Short sale as an investor?

Question

I have a rental I bough in the 90s. My first. Stable neighborhood at the time, but not anymore. We pulled money out during the boom years and the area is now severely depressed. (South end of Toledo, oh - 43609). I’m upside down on the mortgage and wondering if it is feasible to do a short sale?

House is worth $20k. Owed $50k. Also needs about $10k in repairs to become rentable again.

If it matters, I have other rentals I could sell that would cover it but I would rather not. I could also board it up and just pay the mortgage down over time out of the other rents I am getting.

Any suggestions?

Ron S. · Answer

SLS - Specialized Loan Servicing out of Colorado. SPS - Selective Portfolio Servicing (Used to be the old Subprime Fairbanks Capital) out of Utah. Both big shops. National Portfolios. Both high Tech if not high touch. FCI has been around for a while.

I agree with your assessment too. mediocre to terrible although the big banks don't' get much better ratings sadly.

Andy Mirza · Answer

@Ron S. It's too bad we've gotten to this point as a society when we have to worry so much about these things. If people can't think outside the box because of this fear, the system freezes up and becomes less efficient. Frustrating, especially when it significantly impacts someone's life. Just the way it is, I guess...

We use a servicer so that we transfer the compliance risk to them. We make final decisions on loan mods but have the servicers prepare them as well to make sure what we are trying to do is in compliance.

I feel your pain regarding some of the attorneys out there. We've been sued twice in the past year by borrowers doing whatever they could to stop foreclosure but we came out ok.

Ron S. · Answer

Andreas...I got your point. My response would be...maybe. Your one time mom and pop lender carrying back their own private mortgage may be one thing but, an investor calling themselves a private investor, but practicing in the arena of negotiating/carrying/servicing paper on real estate, may subject themselves to the same rules as the big boys. Again, I get your point but with the environment we are in today, that "thinking outside the box" could land you in court as a defendant in a discrimination, fair housing, EEOC, etc. lawsuit. I can see it now, "Defendant, why did you think outside of the box for this white Anglo Saxon protestant male borrower but, didn't think outside the box for your black African widowed female borrower"?

Not saying that is the case. I'm just saying that even as a small player when compared to the big 5, nothing I do is without scrutiny as a lender/investor from some ambulance chaser looking to shake a few bucks off of my tree.

Phil Z. · Answer

I would suggest continuing to rent if it will pay the mortgage, but it sounds like you don't have repair funds. I would contact the bank ASAP and they will let you know your options ..

Andy Mirza · Answer

@Ron S. Not sure who SLS or SPS are. We just moved the last of our loans from SN Servicing Corp to FCI Lender Services. We'll never go back to SN and FCI has been ok. I've been hearing good things about Madison Management and I think we'll have them service the next pool that we buy.

I've heard that servicers range from mediocre to terrible and I agree with that so far!

Ron S. · Answer

Sucks to be in California sometimes! No good deed goes unpunished. I once got sued by a borrower that opened their loan in 2007, paid the loan off in 2010, filed bankruptcy in 2011 and sued us in 2016 for not reporting their loan as included in bankruptcy....the loan that paid off a full year before they filed! The garbage attorney advertising on the side of a bus shook us three times for $1,500 per pop until we finally said, "Ok...no...let's go to court". Only then did they go away.

Compliance is expensive. Non compliance is more expensive. Good to hear you smartly have your loans serviced by an institutional servicer. Hopefully they are a good one. (Not SLS or SPS is it!?)

Andy Mirza · Answer

@Ron S. My point in making the suggestion was that if the loan was owned by a private investor, you might have a chance of working something out. Usually, borrowers only know who services their loan, not who actually owns it and the owner makes the final decisions. People working for the big banks are limited in what they can do because that's the way their systems are set up. They are not allowed to think "outside the box."

As a private lender, my only limitations are legal and regulatory compliance which gives me far greater freedom to make the best business decisions for my assets and help out the borrower when I could. Sounds like the OP tried but was stopped at the hardship issue. You should always ask, there's no downside, only upside if you get lucky.

Dave Carella · Answer

Just Curious, are you breaking even with your current renter? If you could hang in I would.

Short sale as an investor?

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