Negotiation Question
We are in the process of negotiating a short sale on a property and have run into a couple snags, but hope we can find some advice here! The property is worth about $300,000. The first mortgage was for $238,000 and the second for $60,000. We offered $200,000 on the first and they told me yesterday that they've decided to not short sale and will just let it go to foreclosure sale because they're confident they'll recover the entire amount owed. They're probably right. We offered $10,000 on the second, and they want more information on the first-the payoff balance, the sale date, a financial statement from the owner. They are indicating they won't accept that little, but have to send it through to be sure. Here's our thoughts:
We're thinking about offering the first $238,000, which is the entire loan amount, but not the penalties or back payments. Are they apt to accept this?
We're going to send the payoff letter on the first mortgage along with the other information to the second mortgage holder and again offer $10,000, hoping that they'll see that the first mortgage holder would get most if not all that could be made at foreclosure auction. We'd be willing to go up another $5,000-10,000 if it would cement the deal AND if the first accepts our payoff offer. Any thoughts on whether we should offer more right now or just play the game a while longer with them?
The anticipated foreclosure date is October 23. The person I'm working with in Loss Mitagation on the first mortgage recommended I get the payoff letter so we know what they're looking for. I'm just wondering if they'll accept our offer.
BTW, in case you can't tell, this is our first deal, and we're learning so much! We just want to make it work if there's any way possible. In case it matters to experienced investors out there, Litton Loan Services holds the first mortgage and Chase Manhattan holds the second.
Any advice/direction is greatly appreciated!
Jean
I'd say don't waste your time on the first. Even if they did agree to a little bit less, the second would want whatever concessions the first offered. They do talk to each other, you know.
Concentrate, instead, on denigrating the perceived value of the property in your Proposal to the second.
Thanks for the reply! Are you saying to not try to negotiate any further on the first, and just pay the whole payoff amount (original loan amount and all fees), or offer the original loan amount only? We are going to talk to the second mortgage holder and try to get them to come down enough to make it worth our while. Like I said, we should be able to sell it for about $298,000 without too much trouble. If the first payoff is around $250,000, do you have any idea what the second is apt to require? We have lower comps that we can send to the second along with the requested payoff letter from the first and our offer. I guess we just are trying to get a feeling for how much of a discount they'll take. How much will they typically be able to sell for at foreclosure auction? We've heard about 70-80% of value. If so, that won't leave much for the second, and maybe they'll accept $15,000 or $20,000 from us instead. I guess it's all learning to play the game, and we're just trying to get this decided as quickly as possible so we have time to line up a buyer before closing! Thanks again for your help!
I believe that what ShortSalePro is getting at here is that you need to make the 200,000 payoff sound good to the first mortgagee. They need to believe that they won't recover the 238,000 so you need to shift their perception. You can do this by taking pictures of all the cracks in the walls, the holes in the drywall, the leak stains in the celing, the hole in the roof and anything else that looks bad. As they see all of these problems and the costs associated with getting the house to fair market condition, their perceived value of the house will go down. If this house is in great condition, it might not be the best short sales candidate. Happy Investing!