Possible Short sale??

[lxcoupe89]

I'm going to attempt a short sale again and have some questions.

First the story, I found a house I would like to buy (to live in) on the county's sheriff sale website. It is a 3/1 with a 2 car garage, 1288 Sq ft rancher with a full basement on .7 acres. I was able to track down the owners. They owned the house since 1987. The house has been vacant since 9/07. The guy who owned the house became handicapped which I think led to the current financial situation, he and his wife also separated but are not divorced. The sale is on Feb 25th. The owners are willing to sell and seem helpful with everything. They just want to get out of it and would prefer to have the debt paid off rather than it going to sale.

The condition of the house is ok, but it has bags of trash and junk about 2 feet deep throughout everyroom. There is a water problem in the basement and some considerable but not extreme mold growth. From the research I've done it sounds like these aren't huge problems but can be expensive ones. I was told by the owners that the septic system is slow but does not have water surfacing. I think the problem is roots in the cast Iron drain pipe or a crushed pipe. Both of these are common problems with cast iron pipe. If it's roots it will cost less than $1000 to fix, if it needs a new system I can get it for around $8000. There is a cracked joint in the brick on the attached garage, I don't think this is structural judging by the inside of the garage and its roof lines it looks pretty straight. Also there isn't much weight on the walls since the floor slab sits on the ground the walls are only holding the load of the roof.


With that said here are the numbers:

Value after repairs $200K - $215K (Figuring on 200K)

minus

1st mortgage with Suntrust Bank = $113786.70
Back taxes = $6449.39 (+ a possible penalty of $350 a total of about $6800)

minus

$3000 Cleanout junk (Atleast 2 large dumpsters full)
$7800 basement water proofing
$600 radon ventilation
$8000 septic system
$28760 (Appliances, new kitchen, new bathroom, paint, trim, new flooring, CAC, interior doors, ext doors, garage doors, pave driveway, new gutters, basically new house)

minus

$5750 closing costs to buy

Potential Equity $25503.30 If kept (I would like $50K though)

minus (If I sold when done, 200K)

$15000 agent fees and closing costs

$10503.30 PROFIT (I think this is too little but about $35000 would be nice)

Now for the questions:

1. Is $50K equity or $35K profit realistic? Should it be more?

2. The bank would have to lose about $24500 for me to get the $50K equity, do you think they may go for it?

3. Am I correct in thinking Suntrust will have to pay the back taxes, some fees, and a commission to the listing broker if they complete the foreclosure which could equal about $14000 or more?

4. Am I correct that the bank may be more motivated to unload this house because of the water/mold problems?

5. It has never been listed on the market will this cause a problem?

6. I am going to try and get a mortgage through a small local bank to pay for the house, I have excellent credit and a history with the bank, I don't think I will have any problems getting the loan as long as I can get it to appraise high enough. Will not having cash cause a problem?

7. I was thinking I could get the bank to write a letter (pre-approval) and I could send it with the short sale package. Will this help?

8. My RE attorney has handled a short sale before should I let him handle everything or try it myself?

Thanks,
Mark

[Randy (SELA)]

Mark,
All you need is a signed release form and a purchase agreement between you and the owners and fax it to the bank's loss mit department. Then you can start negotiating with the bank. Look up some short sale info on this site, there is a lot of it. I'd offer $50k-75k to start with

[lxcoupe89]

Thanks.

I am meeting with the owners this weekend to get the purchase contract and the authorization forms signed.

1. Does the authorization to release information need to be notarized?

2. Should the purchase contract price include the back taxes and sellers settlement fees?

3. When talking to the loss mitigation guy do I offer the bank a certain amount of payoff ($75K) or do I offer what the contract price is ($75K plus the sellers settlement fees and back taxes)?

4. I am scared the BPO will be to high to offer $50K - 75K. Should this be a concern or should I just go for it?

[Randy (SELA)]

I'm no expert in short sales, but we're working one with Countrywide at the moment. Our release form did not need to be notarized and we used the standard purchase agreement that realtors use here in our state. It has the agreed on purchase price and signatures. Countrywide sent an appraiser out to appraise the property after they received our initial offer. Then we started negotiations based on the appraised value. Don't worry about low-balling, they will counter it. It is a pain in the a$$ tho, you fax in an offer and they'll call you back in a week or two with a counter, fax in another offer and they'll call you back in a week or two with a counter, etc. etc. I think we're going on 2 months now working this deal. If you search the archives here there are complete examples of short-sale packages for you to use. Hopefully one of the short sale experts can chime in here before I screw everything up!

[Former MB Member]

Xxxxxxxxxxxxxx

[lxcoupe89]

Thanks for the input Randy, the owner called me tonight and wants me to show the purchase agreement and release form to his attorney before he signs them. I don't have a problem doing this but i'm afraid this could become an issue depending on the attorney. I don't think the attorney specializes in real estate which might make things worse. I'll probably hand deliver them so if there is an issue I can find out right away and he can see I'm a respectable person.

I'm meeting with the owners on Sunday, they aren't available before then. If everything goes well I'll call the bank on Monday.

