A client (buyer) came to me interested in a listed house in the pre-foreclosure process. The listing agent is not local and doesn't impress me as being able to get a short sale done as there are 4 trust deeds on the property.
The owner of record vacated the home a year ago and will probably accept any offer, as is typical in a short-sale as they will not get any money from the transaction.
Moreover, today, I just had the county recorder change the legal description to reflect the right-of-way easement established when the stated transferred the land to the municipality in the 1880's. (I just found out that the piece of land that looks a lot like the house's driveway is technically a city street and not properly reflected on the plat)
My client is in no hurry. In my opinion, his best bet is to wait for foreclosure, get clean title, then negotiate with the bank when we show them that the house doesn't have a driveway.
So I have two questions:
1) If I get the house under contract with the titled owner (at a price my client would take) how might it affect the foreclosure process which I foresee as our only realistic goal? I'm not too worried that a third party will come in and pick up this prop, but would like to throw a big monkey wrench into that possibility if I could. I've had contracts on houses that were foreclosed on while waiting for third party approval, but this was a while ago.
2) Is there any way to influence the opening bid at foreclosure (in favor of US Bank) or is there any possibility of buying the note (also at a discount) and have my client foreclose?
So let me get this straight, as a licensed agent, you would put a contract on a property you have no intention on closing. Letting the seller thinking it will be handled in a short sale only in an effort to force their property to remain vacant longer and go all the way to foreclosure??
This seems to violate every ethical thing I could ever imagine. I know the Realtor board probably wouldn't view it favorably either.
I state that because you say "Your client isn't in a hurry".
We intend to make a legitimate offer that we would happily perform on if accepted (by 3 third parties).
The property has liens totalling $170K, is listed at $112K and isn't worth more than $90K FMV. (It's had exactly 0 offers in 265 days). I've done short-sales before and just don't see three banks getting this done, so am trying to best position my buyer for the inevitable.
I do feel bad for the listing agent, though, because's he's signed himself up for an untenable situation. Ethical standards require me to not interfere with his relationship with his seller.
I can see how, without the details of the situation this might look predatory, but hope you understand that I'm not proposing anything shady or unethical. We didn't make this salad.
SO then make the offer you feel you need to make and see if it goes through. Either way, it will be a while on this foreclosure. But to make an offer just to ensure no one else does.. that isn't overly ethical if you ask me.
The only reason that we wouldn't make an offer is if it would delay the foreclosure process, which was my original question. However, this goes both ways if a third party comes out of the woodwork with an offer at some future pre-foreclosure date (like in 2 months, restarting the clock). So I'm looking for additional information to best navigate the situation and facilitate resolution to a property that originally went into default in 1/12.
In my opinion, a short-sale won't go through on this property even at the listing price. If an offer (be me or anyone else) delays the foreclosure process by months, everybody loses. Banks are sitting on unserviced liabilities, fees are amassing, the asset is deteriorating, the listing agent is doing work he won't be compensated for, etc.
To restate the question: If there is an offer on a short-sale that is almost guaranteed to fail, does it typically prolong the foreclosure process?
I guess this warrants a general question: Has anyone ever convinced a 1st, 2nd, and 3rd to take a combined 35+% hit?
Foreclosure would be a form of euthanasia here. I don't want to prolong the agony.
And, for the record, I'm disappointed that the response to my first inquiry on BP questioned my integrity and didn't really answer either of my questions.
...but I guess it was the title of the post ;)
It's generally difficult to get a sale date delayed in order to complete a short sale. I do it often, but generally when I have documentation from the lender(s) that a successful outcome is likely. Sometimes the bank agrees and files the motion to extend, sometimes we have to. There is no harm in making a legitimate offer that your buyer would be willing to close on. The key to getting it done will be who be exactly who the lien holders are, particularly the 2nd and 3rd. Credit unions are the worst. You'll need to structure your offer $10k or so lower than your max price, and plan on chipping that $10k in to settle the differences between what the 1st will/can pay toward the junior liens verses what they are willing to accept. The first typically will contribute 6-8% of the junior liens, and you'll have to negotiate/pay the difference to what they will accept.
Ethical issues aside (I can't really decide if I think there are any or not), my experience has been a little bit different than Wayne's -- though I believe Wayne has MUCH more experience with this than I do, so I'd trust him over me any day...
That said, in my experience, when a short sale gets contracted and the package is submitted to the bank, it's not too tough to get them to push the foreclosure out a month or two or three. It does require the listing agent (or negotiator) to make any effort calling the bank, but it doesn't seem too uncommon for the bank to be agreeable for at least a couple months.
