Navigating a short sale deal from scratch

8 Replies

Hi Everyone,

I wanted to throw out a situation I'm dealing with now and get some input on how I should proceed. I recently went to see a property in my neighborhood that I am sure is a great deal. ARV = 333k and the property needs about 75k in repairs. The owner is very motivated to sell BUT it's going to wind up being a short sale deal. Here are some details:

The property belongs to an estate and the daughter of the deceased is the administratrix. After her mother passed the family was unable to pay the mortgage and they tried selling the property but were unsuccessful. Since then the family has moved and the property was left vacant. She is very much willing to do a short sale.  

When I met with her she gave me the following documents:  mortgage statement from January of this year (the most current one she had). The administrator certificate proving she is the administratrix, a discharge notice for a junior lien. 

mortgage statement says:

unpaid principal balance: 121k

unpaid advance: 3k

escrow balance: 15k

I checked the public records and confirmed that there are no other liens and that a pis pendens was filed In April of this year. 

I want to lock this property up and get a short sale approved somewhere close to 120k. Problem is I've never worked a short sale deal. I have no idea what needs to happen but I need to learn quick. Here's what I'm thinking so far: 

Get the property under contract with seller for 120k. 

Have seller sign an "authorization to release loan information" 

Get my title company to go to work on figuring out exactly what's owed... 

Then I get stuck. Am I then supposed to call a realtor? I know the banks send an agent to do the BPO, and a big part of negotiating the short sale is convincing the BPO agent that the property needs a ton of work and should be discounted. So should I start looking for an agent to help with his? I do know one agent I can call but I should probably get it under contract first, right? 

Any / all suggestions would be appreciated. 

Thanks! 

Huh? If your ARV us $333K and the UPB is around $120K, where's the "short" part?

What you'll need from the estate seller is documentation confirming her as the person in charge with sufficient caoacity, powers and authority to sell to you. It nay, or may not, require a court order, too.

In CA, we use a controlling document referred to as probate Letters.

@Silvio L.  

Short Sales have been my bread and butter as an investor. I love them but they are definitely an interesting beast. I have bought 4 and have 2 more under contract. Had 3, but the last one fell out of contract because the bank came back with a higher price and I wasn't interested. 

Here's a few thing I have learned (this is just fyi based on "my experience" every area is different talk to a professional)

*Use an experienced SHORT SALE realtor- I use a realtor every time. The bank doesn't "discount" the price just because you haven't use one. Personally I would have the realtor you find backend both sides. That way you have as much control over the deal as possible.

* When negotiating deal your first step is getting the family to agree to a price. While in the peak of the market they didn't care about price, now many are becoming VERY sensitive. That is because they will owe capital gains on the forgiveness. I was told (didn't confirm so take it with huge grain of salt) was 35% so this family will owe the government 35-70k, depending on the sales price. Therefore many won't go unreasonably low when they find this out.

*Even if you DO get it to go low, the banks have gotten ALOT smarter!!! They aren't approving crazy low prices for either short sales or  Foreclosures. I am finding that banks are doing BPO's and countering back to full market values as if it wasn't a short sale. We lost a house because they came back 17k higher and the deal wasn't a deal. It was hard enough to get the margin we wanted with just the family. FYI we are buy and hold so are margins are not as strict as yours. 

*The process is long. It can take at least 6-12 months which can also influence price.

*The other issue is the banks are letting more houses go to foreclosures. Therefore you could wait 12 months and than find out that its foreclosed on! You just lost the house :( (had that happen too!)

I am not telling you not to go for it! I love bigger pockets because we can learn from each other. So this just my advice. I am just saying that short sales are ALOT more complicated than "yeah" the family agreed to a low price. I watch tons of deals, put contracts on more, and lets just say close alot fewer at the numbers we want. That's not saying we don't get great deals. That's just saying that we have to find many/try "Great" deal before we find the one for us that closes (lol)!

Elizabeth Colegrove I can't imagine the bank would approve $120k from your numbers.  Probably more like $250-$300k, if it actually were a short.  Looks like the deal makes sense at or above the $140k owed.  What price is the estate looking for?  If the estate was liable for any taxes on the forgiveness, not sure about the estate issue, they would be ordinary income rates though.

A short sale is approved by the bank when the owners owe more than what the property is worth. For example if your numbers were reversed, ARV $120k and the UPB $333k, you would have a short sale. This is a deal that you could do successfully without a realtor as long as you and the seller agree on the price.

A short sale is approved by the bank when the owners owe more than what the property is worth. For example if your numbers were reversed, ARV $120k and the UPB $333k, you would have a short sale. This is a deal that you could do successfully without a realtor as long as you and the seller agree on the price.

@Wayne Brooks  

They don't "have to list it" and have competition. If all goes well I have a house that my agent is doing both sides and it will go straight into the mls "pending". People can do "back ups".

Elizabeth Colegrove I understand (your agent  did list it).  But, it always looks more legit if the listing at least "appears" to be Active, and marketed, for at least a few days.  In fact FNMA short sales Have to be listed Active for at least 5 days, including a weekend, or they won't process it.  I've listed quite a few at 11:00 PM on a Saturday night.  Monday morning it shows as listed for 3 days. :)

Thanks everyone for the advice and useful information. It seems that this is not a short sale at all. I suppose I got stuck on the "short sale" idea because it seemed to me that for the deal to make sense we'd be offering less than what's owed on the loan. The mortgage balance I have is from January so I imagine the balance today is a bit higher, but I need to complete some more due diligence to find out what the current exact UPB is. I estimate it will be around 151k. I supposed 120k is really low, so that probably wasn't realistic. But even if I locked it up at 140k, which would make sense to me, it will likely still be below the UPB. That's why I was thinking short sale. 

I wish the seller had called me in January when the UPB was 121k!  

Elizabeth Colegrove  Thank you very much for all of the detailed information, I appreciate it!