below market value, but the banks are a business and will try to get as much as they can out of the deal.

In this case, if the retail value of the property is really about $700K, it's unlikely you'd be able to pick it up anywhere close to $200K (even if that's the outstanding loan balance). I imagine there are plenty of investors who would be happy to pay $.50 on the dollar, and buy this property for $300-400K, and the bank would be happy to sell it to them.

Of course, you can put in any offer you like, including one for $200K or less...the worst they could do is say no.

As for getting financing on the property, you'd have to qualify for a loan just like any other non-REO property. I'm not sure if you're suggesting that selling your current home would be a contingency in this deal, but I can almost assure you that no bank is going to allow you to put an REO under contract with the contingency that you sell another property.

Edited: 06/26/2010 at 07:51AM by J Scott

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Icon_minipost Apr 07 '09, 08:44 PM

So, selling mhy current residence subject to, I would then have a purchase contract showing the "sold" property, and my 16 years of making mortgage payments on current residence should be enough for bank to finance REO purchase?? (if accepts offer on reo...)

Correct?

Sub2 experts??

Edited: 06/26/2010 at 07:52AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Apr 07 '09, 09:48 PM

Agree the rep bank won't accept a contingency to sell your current house. If you want a new loan while you own the existing one, even if you sell it subject to, you'll have to qualify fit both loans.

My experience is banks will come down only a little, maybe 5%, from their listing price. They will drop the price over time, and when it gets to be a good deal, it will move quickly.

If you really want this, make an offer near the currfnt listing price. You can try a lowball, but I doubt the bank accept it. They will most likely ignore you, maybe counter at a slightly lower price. You can check everyday for a price drop, and resubmit your offer when that happens. But, if it drops near what investors consider good price, it will go quickly.

Edited: 06/26/2010 at 07:52AM

Jon Holdman, Flying Phoenix LLC

J Scott

Real Estate Investor · Atlanta, Georgia

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Icon_minipost Apr 07 '09, 10:26 PM

As Jon said, you have to to qualify for the loan just as if you were buying a property from a regular seller. The lender will look at your overall financial situation, including:

- Your credit score
- Your income
- Your debt-to-income ratio (DTI)
- Your other assets and liabilities
- Etc...

If you have another property's mortgage against your credit, this will impact your DTI. If you have income coming in from that property, it will help your income level and your DTI (though there are new rules about how long you will have needed to be receiving this income for a conforming loan).

Talk to a lender before you proceed and waste both your and the bank's time.

Also, while Jon may been seeing banks only come down small percentages where he is, I've seen banks drop prices by 20-30% off list if the property has been on the market for a while. This is just a different in locations, and yours could be like his, like mine, or somewhere in-between...

Edited: 06/26/2010 at 07:52AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Apr 07 '09, 10:36 PM

J, are you seeing banks accept offers 20-30% off their listing price? I do see them drop this much or more over time, just not for accepting offers. I am dealing with low priced properties. Heard yesterday the inventory in my price rangeis 0.8 months.

Edited: 06/26/2010 at 07:52AM

Jon Holdman, Flying Phoenix LLC

K Confid

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Icon_minipost Apr 08 '09, 11:56 AM

ok, so I'm confused, I thought under subject 2, once the owner could show that they sold the house (purchase contract) that they could buy another house later. If I show the purchase contact on current residence, showing I am not responsible for the monthly payments, the rest of my debt to income ratio should be fine.

So I guess clarification is needed on selling any house sub 2, how does the previous owner buy another (cheaper) house?

Edited: 06/26/2010 at 07:52AM

J Scott

Real Estate Investor · Atlanta, Georgia

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Icon_minipost Apr 08 '09, 12:07 PM

Originally posted by Jon Holdman

J, are you seeing banks accept offers 20-30% off their listing price? I do see them drop this much or more over time, just not for accepting offers. I am dealing with low priced properties. Heard yesterday the inventory in my price rangeis 0.8 months.

A lot of what I'm buying is starting out around $120-150K, dropping over 6-10 months down to about $50-70K, and then I put in an offer at about 60% of current list and negotiate to about 70-80% of current list.

So, I'm mostly picking up properties for $35-55K that are listed for $50-70K.

Again, I'm around Atlanta, which has seen more foreclosures than most of the country, so I don't expect most other areas to be as soft in terms of picking up REOs...

Edited: 06/26/2010 at 07:52AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Apr 08 '09, 12:32 PM

ok, so I'm confused, I thought under subject 2, once the owner could show that they sold the house (purchase contract) that they could buy another house later. If I show the purchase contact on current residence, showing I am not responsible for the monthly payments, the rest of my debt to income ratio should be fine.

So I guess clarification is needed on selling any house sub 2, how does the previous owner buy another (cheaper) house?

The best answer is to just sell the previous houses.

The second best answer (maybe the best, really), would be to speak with your potential lender. Its my understand that the lender will not accept a purchase contract (or a lease) as evidence of the new income. After some time of on-time payments by the new buyer. the lender may accept the payment as additional income to count toward your DTI payment.

Why? Because a common "scam" has become to say you're going to rent your current house, and buy a new, cheaper one. A lender gives you a new loan, assuming the rent covers the old one. You move in the new house, and stop paying on the old one, with no intention of really renting it. So, now they want you to qualify for both loans at the same time. I suspect lenders will be even more leery of subject to deals than a straight rental. But, ask them.

Fannie Mae has changed their guidelines so they will not count rental income until the property has been on two years of tax returns. Same idea.

Again, the traditional process for buying a new residence is to sell the old one first.

Edited: 06/26/2010 at 07:52AM

Jon Holdman, Flying Phoenix LLC