Difference Between Shortsale & Discounting
I know the only difference between a shortsale and discounting a mortgage is that with the shortsale, the owner has to fill out the hardship package whereas with discounting a mortgage, you can call the bank directly to buy the loan at a discount. Is that the only difference? Which is better? After the bank agrees to either shortsale or discounting the mortgage, is the process the same for either financing it myself by getting a loan or finding a buyer? If I don't find a buyer and I do not want to take out a loan for either of these techniques, am I released from liability for both? I guess I'm more clear about the short sale than the discounting the mortgage. I would appreciate knowledge that you guys can share with me. I'm going to start calling people from my NODs. Thanks.
When a mortgagee discounts a mortgage loan and it's sold via an assignment, it does not require any input from the mortgagor. In the case of a short sale, however, the mortgagor must make application for and qualify for short sale consideration. The mortgage isn't sold, but the mortgagee agrees to accept less that it is due to facilitate the sale. In the case of a short sale, the mortgagee may release it's lien, but still be able to hold the mortgagor personally liable for the portion of the debt that remains unpaid following the sale.
If I understood you correctly, I was actually getting ready to post the same question. As follows:
Let's say I approach the bank & owner to do a short sale OR I approach a bank regarding their REO properties. If I submit an offer assuming that I will turn around and find another investor to assign it to OR find a buyer for the property, what happens if they accept your offer on paper but you can't find a buyer for it? In my case, I couldn't take out a loan myself. I would solely be dependent on finding a buyer for my deal. I realize that you wouldn't want to back out of a deal (ethically). However, in the initial stages, can your offer be contingent upon finding a buyer? In other words, once I know that $50k would buy the property, can I go full throttle trying to find a buyer before there is a real contract to purchase the property or is my initial offer a binding contract? Will they accept or deny the offer itself without proof of funds or does it all go in together?
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Sonia (Woodchuk)[ Edited by woodchuk on Date 01/30/2003 ]
I was under the impression that the bank foregoes the unpaid debt in exchange for getting out of the deal without being tied for months.
For example, say the loan is $100k, the bank accepts $60k, you short sale for $80k; the bank writes off the loss, right?
C'mon gurus, please clarify!
I think it's more like this. If the amount of the loan is 100k and the bank accepts the 60K, you have just shortsaled for 60K and the bank writes off 40K as the loss.
Hi Everyone,
I'm going to try to answer all these questions in one shot....
*** When a short sale is accepted... say $100,000 property for $60,000. The bank just took a $40,000 loss. Three things can happen...the bank can seek a deficieny judgment, the bank can just forget it and take the loss, the bank can send the homeowner a 1099 for the short saled amount which is now income.
We always ask the bank to waive any deficieny judgment. Most times they will if you ask.
***When discounting a mortgage you do not need the cooperation of the homeowner. You are dealing with the bank directly. You do need cash to close as you cannot get a loan. You are buying paper, not property. Therefore, you have no collateral to give a lender.
***You can get the bank to agree to assign their mortgage to you, ask for 30 days to close, get the deed from the homeowner, and wholesale the deal using your buyers cash. We like to short sale and then wholesale our deals. We usually have only a $10 deposit in the deal.
Best of luck.....
Dwan
one more thing..... when you make an offer to the bank to buy the note and you can't close, you have no obligation. When buying notes you typically have a letter of intent instead of a sales contract. There is no way the bank can make you perform. If buying an REO, you would have a sales contract and a deposit that you would lose if you did not close.
Dwan