Need Help Analyzing A Short Sale.

First, thanks for this wonderful forum. I'm very happy to have found a place where REAL advice is freely shared.

Now, I have an interesting opportunity in front of me and I need a sanity check. Here it is...

1940s brick home on the most desirable street in town. Looks great from the outside - white picket fence and the whole bit. Inside, the first thing is the smell; they've had dogs and although the carpet has been cleaned you need some olfactory imagination to think about what the home would be like after new carpet and paint.

However, all the windows and fixtures are origional and it is in very well preserved condition. (I wonder what's under the carpet and vinyl? Hardwood?) Given the location and the very solid construction and apparent good condition, I'm interested in this as a possible home for my family, as we're currently renting. Spend two years fixing and the sell tax free...

Did I mention that the ducting above the furnace contains asbestos? Yup.

So, here are the particulars...
1st $235k princ. $255k to cure foreclosure
2nd $13k privatly held
3rd $484 mechanics lien
...also... about $15k in judgements against owner
Appraised at $310k
FSBO at $289k, just enough to cover liens

And here's the wrinkle...
THE OWNERS CONTROL THE 2ND THROUGH A 3RD PARTY HOLDER.

Hmmm...interesting, no?

Owners recently have expereinced a business failure and are on the edge of BK. They tried to sell through a realtor, but their first deal fell throught 2 hours after the moving truck left for another state. Now they are camping in the house until someone can set them free.

What else? Oh yeah, they are four weeks away from the Trustee's Sale and very motivated to be done with the whole deal and have enough cash to start over. Basically the value of their 2nd or a little less.

So...I'm wondering if I can create a win for the owners and myself by shorting the 1st in the time remaining and discounting the remaining leins? I personally feel that the appraisal of $310k is high considering most other homes in this very desirable part of town have been updated inside and this one needs to be. I'm putting the value closer to $275k, maybe less.

Here's what I want to do...buy the whole thing for about $200k.
1st shorted at $185k
2nd discounted to $10k
Other leins for $5k.

What do you think? I have not "locked up" the sellers with a contract as the best solution for them would still be to sell to a retail buyer. And, I'm not sure how to create the P&S Agreement to make the bank happy and protect myself. What questions should I be asking myself and where do I go from here?

Thanks so much for you help! (This means you, TheShortSalePro!) wink

P.S. This is my very first attempt at buying a distressed property - or any property for that matter.

Comments(4)

  • bobabby18th May, 2004

    The 2nd is toast ... offer them $500. The other liens can be discounted to .10 on the $. You state 255K to due the 1st w/20K in arrears and penalties included. 310K appraisal?? Forget that!Can you sell quickly at 275K? If yes build yr case for 1st to get rid of the BS fees which add 20K to the price and show them that selling to you at 80% of current value is a bargain, ie 220K. Don't phrase it that way but just use it as yr benchmark.


    Get it at 220K sell at 275K, pay off what you've agreed to w/ the lien holders and profit. Move on along now.

  • nprobst18th May, 2004

    bobabby,

    Is this your approach? Have you used it personally? Have you had success? At what rate? Can you provide any more detailed discussion?

    I feel that you've missed some important points:
    * The sellers need some cash out of the deal.
    * I'm looking at this as a residence, not a flip.
    * I think an allowance for upgrading the interior is needed to make the deal worthwhile.

    Am I completely off base here? Anyone else want to offer their two bits?[ Edited by nprobst on Date 05/18/2004 ]

  • c-brainard18th May, 2004

    He is probably correct. If the house will sell at $310k, why would they sell it to you for $185? I'm currently working a deal similar to this but I'm hoping they will accept $220k (I'm doubtful). I'm using selected comp data to justify my FMV at $240k when I have an appraisal for 300k rasberry

    1) The sellers need some cash out of the deal.
    >The sellers are not permitted to receive any funds through a short sale.

    2) I'm looking at this as a residence, not a flip.
    >Not sure that this makes a difference, other than you will probably pay more $$ because you like the house.

    3)I think an allowance for upgrading the interior is needed to make the deal worthwhile.
    >Short sales are generally sold as is, and I don't think you will get an allowance for an upgrade. If you can justify it as repair work necessary, you may reduce the FMV a bit and save a few $$.

    -Chris
    [addsig]

  • TheShortSalePro18th May, 2004

    On any acquisition you really have to nail down the as-is, fair market value. That usually requires rolling up your sleeves and getting into it.

    Since there is a sale coming up so soon... and there are multiple layers of problems to address and resolve... I would suggest that you get your financing in place, and bid at the Trustee Sale.

    If you win, ask yourself why you were willing to pay more than anyone else for this property... or, if you lose, ask yourself why someone was willing to pay more than you.

    Use the Trustee Sale as a learing experience, comparing what would have been your proposed deal with what actually transpired. Help this first hand experience shape your future proposals....

    and allow yourself more time to effectuate a short sale... especially when there are multiple liens to negotiate.

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