But again, that's just my experience, and Wayne certainly has more than i do...
Thanks for the response. I guess this leads to some other questions:
The original primary lender went under FDIC conservatorship after the default (hence the 2 year pre-foreclosure). US Bank bought the note almost certainly at a discount. The question is: do banks consider pre-foreclosure offers when setting the foreclosure price?
The only reason I can think of that an earlier (10/13) sale was cancelled was because the borrower is in bankruptcy. Is this a fair assumption?
There are no credit unions but the third is Equity Acceleration Financial & Development Inc (maybe linked to United First Financial) which I've never seen before, but sounds a bit scammy. Any ideas on this one?
Basically, we have a possibly bankrupt borrower, a bankrupt lender, an agent who (reasonably) won't send us the PR without an offer, a bondsman's lien (4th), and several other substantial physical issues including possible misrepresentation of the lot. I don't want my buyer to overpay for this.
Should we just start at a ridiculous price like $20-30K to see who rejects us and how long it takes? I don't want to preempt the possibility of a better offer from the same buyer.
Are there not any other properties to locally to go after??
You are in the business so you know what the term " too much hair on a deal " means.
I do commercial real estate now but years ago I was doing short sales when the markets first turned. There was only one person in the banks department that even knew what a short sale was because it comprised less than 1% of their loan resolutions at the time. When markets were performing it was a borrower filing BK or making a payment arrangement that was the norm to get the loan going again.
Short sale and foreclosures weren't really occurring much. Now they have all these short sale processes in place ( they call it streamlined) but I see a bunch of red tape now.
The seller might not be really selling. They simply listed it as a short to stall. The listing agent probably knows more of what is going on then they are telling. If the sellers are living their mortgage payment free then they have low motivation to move. Yes their is a mortgage but sellers typically stop paying a long time ago when underwater.
I would pass on this one. You could spend half a year and it goes nowhere. Periodically follow up on it but wouldn't be married to this property with all my time and energy. On short sales the banks have to perform multiple BPO's and sometimes they values do not correlate to the market. It takes a bunch of time and sometimes even then the bank has to foreclose and go REO to get realistic on price.
Actually, I agree that, in my experience, in my jurisdiction, auction dates can be delayed fairly easily, except for one particular judge. I just didn't want to make it seem like a given in whatever jurisdiction the property is in. This one may have too many moving parts/parties to get a SS done. But, if there Was a BK, that should make the lien holders more open as their possibilities of future collections on a personal non secured basis, are gone. Then again, common sense does not necessarily enter the equation.
What's the "PR" they won't send you without an offer.
Is this not a universal term? We refer to the preliminary report as the PR indicating a title company's willingness to insure. The irony here is that it will probably look pretty clean.
I like the term "too much hair on a deal". Unfortunately we're in a pretty small market without a ton of opportunities. I've done pretty well going where few others dare to tread. We like collapsed sewer pipes, mitigated termite damage, sinking foundations and the like. (I'm still afraid of meth, though). I'm not ready to credit the listing agent with undue sophistication. Looking at the history, he listed this prop as a short sale while the primary lender was under FDIC conservatorship. I don't think the FDIC was the "third party". Not to discredit the agent, but I think he picked up this seller (who has shown a willingness to hire fly-by-night outfits) through a broad marketing campaign and doesn't know what he's gotten into.
The buyer already owns a right-of-way across what is being marketed as the property's driveway, but is technically city property. He's in a unique (very literally) position on this despite all of the material defects. It's my job to make sure he doesn't have to pay more than what the market would bear to an arm's length buyer.
My experiences with short sales says there is no rhyme or reason when it comes to a short sale delaying the sale. It really depends on where the property is in the process and if the depts. at the bank are communicating with each other. A good listing agent or short sale negotiator will make sure to get confirmation of a change in the sale date so there is a commitment in writing. Your buyer's short sale offer may or may not delay the sale and IMO you have little control over how that goes.
You say that you assume the foreclosure was stalled 10/13 due to BK. Are you assuming that the borrower filed BK, or do you know for sure? Do you know whether it's a Ch. 7 or Ch. 13?
In addition to the 3 mortgage and the bail bond, are you sure there is nothing else? If the borrower filed BK there may well be other things on title that will make the short sale difficult or impossible.
You say there are 3 liens totaling $170K. What's the amount of the senior lien?
If it were me, I'd be trying to buy the senior note. Or I'd get a deed from the seller and negotiate a short pay off. I've done both. The easement thing could be a powerful factor in negotiating a discount.
