Does This Have Good Short-Sale Potential?
Short Sale Gurus please help. I am very new to this.
I have what I think might be a potential short-sale. Please let me know what you think and what you look for in a short sale. As a novice, I don't see much profit potential here. Could I realistically expect ot get to 70-80% of ARV (including all costs)?
Comps on house give it an ARV of 139K.
1st Mortgage:
Mortgage Recording Date: 10/13/2000 Mortgage Loan Type: CNV
Mortgage Rate Type:
Lender: AVALON MTG CORP Mortgage Term: 30 YEARS
Loan Amount: $123,650 Mortgage Rate:
Balance: $120,250, now with CITIMORTGAGE, INC in OH.
2nd Mortgage:
Mortgage Recording Date: 10/16/2000 Mortgage Loan Type: CNV
Mortgage Rate Type: FIXED
Lender: GB HM EQUITY Mortgage Term: 15 YEARS
Loan Amount: $11,250 Mortgage Rate:
Balance: $10,400, still with Guaranty Bank (HELOC)
Owner missed 3 payments, then made up 2 and financed the 3rd over the next 6 months ($240.00 extra/month for 6 months). The first payment is due on the 20th. They are out of money and cannot afford to pay any more.
Needs about 2K in facelift repairs.
Monthy Payment:
1st $1097.68 ($1480/mo for next 6 mos), 2nd $145.62.
Questions:
1) Based on these numbers does it seem possible to get to 70-80% of ARV?
2) Does anyone have any experience working with either of these banks?
3) Do we basically have to wait for the owners to get further behind before the bank will consider discounting the note? House is vacant.
4) What other sorts of questions should I be asking? 
Thank You,
JohnCl [ Edited by JohnCl on Date 02/16/2004 ]
What's the property worth, today, in it's as-is condition? In my opinion, that is the most important number when trying to determine short sale feasibility.
When mortgagees are asked to consider accepting less than they are due, they'll use whatver info available to ascertain the subject's as-is FMV. From that, they'll consider whether accepting less, and how much less, is in their best financial interest.
Most times, a junior lienholder must agree to accept next to nothing before a senior mortgagee agrees to accept less.
In your scenario, before you can get the first mortgagee to consider accepting less, you must control the second either by purchasing the mortgage via an assignment, or by having them agree to accept $1,000 or so.
TheShortSalePro,
Thank you for the quick response.
The ARV of 139K was based on MLS, FMLS, tax data, and the like. I feel fairly comfortable with it.
Only needs about 2K in "facelifts". Nothing major is wrong with it.
Actually, another investor (new) was asking if I would take the property "subject to" from him. He is outside the area. He took it "subject to" from the owner and has already done about 1K in work on the house. I guess he thought he would turn it quick (he was assuming an erroneous ARV of 154K). I am afraid he will just walk away, leaving the homeowner stranded.
I am basically trying to determine the best course of action. I would like to help the homeowner solve their problem. It seemed like the only one with any room to move was the bank. If we could discount those mortgages a little there would be some breathing room.
Sorry if these questions seem silly. I truly don't know exactly what to ask. If I could come up with a Tenant Buyer by the end of the week, that would work. That will probably not happen so I was examining the feasability of a short sale.
John Cl
I didn't ask about the ARV. It's not a factor when preparing a short sale proposal. The mortgagee certainly doesn't care about the ARV.
Though you've stated that it needs about $2K in repairs... that doesn't indicate the as-is, fair market value.
If you are going to work shorts, get used to that phrase. The "as-is, fair market value."
The key to successful short sale negotiations is to first denigrate the mortgagee's perception of the as-is, fair market value.
Get them to agree that's it's worth less and you are on your way to short sale consideration.
Your best bet would be to get the second to agree to accept about $1K, then work on the first mortgagee.
I came up with that figure based upon recent sales within .25 miles of similar houses in good condition. It really is worth about 137K (as-is) and there isn't really much wrong with it. I'm assuming the bank would come up with close to the same.
Yes, getting the second to take $1,000 would definitely make it a much more viable alternative. It is a good buy and hold area. My guess is the banks aren't feeling any real pressure yet. The payments have been negotiated back to current, so they probably don't see the potential problem. Do we just have to wait a couple of months for the owners to miss their payments again before we really have any bargaining power?
JohnCl
I see what you are saying. Maybe there just isn't enough room there for a Short Sale. What is owed is less than the FMV, but there are the costs a bank incurs when initiating a foreclosure, right?
Maybe I am completely misunderstanding this.
JohnCl
[ Edited by JohnCl on Date 02/16/2004 ]
Did the person who bought this subject to and record a new deed to this effect? If so, if you persue the short and the lender sees that the property has transfered hands, they may not negotiate any farther.
hi john, the lender is not concerned with any ARV tomorrow but what it is worth today..that is your starting point..getting a BPO will get your ball rolling..i have been successful in challenging the lenders BPO..its how you state and make your case based on the current BPO..making a case based on your perception of the current "as-is" value, IMHO, is where a successful short lies..
regards-pat
dirtman89, they did not record anything. I guess he was hoping to move it quick and didn't want to tie himself down.
I just read one of The ShortSalePro's articles (should have started there). It really looks like I will be swimming against the current to try to get a short sale at this time. I'll just watch this over time and see what happens.
Thanks everyone!
If it's worth $137,000, the first is right on the bubble... they could possibly be made whole if they foreclosed, and were to quickly liquidate. Much depends upon the market, and average DOM for comparable listings.
If you can make a compelling argument, the first might agree to discount a bit. The second would most likely be extinguished in the event of an executed foreclosure.
Is the first mortgage an FHA insured?