Making And Offer On A Short-Sale
This weekend is the first time I had ever heard of a short sale even though I work in the mortgage industry as a broker. I went to a property listed by a real estate agent and found out it was a short sale. In attempting to make an offer we found out that the lender will not let you roll closing costs into the loan.
Question 1: Are there any creative ways to get around this and not have to pay the costs out of pocket?
Question 2: The asking price is $119,900 with an appraised value around $140,000. The agent told us not to offer anymore than $100.000. Does this sound correct?
I looked up the program on the HUD website and the numbers she gave don't seem like enough. The biggest problem is paying the costs out of pocket though. Any suggestions?
Quote:
On 2004-10-25 11:06, shel8153 wrote:
Question 1: Are there any creative ways to get around this and not have to pay the costs out of pocket?
Yes, you subtract the costs from your offer.
Question 2: The asking price is $119,900 with an appraised value around $140,000. The agent told us not to offer anymore than $100.000. Does this sound correct?
I generally offer about 40% of the mortgage balance, unless it is VA or FHA insured.
I looked up the program on the HUD website and the numbers she gave don't seem like enough. The biggest problem is paying the costs out of pocket though. Any suggestions?
What HUD program are you talking about? A short sale is not a HUD program, it is a way for banks who are not in the real estate business to liquidate their non performing assets (ie liabilities) without having to go to foreclosure. If it is owned by HUD or the bank, then it is REO (Real Estate Owned), not a short sale. If this is the case, then I would also tell you that as a general rule, HUD homes are difficult to buy right. They want too much.
The only thing I can think of is possibly to bump up the sales price and have the seller pay your closing costs. Being a mortgage broker however, you should know of creative ways to do this... I am a mortgage broker myself and this is ALWAYS the problem for ANY of my clients... you should have some creative ideas of your own, though. But yeah, seller paid closing costs, usually on non owner occupieds (if your doing w/ reputable lender) will only let seller pay 2%... and usually on investment properties, closing costs are more along the lines of 5%. Pay the difference, maybe have an outside agreement saying the seller will reimburse you? Just an idea however. Not sure of the legalities of this, did not check and have never done this myself, so am not sure.
Perhaps I misunderstood your question... but "shorts' are generally regarded to be a preforeclosure sale... not an REO sale.
[addsig]
It is an FHA loan that is being paid off. Does that change things?
As a broker I have used creative ways of rolling in costs, but everything we came up with we were told were not allowed in this type of sale because the lender is "not allowed" to pay any costs or give seller concessions. We were told they will not even pay for the title policy. The bank holding the loan is Wells Fargo, but in the real estate agent's understanding it is FHA that has placed limitations on what they can pay towards costs.
Quote:
On 2004-10-25 11:29, TheShortSalePro wrote:
Perhaps I misunderstood your question... but "shorts' are generally regarded to be a preforeclosure sale... not an REO sale.
I'm sorry -- it is not an REO sale. it is a pre-foreclosure sale. However, The information I read on Pre-foreclosure sales came from the Hud office website. It is my understanding that FHA pays the difference to the mortgagee between the loan balance and the sales price, so they have rules as to the content of sales offers that are accepted. Is this incorrect?
Quote:
On 2004-10-25 11:32, shel8153 wrote:
It is an FHA loan that is being paid off. Does that change things?
Yes it does. If it is FHA, and the FMV is 140K, you are looking at about 114K on a short.
SSPro, I have never done a FHA or VA SS. I have always avoided them. Is it true that the lender cannot pay any costs?
FHA shorts are complicated... the Seller must have made formal application, and qualify for short sale consideration.
The FHA will permit a short payoff if their net proceeds are from 82% to 87% of the as-is, fair market value.
If it's worth $140,000, they'll consider accepting not a penny less than $114,800.
The sellers have already been approved for the short sale.
114800 is what I figured as the lowest they'd accept. As far as paying costs go, do you have any experience with that? The agent said we could not raise the sales price to include costs even if their net is 114800 because they will not give a credit on the hud1 back to us for costs. is the only way to close on the fha short sale for us to pay the costs out of pocket at closing?
Try to get a new buyer (on a contact for deed) put in a down payment to cover your closing then arrange the (contact for deed) sell out 2 mounts down the road for full retail.[ Edited by flyhomes on Date 10/25/2004 ]
On 2004-10-25 12:45, flyhomes wrote:
Try to get a new buyer (on a contact for deed) put in a down payment to cover your closing then arrange the (contact for deed) sell out 2 mounts down the road for full retail.
We are going to make the property our primary residence so that won't work. We aren't planning on selling for two or three years -- the house won't sell at FMV anytime soon because the area it is in is brand new and still building.
Any other suggestions on how to cover closing costs on an FHA short sale?
Quote: The FHA will permit a short payoff if their net proceeds are from 82% to 87% of the as-is, fair market value.
As we know, the FHA FMV is determined by a BPO that FHA order. Probably nobody except FHA, and maybe the person working the SS on the homeowners behalf, know what that number is.
The way I work my short sells is to tell the lender that the buyer will pay for all closing costs, except the realtor commissions. Once the lender accepts my offer, I would not go back through the hassle of getting a new proposal accepted just because the buyer wanted to roll in costs. Getting the lender to accept an alternative offer could take weeks and there is always another buyer at such a good price.
Brenda
If the true FMV is $140K,then this shouldn't be posing that much of a problem for you, especially since it is going to be a primary residence.
As a broker, you should be able to find a 100% loan, so all you have to pay is the closing costs.
Once the deal is closed, find a lender to open a 2nd, an equity line, or just refinance the property. There a several lenders now offering no closing costs refinances, so there would be no "extra" closing costs. Most lenders will go 90%, and some 95%, of appraised value, so you can get up to $126K or so.
Roger
What is your exit strategy?
"How do I justify the SS request for the 2nd?"
from the info you have provided, this is not a short sale candidate
My exit strategy is to put it back on the market and sell it fast.
What disqualifies it as a short sale candidate the act that it has been made current?
Yes, if you were getting paid would you accept less than what you're owed?
>What disqualifies it as a short sale candidate the act that it has been made current?
Not only that, but the home's value is sufficient to protect the lenders if you default. Why would they offer you a discount if they know they can get their cash at auction or by selling it as a REO?
-Chris
[addsig]
Seems to me your best strategy at this point is not to worry about shorting it, but rather getting the deed recorded, and marketing it at retail if that is your exit strategy which it sounds like it is. Two things would have made this a short sale candidate: 1) the loan was delinquent and 2) the property was in need of some repair and did not support the loan balance value of 205K.
Did you aquire the deed subject-to??
Yes, I did require it subject to and I do have it on the market right now and there is quite a spread involved...I was just looking to get a little more...if at all possible.
Thank you all so much.
Newtoss,
The others beat me to the punch. You have a nice spread. No need to get more. Remember pigs get fat, hogs get slautered. Build your business on volume, not just one big hit.