Short Sale Questions

[lxcoupe89]

Hello,

I am about to try a short sale. A relative on my wifes side of the family is getting foreclosed on, I just found out yesterday. I was actually preparing to make him an offer for the house. The sheriff sale is 02/26/07.

I don't think the lenders will ever find out we are related because of the trail of last names.

I will have more numbers tonight but here's what I know so far:

1st - $129K Wells Fargo
2nd - $40K

Total - $169K

I am still researching the comps but I'm pretty sure the house is worth about $200K.

I know the house well and can find out all I need to know about the house from the owner. The house has been vacant for about 2 years now. I've been in and out of the house periodically for the last 5 years.

Overall the house is structurally good but it has some water problems in basement (I think they can be remedied, also since I have been in the house before I know it's not a huge issue)

There is a fair amount of mold down there. I think this is because it was vacant for so long and because the dehumidifier has not been running. It's on about the bottom 3 foot of the drywall. The floor joists above do not have any on them. I plan to rip out all of the walls.

The whole house needs some cosmetic attention especially the detached garage. On the garage the paint is about all peeled off and the door is in extremely rough shape.

The owner started finishing the attic of the house and has done a decent job but stopped after the first coat of drywall mud. The layout of the rooms are a little messed up but I can fix as long as the price is right.

I estimate about $35K to make the place really nice (includes new kitchen) doing all the repairs myself. (I am capable and know exactly what I'm getting into).

I plan to live in the house and not flip it. I do want to be able to sell within the next 5 years. I would like to buy the house for less than $140K.

I am wondering if I can push the MOLD situation, The unfinished construction, and the odd room layout to drive down the BPO.

I'm not sure if a BPO has been done yet. Anyone know How I can find out?

I know I must get a sales contract signed with the owner and need to get the release form signed to be able to talk to the lenders. What else will I need?

I appreciate any help I can get.

Thanks

[ThreeRiversREI]

1st - $129K Wells Fargo
2nd - $40K

Total - $169K

I am still researching the comps but I'm pretty sure the house is worth about $200K.

I plan to live in the house and not flip it. I do want to be able to sell within the next 5 years. I would like to buy the house for less than $140K.

$140k with or without the $35k in repairs/upgrades?

Who is foreclosing, the first or the second?

Assuming for the moment that the $140k didn't include repairs and it's the 1st foreclosing I'd be inclined to contact the 2nd with an offer that outlines the following points:

The first is foreclosing. They're about to lose everything.
The home has extensive mold (take lots of pictures & include them)
The house has unfinished construction (ditto)
All the other structural & cosmetic defects (ditto)
You're prepared to wait for the auction & pick it up for $129k, but you'd like the cooperation of the 2nd to ensure you get the deal
Therefor, you're willing to make an offer of $133k, in spite of your concerns that it's not worth even THAT much. And that offer will get the 2nd 10 cents on the dollar instead of nothing.

Then wait and see what their response is. You can go to 25 cents on the dollar and still get your $140k price, but don't tell ANYBODY that.

If the $140k needed to include the $35k for repairs (net of $105k for purchase) I'd contact the first as see if they'd be willing to sell the loan (NOT the property!) for 75 cents on the dollar (roughly $97k). If they will, procede with the the foreclosure. Either you'll get the house for your price, or somebody will buy it from you at the auction for $129k+ netting you $30k or more.

Just some off the cuff thoughts. Remember my advice isn't necessarily worth even as much as you paid for it.

[lxcoupe89]

Thanks for the Feedback.

I am planning to persue option 1.

I will know this evening for sure but I think the 1st is foreclosing. If the 1st is foreclosing and the balance is about $128K will they short sell? I assume it's worth trying anyway, is that correct? If the 1st is foreclosing the 2nd should be very interested in a short sale shouldn't they?

I know I'll need to have:

Authorization to release information form
Purchase Contract
Hardship letter
Financial statement
estimated HUD 1

Is there anything else?

Should I have all of the above ready prior to calling the lenders or call them right away and follow-up with the above?

Does it matter which lender I talk to first?

Should I try to get some contractors lined up for estimates right away or see if there is a chance of a deal first?

[ThreeRiversREI]

I know I'll need to have:

Authorization to release information form
Purchase Contract
Hardship letter
Financial statement
estimated HUD 1

Is there anything else?

Should I have all of the above ready prior to calling the lenders or call them right away and follow-up with the above?

You'll need the Authorization before the bank will tell you anything. First thing you need is the payoff amounts. THEN you can put together an offer based on facts, not guesses.

You'll want all the rest when you make your offer.

It's possible the 1st will discuss a short sale with you, but given they're at around 65% LTV (they're balance vs what the property is worth using your numbers) I wouldn't hold my breath on getting them to accept anything less that payment in full. And since their full payoff is less than you need to pay to make the deal work, I'd put limited effort into working that part of the deal, especially with the clock ticking towards sale. Instead, I'd focus on the 2nd & work on a short sale there. (Start at 10 cents on the dollar and work up to 25 cents on the dollar.)

Remember, while it's nice to pay as little as possible, if you've worked your numbers right, you only -really- need a price that works. The more fair you can be with everyone involved, the more likely they are to work with you.

[lxcoupe89]

Ok thanks.

Here is an update.

1st- Wells Fargo - $119K balance (They are foreclosing) Payoff is around $126K I guess that includes fees and stuff

2nd- Homecomings financial $45.5K

I am meeting with the owner tonight.
I will start working on the package and give the lender (Homecomings) a call first thing tomorrow morning.

What I was thinking about doing is if the 2nd will short sale I will make the first current and buy sub2. I've bought Sub2 once before. Then after I sell my current house I'll refi. with my own loan.

Should I get contractors lined up for estimates?
Do I need an agent to pull comps or will the ones I've created tell the story?

I talked to my attorney yesterday to find out some settlement costs, explain what I am doing and my timeline and he mentioned I should gather all of the information and he'll contact the 2nd mortgage company. I get the feeling that might not be a good idea. Would it be better if I called them or if he called them?

Thanks

[lxcoupe89]

Talked to the 2nd today.

Guy said it may be to late and that they had started to sell the note. He was willing to accept $11500 down from his initial offer of $14000.

He said he would go check to see if he could get out of the note sale and put me on hold. Came back and said it was too late they had already accepted money for the note and he could not short it.

He said he would have the new note holders info on wednesday.

Does this sound legitimate or did I make a mistake and he backed out?

If this happened what does that mean for the Owners?

If the mortgage company shorts, the remaining balance goes against the owners income taxes. How do you normally handle this with the owners?

If the foreclosure goes through or if the note was sold at a discount to another servicing company does that still go against the owners income taxes?

Where do I go from here? Is that all I can do or is there more?

Thanks,
Mark