Hello,

I was looking to learn a little bit more about short sales. I am looking to buy my first home. One of my friends houses is going to be getting foreclosed on. The house was appraised at $350,000. She owes $190,000 on her mortgage and has a $100,000 home equity loan. 

Can you buy the house through a short sale for less than the debts that she has on the house? How would a short sale process work?

A short sale is when the mortgages are More than the house is worth.......not the case here, they should/should have simply sell it and maybe walk away with a little something.

With two liens I suspect this will be more complicated than a normal short sale. As I understand it, the process with a short sale is to first have the bank agree to the idea of it by filing appropriate paperwork. They may say no. Then you make an offer. Then they say yes or no. Then an appraiser comes out and tells the back it’s worth much more than your offer and the whole thing falls through. The property will then sit empty forever as the bank tries to sell it at the inflated price. That was my experience.

You would have to convince two banks to agree and A line of credit is different enough from a mortgage that I have doubts the would consider a short sale. Also if it is worth 350k then your friend should fire sale it for 300k and get out of it. Again if it’s worth 350k the bank will not short sale it for less than what’s owed as they can simply foreclose on it and sell it to recoup their investment.

Lastly, because of your connection with the owner there is an increased probability that the bank will refuse to short sale specifically to you as the seller could have a conflict of interest to get you a better deal than needed to sell the property.

There is no short sale in your scenario. I suspect instead you WANT the lender to accept less than what is owed so you can make a profit, not because it's worth less than what is owed. If that's the case, your logic isn't gonna work with the lender and you will get a very quick no.

Its been my experience that you have to pay the 1st morgage and the 2nd morgage you can talk them down to what they are willing to take. 99.9 % of the time the second is going to be the one that going to take all the work to get it to where the bank gets their money and you get a good deal.If the same bank holds both notes,well good luck.It be best to do a fire sale and get out of it fast.