Question about possible Shortsale, need advice
I've never done a shortsale myself, but I have a situation that definately needs one. I need a suggestion as to how much to offer the bank. The property is less than two years old and is worth about $319,000. There is just a little work that needs to be done, but otherwise its in pretty good shape. The owner got divorced, and has pretty much abandoned the property. He owes $333,000 on the property, and has just let it go (it will be going into default soon). The first is around $180,000, the second is around $52,000, and there is even a third for $99,000. The main one I'm looking at shortselling is the third. How much should I offer the bank for the third? If it goes to auction, then most of the third, if not all will be wiped out ? Not sure what to attempt here, any suggestions would be appreciated. Thanks!
I've learned that this home has a 4-car garage, and two of the garages were converted into bedrooms without a license, so they may need to be torn down back into garages. That, plus cleaning the pool, and there isn't too much more to be done to the house.
I'm not an expert on this, but let me tell you the steps that I would use to start justifying the short sale.
1) COMPS -- develop some of your own comps for the property. The lenders will order their own BPOs, but use valid comps of your own choosing to come up with a Base Value for the home.
2) ATTORNEY's FEES AND COURT COSTS --foreclosure/proceedings will cost the bank money to get the property into their name
3) PROPERTY MANAGEMENT FEES - throughout the waiting period for the sale, the bank will have to keep up the property (if it is vacated) or otherwise risk vacancy damages
4) VACANCY DAMAGES AND DEVALUATION - bad things happen to properties not occupied, you can dream up the worst, but even the best case is some cost
5) LOST ACCRUED INTEREST - Lost accrued interest on their loan amount through waiting period. This is HUGE when there is a long time to get from foreclosure action to the sale. And the reality is that a bank needs to keep multiple times that non-performing loan amount on hand as reserves if it is going through foreclosure. So they have MORE money than just the loan affected by its status. This is no fun for a company that makes its money by earning interest on funds they can LOAN, not have in RESERVE.
6) REPAIRS AND DAMAGE REMEDIES - You can likely get photos of ALL the problems with the property and estimate the cost to get them fixed. The bank will either need to pay these to remarket the property OR they will have these costs deducted from whoever purchases.
7) REO REALTORS COMMISSION - Calculate the going rate for a Realtors commission if property is taken back and sold at a discount to market price (which most REOs will go at a discount to market).
DISCOUNT TO MARKET PRICE - REOs can be acquired quite often for a discount to market value. Forecast a discount for your area based on the property (i.e. - 10% Discount off market)
9) PROPERTY TAXES AND FEDERAL LIENS - If these exist AND are named in the law suit for foreclosure -- they will be paid off before the bank gets their money. Your deal will cover these costs.
Take a look at what this says as a percentage of value and compare it to your three lien holders positions. My guess is that it will take a serious chunk out of the 3rd's position. So their analysis will need to be the following:
"DO I USE MY MONEY TO MAKE THE 1st and 2nd WHOLE AT THE AUCTION AND THEN TAKE THIS PROPERTY INTO INVENTORY WITH THE COSTS AND RISKS ABOVE OR DO I TAKE WHAT I CAN GET FROM A WILLING AND ABLE CASH BUYER TODAY?"
Some will be in denial -- some will play. Make your first pitch aggressive...
...good luck.