Did you submit the hardship letter and all of the owners financial information such as the bank statements, taxes, pay stubs?

[lxcoupe89]

NewMoney,

Thanks for the input, I think I have it covered. The house next store sold for 233K it is smaller but has .5 acres more land. I should have no problem getting 200K when it's finished. I'm hoping when I end up selling it sells for at least 230K especially if I live in it for a couple years.

[lxcoupe89]

Thanks Tim.

The borrowers said they have already applied for an emergency mortgage loan or something like that but were denied. My guess is because there is absolutely no way for them to pay the payments and because the house is currently upside down. I don't think they have any options as far as working with the bank.

If the above is true wouldn't they be motivated to look at the short sale as an option of off loading the property. They'll have to sink $15-$20K into the place just be able to sell it and they will probably not get that back when they sell. If my estimates are correct my max offer is about $1700 less than what they will probably get by foreclosing and selling. I'm thinking the water/mold issue will help them decide to take the offer.

[lxcoupe89]

I do not know who the PMI carrier is. Good question!

How can I find that out?

I didn't think about that, they may not be interested in short sale because they may not lose anything the PMI company will.

Do all mortgages have PMI or just certain ones?

If there is a PMI company, is there a reason for the bank to not want the PMI company to lose money?

[lxcoupe89]

I did a little research and it seems that if they did not borrow more than 80% of the market value there is no PMI required.

Does PMI normally drop off automatically after 5 years or when the equity exceeds 80% of the value?

The loan was refinanced in 1999 and if this house wasn't trashed it would be worth way more than the outstanding balance.

That's actually what I was hoping for when I went to look at it. If it was in decent shape and not trashed I would have taken it sub2 cleaned it up a little and then refinanced with my own loan as much as I could afford.

[Debbie]

Automatically stop? WOW! When did this happen?

Luckily, we've never used PMI but plenty of friends and relatives had to use PMI. I've yet to hear that it automatically stopped because some friends/relatives had to request for PMI to be dropped when time came.

[lxcoupe89]

I'll be signing the contract on Sunday and talking to loss mitigation on Monday. I'm making my offer $90K minus all Seller fees which are about $8400. With my max being $97K.

If my estimates are correct, I think this should be attractive based on the amount they would probably lose by foreclosing and the amount they will be losing by taking my offer.

[lxcoupe89]

The authorization form, purchase agreement for $90K, and the Seller's disclosure are all signed. I will be calling to speak with the loss mitigation person today. Any helpful tips?

[Randy (SELA)]

Tell him how disgusting the place is, it will take a tremendous amount of work, the neighborhood is going downhill, etc., etc.

[lxcoupe89]

Yup, the holiday is a problem. I'll be calling tommorow.

Randy,

Thanks for the tips, The place is pretty disgusting, and there is a considerable amount of work, so it will be easy to paint the picture.

I have pictures of the place should I try to send them to the negotiator?

I tried to add some pictures here but I had issues. What is the best way to post pictures?

Mark

[lxcoupe89]

Talked with the person asigned to the property at Suntrust.

She said they are fully covered on this property and wouldn't take a lower offer. I explained the damage, she then said if I still wanted to make the offer I could but I would have submit a bunch of information and do what is called a short sale.

Then she told me I need:

Sales contract
Hardship letter
Authorization to release Information (which she already has)
Finacial Statement (assets/liabilities)
Hud Sheet (showing the owners do not get any money)

She said after she receives these things she must fill out a form then she'll submit it to people higher up that can make the decision.

She is requesting another appraisal (bpo). I asked if she could let me know when they would be there so I could let them in and she said she could not they will only do an outside appraisal I mentioned all the damage inside affecting the value she said it doesn't matter they do not go inside. She said I can submit a letter explaining all of the issues and I can include pictures.

I forwarded pictures showing all of the damage and disgusting trash to her by email so she could see what the place looks like.

I didn't get all of the documents listed above which I should have. I even knew I should have got them all at once. Oh well I'll know next time.

I'm going to get all of the above and submit as soon as I can.

Mark

[handy]

She's really playing hardball, but it's probably a bluff to scare you into a high offer. Stand by your numbers, and assessement. Remember, she can't see it but you can. Don't forget the plumbing. If it's been drained, then fill up the toilet with water so it can freeze solid and look bad. If it hasn't been drained, you'll have burst plumbing to replace. She's probably bluffing that they don't want an interior BPO, she may be instructing the BPO Realtor to just look in windows, so leave the curtains open, leave doors open too if you can.

It's possible she's looking at comps and has decided there couldn't be enough wrong with this house to justify such a low price. Any other angles to work? Does PA have a redemption period? Stress it. Be sure to have the hardship letter mention owner has spoken with atty regarding bankruptcy, but you're trying to hold him off until you can make a deal with the bank (banks hate BK, it messes up the FC process). Also stress that this vacant, run-down property has attracted already attracted vandals, vermin, raccoons, hibernating bears, whatever.