I've gotten a 1st and 2nd discounted to 30 cents on the dollar so I know it can be done. But you've got a lot of moving parts when it comes to so many jr. lien holders that may refuse to cooperate even though they'll lose when the sr. lender forecloses.
Originally posted by @William Hochstedler :
The question is: do banks consider pre-foreclosure offers when setting the foreclosure price?
I'm not an agent or a bank, but my opinion is that the lender pays no attention to short sale offers when setting the minimum bid. The minimum bid at foreclosure sale will be set either at the amount owed. Or they will drop the minimum bid if their goal is to get rid of the property. Different lenders have different ways of determining the value that will get the property sold. Again, I have seen no rhyme or reason about which min. bids get dropped. There are internal policies we are not privy to. Additionally, since the market heated up in many places, it's often in the lender's favor to get the property back and list it, especially in places with limited inventory. This wasn't true a few years back. REOS are definitely bringing better prices than selling at the steps for most properties where I am. And days DOM is low for all except the most distressed properties.
@K. Marie Poe
Thanks for the info. I would love to buy the note (originally $113K) except I have never done this before and have no idea where to begin negotiating with US Bank. I can't imagine that they would even consider dealing with a one-off note sale even through a multitude of agents. Do you have experience buying single notes from large institutions?
I guess, in short, my biggest fear is that the property goes to foreclosure and in 6-12 months, either on the courthouse steps or as a listed REO, it is sold at a fair market price (reflecting all of the defects) which we would be willing to pay today...and somehow we miss out on it. If US Bank bought the note at 50 cents on the dollar and it goes to sale at $65K, it becomes interesting to any investor. I think this is a good possibility and am looking to somehow secure our willingness to pay that right now.
Because of the messy abstract and potential bankruptcy (I'm just guessing here and have no details), I don't feel that trying to negotiate this through another agent (who so far has exhibited no familiarity with the property) in a short-sale scenario will get us any closer to that goal.
Any insight greatly appreciated.
Whatever US Bank paid for the note is irrelevant. They are not using the formula you are (get back what we paid). You're just guessing with no info. So don't even think about that anymore.
You're just guessing at the BK filing? Your concern about missing out is a valid one. Especially if you continue to guess and assume things. :) Confirm the BK or look it up. It's public info at pacer.gov. A discharged Ch. 7 BK in this situation could be helpful
The one-off note purchase from an institutional lender is a long shot. But it's continues to be on my check list.
I'd also try to get the listing agent to drop the listing so I could work directly with the seller. And I'd be willing to pay the agent a fee if your buyer is able to buy.
Just got off the phone with my title company. Turns out borrow filed Chap 13 in 12/12 which was discharged on 7/17/13 and then another Chap 13 on 10/16/13 (cancelling the trustee sale) which is still open.
See you at the courthouse steps?
I like the idea of "buying" the listing. Will look into that.
I had a short sale a few years ago waiting for bank approval,,the just went ahead and foreclosed on it,,,,
Until the bank approves the short sale, the contract is worth virtually nothing and you can't hold the bank or anyone else to it (unless the bank approves it, then its a different story)
Regarding your questions:
" To restate the question: If there is an offer on a short-sale that is almost guaranteed to fail, does it typically prolong the foreclosure process?
I guess this warrants a general question: Has anyone ever convinced a 1st, 2nd, and 3rd to take a combined 35+% hit?"
Does shortsale prolong the foreclosure process - I agree with Wayne... not necessarily but it can. Case in point: on a recent shortsale I am working on, I was able to get a 30-day extension on the foreclosure auction date (from Feb 4 to March 6 of this year).
"Has anyone ever convinced a 1st, 2nd, and 3rd to take a combined 35+% hit?" - the answer is YES. Here are the numbers from one of my shortsale deals:
Before the Shortsale
First mortgage holder - loan balance $80,000
IRS Tax lien - $100,000
Total lien/encumbrances on the property: $180,000
First mortgage holder accepted a pay off of $55,000
The IRS released their Tax lien for $1,000
Total pay off plus release of lien: $56,000
Now, I might have gotten just lucky on that one. The discounts I get are not as big as the IRS tax lien being released for only $1,000. But with 2nd mortgages you will get bigger discounts than with the 1st.
Thanks everyone for all the info. I'm meeting with the buyer tomorrow.
We're going to make an offer in the $50K's to get the ball rolling and see what happens.
I'll continue to post the progress here. But it might be a bit...