Buying a home for less than what’s owed

6 Replies

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.

@Jonathan Holmes I think that is the factor that differs between banks and lenders. Whether the bank/lender has a real estate interest. Also, if they are not the original lien holder, then it is likely that the original lien holder sold the debt for pennies on the dollar. Which gives the new lien holder reason to sell for cheap to get it off their books. So it's a matter of if they care to take the property back and sell it. Or If they just want to dump it fast as they could hv a whole roll of non performing notes that they bought for cheap

Originally posted by @Shella Sanders :

Jonathan Holmes I think that is the factor that differs between banks and lenders. Whether the bank/lender has a real estate interest. Also, if they are not the original lien holder, then it is likely that the original lien holder sold the debt for pennies on the dollar. Which gives the new lien holder reason to sell for cheap to get it off their books. So it's a matter of if they care to take the property back and sell it. Or If they just want to dump it fast as they could hv a whole roll of non performing notes that they bought for cheap

That's a fallacy. Nothing true in that assumption. While that may work for the mom and pop, "onezee/twoozee" private lender, institutional lender/servicers handle their book of business the same way, every day, everywhere. And while some of that may have been true, on a small scale, from a point in time long gone, discounting and pushing loans off the books is a thing of the past.  Whether they are the original lender or are a servicer, their actions and motivations are the same. The servicer has a duty to the lender and if they don't have delegated authority by the lender, they take instructions from the lender. If they do have delegated authority by the lender, it was given to them and spelled out exactly what that authority and those duties were prior to executing the servicing agreement. And it doesn't matter if its original lender, or the 5th or 6th lender/servicer that owns it or services it down the line.

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