short sale

[jdalessandro]

hello all! i am long time reader, first time poster. this is an incredible website w/ an incredible amount of info!

my background: i am in roanoke va and own 5 rental properties in the area and am looking to grow my real estate business. the properties cash flow nicely and i use the positive cash flow to pay down the mortgages quicker.

i recently learned about a duplex near a local college that has the potential to be a gem. after doing some research, i learned that the seller is upside down on her mortgages. here are some specifics (i have done some homework so as not to waste anyones time):

seller owes $122,928 on first (including all late fees, etc) and $22,900 on second (approx $146k total). she has a 30 yr fixed at 5.85% on the first (which is an fha assumable loan, although i dont know if fha knows that she's no longer living in the #1 unit and that it is strictly an investment property). she hasn't made a payment on either since 8/7 and is going to declare bankruptcy and let the property go to foreclosure, but i want to buy it prior to that. she has given me 3 wks to complete this deal. the tax asses is $119,400 and she bought it 5 yrs ago for $128,100. the upstairs unit is nice, but underrented at $650/mo. the downstairs unit is in shambles (dog, mold, leaks, etc.) and needs approx $7.5-$10k in repairs (i'll do myself and save $2.5-$5k on labor) and is unrentable.

i want to do a short sale. i've never done one, but done tremendous research over the past week (thanks magicbullets!). i have comps, price/sq ft, etc but dont want to get too lengthy in this post. questions:

can/should i short BOTH mortgages?

should i use another technique to obtain this property prior to foreclosure (i.e., deed in lieu of foreclosure, assume the first at 5.85%, etc)?

should i let it go to foreclosure and roll the dice?

thanks in advance and i look forward to being more vocal in the future!

[TommyOH]

If the first is assumable that's great. If the second is not with the same lender as the first, that's great too. If you make the second aware of the looming foreclosure, you can probably pay it off or buy it for pennies on the dollar. I'm thinking like 2200 instead of 22000. Anyone else want to chime in?

[ftinvestor]

How did you arrive at the repair figure? It seems that if it's in "shambles" that $7,500 - $10,000 may not cover it. How bad is the mold? A full mold remediation could prove costly - maybe someone else could shed some light. I would agree that at the very least you could discount the second and assume the first. I also believe that FHA will accept a payoff of 82% of FMV based on the BPO price. However, they may want to know that the property has been marketed in some way (realtor, fsbo, etc.)

[stopforeclosure]

5.85% is a sweet deal and you will pick up with 20K in equity without closing cost. You should be able to easily short the second. The issue is non owner occupied. If the bank gets wind you will not be able to short the first and I do not believe even assume, I will check. Approcah the second as if you are shorting the first and get an agreement from the second. Pay off the second and assume the first is the angle i would take, unless you can place the property in a trust and not use your credit at all. be sure to structure properly or you may lose it all.