As a former professional writer, I"m a fan of an illustrative narrative. I started a recent one "Herman Munster doesn't live in this house, but he'd love it if he saw it." and referenced Hitchcock's "the Birds," (pigeons have moved in through attic hole). I use some humor, which may or may not be appropriate, but it's more fun for me that way. I rarely offer over half of the loan balance (which is usually around retail ARV) or settle for more than 60%. Good luck.

[Randy (SELA)]

Stand by the offer that works for you. If it doesn't, move on to the next deal

[lxcoupe89]

Thanks to you all for the input.

Questions:

1. Am I offering to much? I'm hearing to offer 50% of whats owed on the mortgage but doesn't that depend on how much is owed vs. the value of the house?

Here are the numbers:

$114000 Judgement
$5000 clean out property
$7000 back taxes
$2000 misc. Fees
$128000 Total investment by bank

$120000 sale price as REO
$7200 brokers commission
$1200 1%transfer tax
$1000 misc fees
$110600 Total proceeds from sale

That leaves the bank with a $17400 Loss.

$90000 My offer
$7000 back taxes
$900 1% transfer fee
$500 other fees
$81600 proceeds from short sale

$114000 - 81600 = $32400 Loss

My max will probably be $100000 which would leave them with roughly a $23000 loss

If this house were in good condition it would be worth about $200000. Totally remodeled as much as $240000.

The house right next door (built same year, same builder, 100sq ft smaller, only 1 car garage this has 2, it has 1.2 acres this has .7 acre) sold in july of 05 for $233000.

2. I am filling out the HUD 1 sheet. How particular is the bank with the accuracy of the sheet? It's tricky to figure out because of the back taxes etc. Should I pro-rate the taxes as if they were current and then in a spare line add the back tax totals?

3. Should I call the attorney or the Sheriff's office and find out the total fees so far for the foreclosure and add them on the settlement sheet as well?

[handy]

Just put in the basics on the HUD-1, more or less. Included the obvious stuff. Be sure to highlight "SunTrust will net $xxxxx from this sale" so they can see the bottom line. It's OK if it's not an exact number right now. Write "Preliminary" at the top, and let the title company do the final one and figure out what you missed.

Your offer seems reasonable, as long as you're sure you've factored in all possible contingencies, and you can get the cash to close it and rehab it. If you have a final buyer to flip it to, make sure either it's a cash buyer, or there loan won't require seasoning on the title (seller on title for 6-12 months; banks don't like flips). Do you have any professional estimates you can include with your proposal? They can help a lot. Tell the estimator you want no expense spared in this repair. Get a couple if you can for each part of the repairs.

[lxcoupe89]

ok thanks.

Should I submit everything mentioned on the first shot or get the initial packet submitted and follow up with all of the hard estimates when I recieve a response from the bank? Or doesn't it matter?

[handy]

I'm just one guy with a few Short Sales behind him and several in the hopper right now, but everything I've ever heard says always FAX it all together, which makes sense. Don't give them any more chances to lose it than they'll already take. Call and make sure they got it, they probably didn't. Follow it up by FedExing it too, if only to show color photos the way they should be seen instead of B & W from the Word doc you printed and FAXed that got smudged en route. It's also a good reminder, esp. if you make sure the Loss Mit rep has to sign for it. Don't feel limited by what they require, add whatever supporting docs you can muster, to a point. I always use a descriptive narrative and add a "Buyer's BPO," factoring in all repair costs using my numbers.

By the way, when I'm talking to Loss Mit, after preliminary questions--Sheriff's sale date, exact current amount to reinstate, etc.--"say, does it show the BPO you ordered on your system yet?" (wait for a 'yes') "what did it come in at?" Usually (not always) the rep actually gives me the BPO. Banks usually need offers to be 80% or more of BPO, but I've had them take less. I was ready to offer about $91k on a house a couple months back til I asked and found out the BPO was $85k. They took my first offer of $66,100 (I never make round offers, odd ones sound more scientific, like I used a magic formula.) That's why you want to control the house and thus the interior BPO if possible. It may still make sense to insist, gently, that they order an interior BPO, you could even say "tell you what, humor me. If you order it, I'll pay for it, and put it on the HUD." Doesn't really make sense if you think about it, but it might give the rep a reason to say "sure, why not." Good luck.

[lxcoupe89]

Thanks for the info.

[Randy (SELA)]

That's good info Handy

[lxcoupe89]

I talked with the loss mitigation person today.

The November BPO was $180000 and the bank goes by 85% of that according to the loss mitigation person which is $153000.

Here are some other tid bits of information she read from the BPO:

Land Value is $48000
average condition
average maintenance
good curb appeal
$850/ month market rent
market is stable
No environmental issues

This is supposed to be an outside BPO. I again requested an inside BPO no luck.

I mentioned that there are a lot of houses on the market not selling, I also mentioned that since they did not go inside they have not seen the water damage and mold issues.

The loss mitigation person is trying to obtain all of the fees etc. that must be paid at settlement. As soon as I recieve that information I can finish my HUD 1.

I am trying to figure out how to format the financial statement, and I am trying to get quotes together for repairs.

Thanks for all your help. If you guys have any additional tips I would gladly listen to them.

Mark