Feasability of Shortsale?
Hi. Newcomer here and picking up a wealth of insight in a short time just from reading these boards. (Thanks to all).
Question: I have the opportunity to make an offer on a distressed property. The owner is moving very soon, owes full price on his current mortgage (approx. $325k), and needs to sell quickly or go into foreclosure. He is seeking to recoup the cost of his mortgage and cannot wait out the likely turnaround time on selling the property (averaging 9 mos. in his area.)
It's a custom home in a nice area, is two years old, and the current asking price is in line with comparable area homes, based on my research (CMAs, speaking to loca agents). It was appraised at $370K last year.
Long story short: My first option, it appears, would be to simply come in with a low offer, e.g., $275,000, secure it by contract and flip it. However, anticipating that this will not meet the seller's needs (i.e., paying off his existing mortgage in full), would short-selling be an option? And if it is, can negotiations begin with his lender prior to the foreclosure process being initiated?
Thanks in advance for any ideas.
My goal here is to flip it. I have no desire to assume his mortgage, and hold on to it for any amount of time.
You cannot do a short sale unless the seller is in the foreclosure process already. The lender needs a reason to sell it to you for less than what is owed. Sometimes, the lender requires that the seller show proof that he tried to sell it before they would consider the short sale. Each lender has their own criteria and you must meet all their requirements for them to even look at the short sale proposal.
In my opinion, you have 3 options:
1. Flip it. Get it under contract for the amount owed and then flip it to an investor for an assignment fee of say $5,000 - $10,000 for a quick sell, depending on if it needs repairs. (When flipping to investors, you need to leave enough equity for them to consider taking it off your hands quickly.)
2. Subject-to. Take the property subject-to the existing mortgage and sell it or rent it. But, you do not seem to want to take this route.
3. Bird dog it to another investors for a finder's fee. Give the lead to an investors for a fee if they buy it. Have a written agreement between the two of you before giving them any info.
Tanya
Thanks so much.
There are no absolutes. If I didn't do one myself, I wouldn't have believed it possible, but I had a successful short sale with a Homeowner whose loan wasn't in foreclosure, and had never even missed a payment!
As I describe in A Short Sale Primer, I'll never say never again. To be fair, the overwhelming majority of short sales occur when a loan is delinquent, in default, or in foreclosure.
You are right ShortSalePro. For me, a short sale is getting the lender to accept less than what is owed. Since I work with preforeclosures, I often deal with homeowners in foreclosure. I sometimes slip and foreget that there are homeowners who aren't in foreclosure. As long as you can get the lender to agree to accept less than what the seller owes them, then you are doing a short sale.
Tanya
how does a 'shortsale' , with someone NOT in foreclosure effect THEIR credit?
It doesn't affect their credit at all. A short sale is accepted by the bank as an alternative to foreclosure. The bank just writes its loses off as liquidated damages and moves on. It would rather get rid of a property that will cause it problems the get it back. A short sale satisfies the current loan on the house and everyone just parts ways. No muss, no fuss.
Peace,
Mitchell
It WILL effect their credit.
Just got off the phone with an underwriter for my bank, and its definately a negative thing, though not nearly as bad as foreclosure, bk, etc.
Depends on the bank, of course, but charge-offs are a negative item on your credit that requires explanations to underwriter. Can you get passed it and still buy a home? Probably. But its still a negatively reported item.
Vasiliy