First Deal - Short Sale Candidate? Help!!

Got a call from a motivated seller today. Here's the low down: Mom owns the house legally, but daughter has been making the payments. Both mom and daugther agreed that they can no longer float the debt and want out ASAP. I suspect that they are about to miss their first payments on the first and 2nd. Here's the financials:

They purchased the home in Sept 2003 for $375K with 100% financing:

1st mtg: $300: @ 7.5% P&I: $2,097
2nd mtg: $75K @ 11.99% P&I: $900
I checked county records and no NOD have been issued yet.

They are also behind in their RE taxes to the tune of approx. $4,000

I was planning on approach the 2nd note holder, but it turns out that the 1st mtg lender is also the 2nd note holder.

Homes in this particular neighborhood have not appreciated as much as other parts, but its a solid working class area.

In addition, the home needs new paint and carpets or approximately $5,000 of TLC.

Here's what I was thinking of doing

1. Get the deal under contract with no cash to the sellers (they indicated that they just want out).
2. Contacting the lender and negotiating a short sale on the 2nd. Based on the numbers, my offer would be as follows:

As is value of home: $375,000
Less 6% comm: $22,500
Back Taxes $4,000
Sell Costs $5,625
Fix up costs $5,000

sub total $337,875

Less 1st mtg ($300,000)

Net $37,875

I would pay the $37,875 cash and assume the 1st subject to.

Me exit strategry would be lease option to buy or contract for deed.

Please give me feedback or suggestions! Thanks for your help!

wink

Comments(7)

  • kenmax8th April, 2004

    if the loan is not in default and you said they were "about" to miss a payment but have not yet. the bank will not nego. the loan on the basis of "impending doom" they will have to be in default before the bank will budge.......ggod luck......kenmax

  • x0962148th April, 2004

    Quote:
    On 2004-04-08 16:53, kenmax wrote:
    if the loan is not in default and you said they were "about" to miss a payment but have not yet. the bank will not nego. the loan on the basis of "impending doom" they will have to be in default before the bank will budge.......ggod luck......kenmax


    Just got off the phone with the homeowner. They have missed the 2nd mtg payment, which will help. I have an appointment with them on Saturday. 8-)

  • bgrossnickle8th April, 2004

    Quote: 2. Contacting the lender and negotiating a short sale on the 2nd. Based on the numbers, my offer would be as follows:

    As is value of home: $375,000
    Less 6% comm: $22,500
    Back Taxes $4,000
    Sell Costs $5,625
    Fix up costs $5,000

    sub total $337,875

    Less 1st mtg ($300,000)

    Net $37,875

    I would pay the $37,875 cash and assume the 1st subject to.

    Me exit strategry would be lease option to buy or contract for deed

    First you say that you will short sell (a negotated payoff from the lender), then you will subject to. While the subject to is a good backup for a failed short sell, they are two different strategies.

    You say my offer would be as follows .... I do not see where you have stated your offer for the 2nd.

    For a short sale, what matters the most is the BPO (appraisal). Since the house sounds in decent shape, think about 87% of the BPO (just made the 87% up as a ballpark). So you want the BPO to come in really low. That is the whole strategy.

    This may not be a good candidate for a short sell with both liens being held by the same bank. With an value of $375 the first is totally protected and probably will not deal. The second might negotiate some, but you probably will not get them down to nice rule of thumb of 10% of the principle balance. But of course you should always give it a try. Nothing lost but your time and doing a short sell will be a great education.

    Brenda

  • x0962148th April, 2004

    Quote:
    On 2004-04-08 17:33, bgrossnickle wrote:
    Quote: 2. Contacting the lender and negotiating a short sale on the 2nd. Based on the numbers, my offer would be as follows:

    As is value of home: $375,000
    Less 6% comm: $22,500
    Back Taxes $4,000
    Sell Costs $5,625
    Fix up costs $5,000

    sub total $337,875

    Less 1st mtg ($300,000)

    Net $37,875

    I would pay the $37,875 cash and assume the 1st subject to.

    Me exit strategry would be lease option to buy or contract for deed

    First you say that you will short sell (a negotated payoff from the lender), then you will subject to. While the subject to is a good backup for a failed short sell, they are two different strategies.

    You say my offer would be as follows .... I do not see where you have stated your offer for the 2nd.

    For a short sale, what matters the most is the BPO (appraisal). Since the house sounds in decent shape, think about 87% of the BPO (just made the 87% up as a ballpark). So you want the BPO to come in really low. That is the whole strategy.

    This may not be a good candidate for a short sell with both liens being held by the same bank. With an value of $375 the first is totally protected and probably will not deal. The second might negotiate some, but you probably will not get them down to nice rule of thumb of 10% of the principle balance. But of course you should always give it a try. Nothing lost but your time and doing a short sell will be a great education.

    Brenda





    Please define BPO.

    My offer for the 2nd would be $37,875. Assuming BPO (appraisal) came in at $375K this would mean a BPO of $326,250. I would then offer the 2nd for $26,250.

  • rjs93529th April, 2004

    BPO = Broker's Price Opinion.

    IMO = In My Opinion.

    IMO why on earth would you ever want to pay $40k to get into a single family home worth $375k. It just doesn't really make alot of sense to me. Can you explain the rationale behind this?

    Ryan J. Schnabel

  • bgrossnickle9th April, 2004

    Try the short sell and see what happens. Offer the 2nd 10% of the principle balance. I offered Wachovia 7k on a 70k 2nd and they said yes so fast I knew that I had gone in too high. They released the lien. They did not satisfy the mortage. Which means that they are no longer a lien holder, but that they can pursue the morgage holder for the difference. Get a good CYA letter and discuss this with your home owner.

    As I said, this does not look like a great short sell candidate, but worth a try.

    As for the Subject to, you are going to pay 40k to bring a house current in which you will have no equity. Not a great deal. Do not count on apprieciation to make your money. Appreciation is just gravy. They numbers have to work.

    Brenda

  • 4myhouse9th April, 2004

    is there any pro or con to ss a 2nd verses a 1st mtg. or is it on a case by case basis??

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