Offering on a "short" sale

10 Replies

Ran into a possible deal today. Lender (pretty sure it's a sub-prime) is forcing the sale of a place that I'm familiar with, I flipped it 4 years ago.

Listing price is $49.9, which I'm pretty sure is the face on the mortgage they got in '03.

I'm guessing sub primes use some kind of PMI, right?

The place is still in the borrower's name as I'm guessing they and the lender don't want a forelcosure.

The place isn't nearly as nice as when I sold it, they did some "butt-ugly" decorating that will need re-doing and it needs carpet and I'd sure paint the exterior, but I"m getting off track here.

Any ideas on how much below listing price I should offer?

If their PMI is 20% I'm guessing that the most I'd want to offer is listing price - 20% and let the borrower sign an personal note (with the lender) for the shortfall.

Usually I do straight up all cash deals but I think the price is right and I think I get fix, paint, clean for about $5-$6K and re-flip for $65-$69K, but I'd sure like my ROI better at a lower buy-in.

Come on you short sale buyers, give me a clue here.

Thanks

all cash

So you're thinking of offering $40k give or take? I have no experience here, but I'm as curious as you are on this one.

I have been doing private finance for a few years now and short sales, rarely ever work out. Most banks want ever penny they are entitled to. There usually has to be some extenuating circumstances for the bank to accept less than they are owed.

I went to a 2 hour short sale class last night. The speaker advised making a first offer of no more than 40% of ARV minus the repair costs. She said after a couple of counters you should be able to get it for 50-60% of full value. The lender would rather have the money now than in a year or two after the foreclosure works through.

a tradtional ledner never accepts short sales. they would rather let it go to foreclosure so that they can tack on all the extra fees and intrest and sell it at auction. Banks know that they have a valuable commodity, they will not take a loss on it, if at all possible.

Mitchell,

Not sure what lenders or what areas you are dealing with, but I have had many successful short sales completed. Of course, you can get banks in 2nd position to really short a ton.

You see they have to hold a larger reserve of money for the house once a notice of default is filed. This is more money they can not lend out to others at the newer higher rates.

Of course they will be doing that!

Their business is lending money, not owning real estate. I have NEVER EVER had a bank tell me they weren't going to short it. Even if they take 10K off, they have shorted it and it might be enough to give you a deal you need.

Of course, you just can't call a bank and say, hey short this. No you have to give them a package that puts the property in its "best" light so the bank feels more obligated to short it.

But do me a favor, do not keep saying the process does not work. The only reason someone would do that is to keep competition in that market away.

4rmgt,

Could you share an example of a "proper package" for those of us who may not be as short sale astute? Maybe a scenario of how you work thru a short sale? Meat & taters, let us have it.

Rick

Originally posted by "leejr":
4rmgt,

Could you share an example of a "proper package" for those of us who may not be as short sale astute? Maybe a scenario of how you work thru a short sale? Meat & taters, let us have it.

Rick

I agree with 4rmgt completely.

Each lender has their own policy for what is required in the short sale "package". Some lenders want nothing but the offer and a net sheet. Some want the offer, net sheet, comps, hardship letter, proof of income (or lack of), tax returns, etc. Some of the larger lenders have a large checklist of things that they want.

Also, more and more lenders are changing to a policy of requiring the property to be listed with a Realtor before they will consider any short sale offers. I find this to be an irritation, because most Realtors have no clue what a short sale is let alone how to negotiate one.

You can call the lender and ask them what is required for them to consider a short sale offer. If they have a packet "checklist" that contains their own forms, they will usually only give this to the owner or their Realtor.

I've never had a lender tell me that they do not do short sales. A short equal to 20% of the balance seems to be the "norm", if there is one. I have had lenders agree to take larger hits, however, only in extreme circumstances (cancer or serious health issues would be one example).

It's not a step by step "how to", but I hope it helps you. I'm always interested in hearing other thoughts or strategies on this so if anyone has anything else to add I'd love to hear it.

Thanks Quick,

That does help;

Knowing what range to expect to be able to work in (20%+/-).

What they expect, or how to find out.

How so sell the deal the lenders (condition, rehab & marketing costs etc)

That someone may try to tell you that it won't work. :protest: :roll:

Rick

Quick,

I'm new here so bear with me if I'm not clear on what you're saying. It reads as though you're saying he could offer 20% of the approximate balance of $40k as his opening and then will probably end up somewhere in the neighborhood of 50% of $40k as an accepted offer from the bank? Thanks for the help.

HBW

Originally posted by "hillbillywilly":
Quick,

I'm new here so bear with me if I'm not clear on what you're saying. It reads as though you're saying he could offer 20% of the approximate balance of $40k as his opening and then will probably end up somewhere in the neighborhood of 50% of $40k as an accepted offer from the bank? Thanks for the help.

HBW

Dear hillbillywilly,

Every situation is different - everything from location to lender policy. What I was trying to say was this - if, for example, the home had a value of $100,000 in it's current condition and a principal balance of that exact amount, an offer price of $80,000 would be likely to receive an approval from the bank. Figure another 10% or so for closing costs and the bank would receive a payoff of approx $70k.

The 30k "short" would then be written off as bad debt. There would be no need for the original borrower to write a personal note (or get a personal loan) to repay the bank for that short amount.

I've tried to be brief and simplify the process a bit, but if you have a specific question or need clarification I'll try to help you out. You can call or e-mail me any time.

God Bless,