Deal Fell Through- Shortsale to Follow?

Question

Hello Fellow Investors,

Share your similar stories below and help me figure out if I can continue chasing the house or if the deal is gone!

Background, flooded house has been gutted and treated. Listed for sale as is. We came to an agreeable price, well below his pay off left on the house due to not having flood insurance. When the bank was brought into the equation the deal was shut down and I believe he will be pursuing a short sale instead now.

What does this mean for me and my offer? It's all subject to bank approval now, right? Does a local bank even deal with this thing or is this handled by the Feds? I believe he used a rural development 100% financing loan.

Anyway, just frustrated that another deal slipped through and looking to see what others have experienced and if I have any hope of getting this property at a decent price still. I imagine that the bank will want more than I was willing to pay but I'm not sure how the appraisal would come back on a gutted house.

Nicolas Blish · Answer

We had come to $95K as a meeting point, had it listed for $110K. Finished houses in the neighborhood have all been selling in the $150+ range. I could bring it up to rent quality for $15K on the low end, wanted to treat it as a live-in flip though and go higher end so was estimating $25-30K.

Home owner is current on mortgage still. Listing agent just informed me that the seller is weighing his options and considering fixing it himself for resale. That's what I would do in his situation, flood was over a year ago though and it still hasn't been done...

Other question I had during this process, he had countered to $105K and I held at $95K. If I had accepted the contract for $105K and the deal fell through, would he have been liable for the 10% penalty when the bank said no? I thought about that option but didn't see any value in a penalty from someone who's fringing on bankrupt.

Nicolas Blish · Answer

So the listing agent should send my offer to the bank who holds the loan for review? They were going to try and sell at a loss and pony up the difference but I think it was to much of a spread. Thanks for the quick responses @Jd Martin@Brett Goldsmith!

How much would you think a bank would accept as a loss on the below:

Current Loan: $140K

Retail Value: $150-170K ARV

Current Value: <$100K AS IS

Is the 6-12 month time frame something typical of a short sale as well?

Brett Goldsmith · Answer

if it's USDA loan the servicer will follow USDA guidelines. Your officer should be submitted to the servicer for a short sale review.

JD Martin · Answer

He can't sell the house for less than he owes the bank with the bank's approval. That approval will either mean the bank realizes the house is a loss and comes to some agreement as to how much haircut they'll accept, or the seller comes up with a way to pony up the difference. Whoever is servicing the loan is going to take the lead, most likely. I've had a few offers on short sales but they all ended up to nothing, either because I pulled the offer since I didn't want to wait 6-12 months to get an answer or because the lender decided they didn't want that much loss.

Deal Fell Through- Shortsale to Follow?

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