Minneapolis, MN · Member since 2008 · 691 posts · 12 votes
Hello,
I am wondering, is there any way to structure a deal on a SFH where you the investor tie it up with a subject to contract, then try to contact the lender for a short sale, and are able to give the seller some of the equity that was already there before you came into the deal? IN other words, you are trying to increase the equity via the short sale, so that you can pay yourself, some to the seller, pay off the remaining loan balance and still have a 70% of as is value to assign to the end investor buyer?
I don't understand why the seller would cooperate with you the investor to get the short sale (provide the hardship letter etc.) and not get anything out of it?
Thanks, Mike
I replied to your other post... so that a look at that too.
But here are some answers to these questions…
Why would a seller do it (participate in a short sale) and get no cash at closing? Well… it depends on what state you are in, and what type of foreclosure it is... i.e. judicial or non- judicial foreclosure.
In some instances after the lender forecloses, they can still come back after them for a deficiency judgment and try to collect the amounts that they lost. It does not happen too often, but it can happen under the right circumstances. If it did, the old owner could have all the normal collection activities take place… Garnish wages and levy bank accounts and other assets, and further destroy their credit etc.
Also, when a lender takes a hit and takes less, like a short sale, or less due to the results of a foreclosure, the lender can and generally will send a 1099 form to the previous homeowner.
In many cases, if the bank lost say... $50,000 on the loan, the home owner could (and probably will) get a 1099 for $50k and have to pay income tax on that money.
Also, Im not an accountant… but if they got a $50,000 dollar 1099, it sounds like to me they would owe close to $20k in taxes to the IRS…
So… by saving money is how they get money.
There are exceptions and many variables, but these are the basics...
That's fabulous information. Thanks alot. It makes sense now. One more question: Have you ever worked with a realtor regarding short sales? Are lenders more apt to do a short sale if a reputable experienced realtor is handling the package? One would have to include some kind of commission for the realtor in this deal. Wouldd the commission be based on a percentage of the amount they shaved off the amount owed doing the short sale, or based on the sales price?
...One more question: Have you ever worked with a realtor regarding short sales?... Are lenders more apt to do a short sale if a reputable experienced realtor is handling the package?...
One would have to include some kind of commission for the realtor in this deal. Would the commission be based on a percentage of the amount they shaved off the amount owed doing the short sale, or based on the sales price?
Yes, when I am dealing with a homeowner, I make sure to explain the benefit they would have by selling to me and to not receive a 1099. I can make the difference of me or someone else getting the deal! Many investors do not discuss this, or simply do not know about it.
Also, when working with me, the seller is assured they will not get a 1099 or a judgment against them for a deficiency balance… since I make sure the short sale agreements say so.
Yes, working with a Realtor absolutely gives the transaction more credibility in my opinion. Banks don’t like to sell to “Investors’ in general, because they feel they are leaving money on the table. When a Realtor is involved, it seems more like a “home owner to home owner sale”, rather than a home owner sale to an “investor”.
A Realtors commission is based on the sales price, just like on any other regular sale… And, the lender will pay real estate commissions to sell as that is a “normal” practice. They do however sometimes ask the Realtor to take a reduced commission. Not always, but sometimes.
How many short sale have you done? Yes this can be done but what makes you think there is any equity in the deal to start with? How did you determine FMV, estimate of repairs and ARV? Did the bank do and appraisal? If so what did they come up with? (not that it is accurate) Some addition info (numbers) on your deal would be helpful.
Good luck
I have not done any short sale deals. I was asking a hypothetical question so that I can begin to understand the technique for when I do go after these deals. Eric did a great job of answering my question. Thanks,
You will find in many cases that homeowners just want out. Lenders will not approve any deal that shows cash to the seller. A seller can however sell personal items that exist in a home for a profit...