We have a first position note on a SFR in the Seattle area which is going to auction on 11/4. There is no subordinate debt or liens on the property and there is equity. The borrowers still occupy it and have it listed with a broker on the MLS. Today I received a short sale offer which looks acceptable, and this means that we will have to postpone the sale. I'm a bit skeptical that this may be a tactic to just buy more time.
Does anyone have any recommendations on additional measures to take if we decide to accept the short offer? The borrower's agent sent me the offer and buyer prequal letter, but wondering if there is anything else we can legally do to mitigate our risk. @Dion DePaoli , any thoughts?
If the property has equity, then there is no short. Do you need to have the borrower counter on the sale price so that you don't short?
For the sake of saying it, the borrower still has to sign off on the deed.
Generally when I get pre-quals in sensitive situations I call on on the LO/Lender and inquire as to how much work went into prequalifying the buyer. I ask direct questions about if the applicant turned in income and asset documents and if that was used to qualify or if the interaction is only verbal at this point. If it is only verbal I will look to try and have the buyer get the documents turned in and request an updated letter.
I also look at the down payment. As per usual, little down payment offers don't do much for me. In general, I am looking for a strong but fair offer. Excessive inspection periods or contingencies on financing arrangements may make me shy away. I may also shy away from contingency offers where the buyer needs to sell in order to buy.
You should have a set of documents which have disclosures that deal with accepting the offer and the offer being non-arm's length to the borrower. The buyer should have sign that as well. Most servicers will have this packet available. If the sale is truly requiring your approval on a short then that needs to be disclosed.
If it all looks good then you need to suspend the auction sale. I would suspend to a date a two weeks beyond the closing date. Unfortunately not all real estate deals close on time. Additionally, if the local permits, I would take backup offers until the closing date. Good luck.
Agree with @Dion DePaoli , these are the basic things we look at in any offer, particularly the efforts and documentation that went into the preapproval. You have the right to ask for Any documents you want, when deciding whether to postpone the sale, and proceed with the short sale. You could ask for tax returns, W-2's, credit reports, current bank account statements, etc. just like a lender should have seen. It's not usual, but I'd request it. You can also require the MLS listing history (days on market), etc. Also, I'm with Dion being confused on why you're calling it/considering a short sale if there is equity.....maybe you mean there is equity compared to what You are into the note for, verses the actual balance as per the original note?
I may have misread your post, however if you have a 1st position lien with an upcoming sale on 11/4 and a property with equity why would you accept a short sale with a pre-qual letter that would likely take 45-60 to close?
I have been party to and assisted people through the foreclosure process from all angles and as lender, homeowner, real estate broker, paralegal and property manager. Feel free to contact me directly to discuss the specifics of your situation.
Hi Folks, when I mentioned equity, the value of the property is about $20K more than the total amount due, but the net proceeds to us from the borrower's buyer's offer is about $17K below the TAD. Anyway, yes I've flipped a few dozen homes in WA so I'm pretty familiar withe the buy/sell/contractual aspects. Its set up as an FHA loan with buyer putting 3.5% down
I'm going to contact the buyer's LO tomorrow and find out details since if they fail to qual then this would just be a useless delay to FC. @Josh Auxier , the reason we would accept a short sale is to not have to FC, evict the borrowers, fix the property and then put it back on the market which could take many months. We would rather exit earlier at a lower settlement and move on.
Just as a rebuttal to those who vote to proceed with foreclosure and forego any sale. You should have your foreclosure counsel involved with the approval of the sale. Especially if you are bumping up against deadlines. The details missing regarding equity and the timing of the events in file will matter. On one hand you have agreed to work with the borrower to allow them to sell their house which is an alternative to foreclosure. On the other hand you are at a decision point in the foreclosure case which can be seen as dual tracking if you proceed with sale. I would move forward carefully.
It's not hard to imagine that a borrower claim they were in distress and lost out on equity due to the lingering foreclosure or claim the big bad mortgagee foreclosed on me after he said he would let me sell my house. Like I said, get FC counsel involved and have the bless the plan of action so you don't work yourself into a corner.
@Bob Malecki you posted as I was typing. So there is a $20k value surplus but a $17k short?
So the offer is too low. If your numbers are accurate, I would not be entertaining that deal. That seems to require a counter and it sounds like you and the borrower need a deal that is above your TAD. Again, selling under duress is a claim a borrower can raise against you.
Thanks Dion. Actually we never provided any "permission" to sell the home, the borrower put it on the market and their RE agent presented the offer to our FC trustee she forwarded it to me. Fyi, even at the $17K below TAD, we have a very, very large margin of profit. This is why the short sale is appealing to us.
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