Is this a Short Sale Situation?

Question

I have a package of properties under contract. The seller is a Trust. A bank has a Lien on a 3 of the properties that is not a mortgage. What seemed like a short sale situation, Im not sure that this still applies if the loan isnt a a mortgage. Also the person that took out the loan is deceased. I figured 10 days due diligence out be enough time to come up with a plan of action.

Secondly on the 3 property package, I have offers on the properties. as a package to include the back taxes as well.

Would making the contract subject to the banks approval be all thats needed to try for an approval. Side note. The properties were listed a month ago and didnt sale. Properties are distress physical and title wise.

Anyone have an ideal?

Ned Carey · Answer

@Jamie Parker Traditionally a "short Sale" is a discount on a mortgage. However don't get hung up on names. If someone has a lien on a property there is always the opportunity to pay it off for a discount. It comes down to your skill in negotiating. You need to justify why a lien holder would take a discount.

I guess you could write a contract contingent on the lien holder accepting a discount. But how do you know what to sell it for if you don't have a deal negotiated yet? Keep in mind that it could take a long time to negotiate with the lien holder and your contract with the seller may expire.

Patrick Roberts · Answer

So you want someone to pay to accept ownership of properties subject to existing liens where the amount due on the liens is more than the properties are worth? Do you realize what you are saying here?

The seller can agree to whatever you want, but the bank is owed money and that money owed is secured by the properties in question. Either the bank is paid in full, or they choose to accept a lesser payment as full payment; otherwise, the bank maintains their right to go after the collateral via foreclosure to obtain repayment of the money. The entire premise of a short sale is that a lienholder is owed X, but is willing to accept less than X in a sale of the asset that secures the debt - literally a "short" payoff. Whether they will or wont accept this is entirely up to the lienholder and the economic and legal realities of the situation. Given that they refused to accept a discounted payoff in the last month, this doesnt sound promising.

Ordering title is unlikely to give you a full picture of what is owed. You will need to go to the lender to determine the outstanding balance on the lien, as the balance is likely continuing to accrue by the day with late fees, legal fees, etc. Title will give a picture of the nature of the lien(s) you area dealing with - mortgage, UCC1, judgment, tax, etc.

Another caveat here - if the properties are currently listed and there is already in an agent in the mix, I'm skeptical that the bank is going to allow a wholesale fee while also accepting a short payoff and allowing an agent to collect commission. Too many hands in the pot and not enough to go around.

Chris Seveney · Answer

Why does it need to be cash sale only just because it was previously listed. The bank has a judgment against the borrower that was placed on this collateral as they assumed some equity coverage. The bank does not care how they get paid.

Will they accept a discount, possibly? The biggest challenge is going to be getting them to approve the discount as banks are very slow and this process could take months.

Jamie Parker · Answer

@Patrick Roberts I agree. A local investor mentioned something about getting the seller to deed over the properties and letting the liens run with the property or the liens fall off over time or just never paying them, that's was his strategy. Like subject to the existing liens. The subject-to part made sense but with the lien estimates from the seller, it would take a while to get to break even.

Properties were listed a month ago. The listing expired prior to me speaking with the seller. Also, there isn't direct contact with a bank, but proxy through a lawyer I that found out yesterday. The seller says title was ordered previously, but I'm not sure from where or who did it. The seller also mentioned the lawyer has been sued for malpractice a few times, so hopefully that's not what is going on. A shady lawyer trying to make this into something that it isn't.

Jamie Parker · Answer

@Chris Seveney

Jamie Parker · Answer

So I have till the 23rd to come up with a plan.

Because the seller listed the property before, and they didnt sell, the only way for the Lien holder to get anything is on an As-Is Cash deal. I have all 3 properties negotiated with the a couple of buyers that were ready to close in 10 days. I told the seller give me 7 days to figure out what to do and she can decide if she wants to give me a shot at getting it done.
Because the deal didn't start out with "Subject to Lender Approval" on the contract, I see I will have to add that.

I read a thread from 10 years ago, lenders will pay Agent commissions but may not pay assignment fees. There is a max value an investor would pay, and honestly we are off by like 20-30k now. 2 of the 3 properties had been spoke for by 2 buyers. 1 of the 3, if we got 30k lower i could walk with a 10k assignment fee if the lien holder would approve the sale.

Is this a Short Sale Situation?

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