Negative Equity... Creative Options here?

Question

Sent out my first ever letters to pre-foreclosures on Tuesday. I’ve received a call back already today. (I’m purchasing homes for flips, not wholesaling, but open to that option if its there). Bank will not work with them any longer. Is there any creative help for this situation?

Owes: $190k

Estimated market value in current condition: $150k

Needs: $40k rehab (overestimated)

ARV: $200-220k

Essentially negative equity here… My natural first thought is to submit a short-sale package with the owner and have them send their lender a signed contract with my proposed offer. However, the absolute max we can pay is around $120k to make this a sensible flip.

Are there any other options here? What are the odds a bank will consider my low offer? I’m searching around for options on BP for what to do with basically a negative equity situation…

Charlie Fitzgerald · Answer

Current Market Value does not apply in a distressed sale.  Make your best offer first...110k. If they counter above that walk.  Low offers fishing for a great deal and hoping for a counter in the worse case, leaves the door open for a FBFO (First Brst Final Offer) buyer like me to get in the deal and take it from you.  FBFO is the way to go, in my opinion.  Good luck Shannon!  I'm pulling for you!

Shannon K. · Answer

@Jay Statzer, this deal was dead a while ago. Unfortunately, because I submitted such a nice, well-organized package to the bank (beautiful photos, comps, repair bid, a contract, etc ) for consideration on this home, they thought I was "in cahoots" with the person losing their home and was going to rent it back to them once I bought it.

They flat out rejected my offer and told me not to contact them again regarding buying this home because they'd rather go through the foreclosure process. Bank said they're sure there is something under-handed going on here between me and the foreclosed person and that "they know we're friends" so they didn't want any part of "that collusion"....

(In reality, this was a random contract from a lis pendens letter I wrote along with the other hundreds I found on my city's central appraisal property website, but ok bank!!)

Account Closed · Answer

@wayne brooks and @ brent coombs bring up a good point.

When I was listing short sales, I'd always list the property at or near the balance that was owed on the loan, then I'd systematically reduce the asking price over a couple months until we got a solid offer. This process creates evidence to show the bank that 1) we tried to get their money back and 2) the home is no longer worth what is owed.

Another important question:  Is NY a judicial or non-judicial foreclosure state?

Having said all that, sounds like it's time to punt on this deal and move on to the next one.

Kerry Baird · Answer

Did you put that offer in?  Because the rest of that conjecture about prince, countering or assigning will clear up when you get an acceptance or rejection.  For me, I would prepare to go on title by lining up hard money...but, if it wouldn't make sense to me as a keeper (my Plan B), I wouldn't do the deal.

Charlie Fitzgerald · Answer

As-is value - estimated cost of repairs - = Offer price.  So you're looking at a max offer of $110,000.  What are the chances of the bank accepting the offer at $110,000...ZERO if you don't make the offer.  You know your fundamentals for a good flip for YOU Shannon.  Don't worry about what the fundamentals for the bank are.  When you find a deal that meets your fundamentals...make the offer based on YOUR fundamentals.  There is no secret that banks accept a lot more offers that people make than they do offers that people don't make.  :)  If it meats your fundamentals (which I know to be sound because we've talked about them), then make the offer.  No acceptance by the bank...keep looking for the next one.

Account Closed · Answer

If you're going to go after pre-foreclosures, what training or experience do you have negotiating short sales?

Jay Statzer · Answer

Who has time for all that MLS drama. She needed to get it sold and it was ready right then. This is just another case of a woman being rejected for being "over qualified" and I hope that it's a rare case for Shannon.

Brent Coombs · Answer

But we don't know that's the case here, do we Wayne? Who says it wasn't listed for months?

But I agree, expecting the Bank to agree to a lowball offer before foreclosure is a bit of a fantasy...

Wayne Brooks · Answer

This happens when you don't have the property listed by an agent in the MLS for at least 5 days or so, as they all require.

Jay Statzer · Answer

How much was the monthly loan payment? Was it still current? Looking for lease option experiences with low equity deals. I've heard of methods, but mostly in low value properties.This is an old thread so your issue must be resolved by now. How'd it end up, Shannon?

Negative Equity... Creative Options here?

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