Short sale question for property in foreclosure

19 Replies

I currently have a pre-foreclosure property under contract that is scheduled to go to auction in 2 weeks.  I know with the short timeframe, I need to focus on postponing the foreclosure or getting it removed completely first and foremost. However, I know that if I do get it postponed/stopped, I will need to get the bank agree to a short sale in order for the deal to work.  I have never done one so I am looking for guidance in doing so as well as convincing the bank to agree to it.  Not sure what a bank might realistically take on the property.  Overall, here is the breakdown of what I am seeing.

Principal balance: $195K

Payoff: approximately $305K with late fees and such

Taxes: all paid and up to date

Repairs: $120K

ARV: $400K

Ideally I want to get the bank down as low as possible in order to make this worth my time. Luckily, the family has already given up on the property so I am wanting to take a shot at this to help improve my knowledge in the process and short sales determine better ways to do this in the future should I ever come across this again. Any guidance in this realm would be greatly appreciated.

The $305k is the estimated payoff balance on the property right now. The owner hasn't paid since July of 2015 so the accelerated interest and fees have increased the property balance from the $197k payoff in June of 2015 to the $305k payoff it appears to be now. Still working on getting the third party authorization approved to get final numbers so that is just an initial estimate on my part.

Yes, $110k seems awfully high for interest, taxes, insurance, legal fees,etc. Especially if in Tx, non judicial, they shouldn’t be more than six months or so behind.

Anyway, for a postponement and short sale your best bet is get an experienced short sale agent, get it listed, present an executed contract to the lender.....best shot of getting s postponement. An experienced short sale agent will know how to do this “list it for a few days, present Your contract”, etc.

@Matthew Teifke you are correct. I don't want to pay it off right away. In order to make it work I need them to agree to a short sale but I will pursue as if I will buy it outright in order to get the foreclosure stopped. As soon as I can buy some time, I will then go back to try and get a short sale approved.

@Wayne Brooks I believe it is so far behind because the homeowner went through a bankruptcy at one point which I think halted things for a bit. Also I think the loan was sold a couple times and the lenders changed and that might be why they are going on 2.5 yrs delinquent.

I also recently tried to purchase a property that was 1 yr and 9 months behind on mortgage payments that was just recently getting foreclosed on.

Why not just offer them the 197 plus 25% of the fees to start or is the house not even worth that in its current state? The bank has to approve any sale below current payoff and likely won’t stop foreclosure unless they do approve a short sale. If the seller moves quickly enough you might get lucky. That leaves you somewhere around 55% of ARV.

@Jeshua Patrick If I can get them to go with that, I would consider it a win.  Ideally I want to go as low as possible but since I've never been involved in a short sale, I wasn't sure if there were any helpful tips, processes or ways to position it so that I can get it approved. 

When I tried this with another property a couple months ago, the bank wasn't willing to stop the foreclosure or take anything less than full payoff which resulted in the property going to foreclosure and the bank ended up taking it back. At that point they listed it as an REO for $25K less than the owed amount and accepted an offer below that. That was my only experience trying something along these lines so I was wondering if there was an easier/better way to approach this.

Originally posted by @Ryan MacDonald :

Wayne Brooks I believe it is so far behind because the homeowner went through a bankruptcy at one point which I think halted things for a bit. Also I think the loan was sold a couple times and the lenders changed and that might be why they are going on 2.5 yrs delinquent.

I also recently tried to purchase a property that was 1 yr and 9 months behind on mortgage payments that was just recently getting foreclosed on.

I've heard of "usury", and, "Dodd-Frank". It still looks to me that, charging an owner-occupier 56%+ on top of the principal, after only 2.5 years of non-payments, is exploitative!

@Brent Coombs The property I was referring to that was 1 yr and 9 months behind had a principal balance of $27K on it but full payoff was $74K. So 2/3 of the full payoff balance was late accelerated interest, legal fees and everything else that comes with that.  I'm not sure how they got away with it but as far as I know it is happening.

@Ryan MacDonald  short sale ends the pain for everyone early and avoids a foreclosure. being so close to auction, there is probably less incentive for the bank to agree to a short sale.

that being said, with a short sale, negotiations start at the appraisal. hire your own appraiser and you can have your answer in a day for $350 wether you have a chance at a good price on this property or not.

homeowner may be able to postpone by submitting a filing in court. make some phone calls

If you manage to delay the sale by telling them you’re going to pay off the debt in full, then try to change it to a short sale.....they’re going to tell you to pound sand, and reschedule the sale.

This deal is likely dead. I used the term "likely" only because I believe in the occasional miracle. It should have been pursued if at all as a short-sale from the outset. 2 weeks out and already under contract, without a listing broker involved? Not happening.

@Dennis D. The family already wants nothing to do with the property as they moved the mother out of the house almost 2 years ago so getting them to do anything where they likely won't get much if anything out of it doesn't seem likely but I will look into that route. Thanks for the advice.

@Tom Gimer I just ran across this house on the foreclosure list Thursday and had to track down the children of the lady who owns the house to speak with me about the situation. And from there it took her until yesterday (now this it's Wednesday morning) to review the contract and sign. Overall they didn't think to go the short sale route and I'm still fairly new to investing to know how to tackle all of these types of situations. But I'll now know more next time around.

@Matthew Teifke my goal is to get it as close to $200k as possible or not do the deal. After speaking with a short sale agent in the area, I'm not feeling confident in this working out. I might need to see if I can get it once the bank takes it back and sells in as an REO.

Tom is correct. This deal is dead. Your goal and time are not in sync. Even if there was a deal, lender has no obligation to negotiate. The run the same numbers you've run and if there is a deal in there for you at $XX, then it's probably only a deal to them if it's at $YY so, they'll more than likely smile and continue with their foreclosure. They can't bid more than total debt but sounds like they will at least go to total debt...which is more than you want to pay. I'd spend your time on a different deal that has a chance of closing.