Trouble Shorting The Second
Have a house that has been served the Les Pendens. They are 6 months behind and the sale date has not been set but should be in about 3 months. The ARV is 110k and repairs are about 5k. First has negotiated to 64k from 91k. The second is owed 7k but they are saying that they want 3.5k. I believe this is not common but do I have any other options or other things I can try.
Everyone makes shorting the second sound like a cake walk. But they have given me the most trouble. They do not want any kind of short sell package, but just keep saying NO to my offers. Then today they said that they want half.
Brenda
Who is foreclosing?
The 1st or the 2nd?
Makes a big difference.
Other then that, depending on your exit-scenario, there may still be a deal there with these numbers.
[addsig]
The 1st is foreclosing.
The point of my topic is to get some feedback on how to handle the second when it seems that they are being ornary.
Brenda
Even if the 3.5K won't get any lower, 3.5 + 64 + 5 = 72.5K. Isn't that still a great deal? I'm new at this so not sure what I'm missing. I realize there are some fees involved aswell, but they certainly aren't high enough to take away the profits.
Abhishek
I am not asking if it is a great deal. I am asking how do you handle ornary seconds. What do you say to them, what negotiating or persuasion techniques do you use?
Brenda
ah, my bad. None the less, were my numbers correct or was I missing anything? i'm just getting started so wondering.
Good luck with your deal!
Abhishek
Hi Brenda,
Whoever told you that shorting a 2nd was a cake-walk has misled you. Are they less cumbersome than a 1st? Yes, however, you still must provide them with sound reason (proof) on why it is in their best interest to short the note considerably.
When shorting a first or a 2nd, I always prepare a sound proposal, but I leave out one or two key points. The reason that I do this is so that I can use them as Armor for when (if) the bank counters me. When I re-counter them with this new info, it is easier to gain ground. If you have any other info about the property that would make the 2nd reconisder your offer, now is the time. The other thing that you can do is to bring your offer up some, and tell them that you will pay them cash and are prepared to close right away, but your offer expires in X business days!
I was working a short of a mortgage that was only for $7,800 once. I offered $1,000. The lender told me that out of sheer principle that they would not take less than $5,000, and if they couldn't get that, that they would let it foreclose. Because of the low amount on the 1st, I gladly paid off the first, and the 2nd (at their number), and still made a lot of dollars on this transaction.
The summary in the above, is that even if you cant get the numbers where YOU want them, if they still work, go ahead and Buy it, Profit, Rinse and Repeat! If you let the little things slow you down, it can cost you some BIG paychecks!
Best of Success!
BAMZ
Abhishek, no big thing. And yes the numbers look pretty good.
110 ARV - after repair value
64k pay off the first
3K pay off the second
2k closing costs to buy (2.5%)
4k in repairs
-------
73k - initial cost of house
7k- down 10% down
2k - closing costs
4k - repairs
--------
13k - out of pocket for traditional mortgage
847 - holding cost of 2 months to rent
74k - cost of house
3k -option fee for 18 month option
8k - out of pocket
900 month rent
500 PITI
------
400 * 18 = 7k
118k - sell price (110k * 5% compounded 18 months)
2k - selling costs (2%)
39k profit from the sell
(sale price - cost of house - option fee - selling cost)
49k total profit
(profit from sell + option fee + rents)
My numbers might be a little screwy, I was rounding pretty liberally. I have this in an excel spread sheet.
Brenda
Lease option is for a year with 4k down and 900 a month. Sell for 110.
So what is the problem Brenda,
You do not like to pay $3.5K? In my opinion, tahat's still a great ROI on anyone's money, leave alone OPM.
The problem is that the rule of thumb is to pay 10% of the second.
If you had a deal where you made 50k but had to pay 10k in hazard insurance, yes it would still be a great deal, but I would expect a post about the 10k in insurance and how to avoid it in the future. The bottom line is made up of all the other numbers along the way.
Brenda
In money transactions, you ignore the slings and arrows of others and concentrate on the return on investment.
You must not get stubborn and blow the deal just because you think the second holder should respond to being eliminated in the upcoming foreclosure sale.
To short a second which I believe was your reason for posting.
Explain the realities of a foreclosure. Inform him in view of slim equity there will be no over bidders and indeed a claim onto the foreclosure sale officer for any overages might generate a negative reply as they might just disapear in increased costings of sale.
Offer him cash, wag the money in his face, breath across it so that the aroma of crisp one dollar bills will impact upon his senses. Whisper into his ear what delights he can purchase with all this money. Describe to him the horror he will feel if he does not take it and after the sale he is left with only a piece of crumpled paper.
What I am saying is negotiate. Nobody can tell you how cause we cannot see your target. Man woman, small child, dog in raincoat. Only you know, watch him, react to his movements and eye flickers. What in gods name have you been doing here. Learning to negotiate so use it abuse it, on him no mercy bestow.
Enjoy, Ah the smell of bargains in the early morning. Lucius
Lucious the diplomat, well said. Pride is that thing kicking you in the ass telling you to get what you deserve. We don't get what we deserve. WE get what we negotiate.
Just thought I would bring up one point of ammo/possible hang up. It is common that the first will not short unless it is agreed the secon will not get more than 1000.00. You may explain to the second that the first is chopping 30k off because they are sooooo far out of the money at auction. Explain that if they want more than 1k, you already are working with the first to buy it after the starting bid doesn't get bidded. So, they can hang around and get nothing, and you still get the house unencumbered, or they can understand their position and take the grand.
If I am off base on my thinking, I am interested to see what others think.
[addsig]
brenda,
You are killing me. You did what most hope to do. Dont be greedy. You shorted the first AND shorted the 2nd 50%. Would it make you feel better if the 2nd was a 35k note instead of a 7k note? Then you would have your 10% rule.
You negociated this deal into a doable deal. Just do it.
more MOre MORE will only get you LESS LEss less.
[addsig]
Nobody gets it. "It's a good deal so take it". Of course I am going to do the deal and I will be happy. But I want to LEARN how to do the deal better the next time. When I present the Short Sell forum with the question of how I could have done better with the second and how do YOU present your pitch to the second all I get back is "It's a good deal so take it." I already knew that! The idea is to LEARN not just to give a thumbs up or thumbs down on a deal.
Brenda
I would say that the only folks who would say that short selling is a cake walk are the so-called gurus who want you to buy their materials. The truth is that shorts are time consuming exercises that require a great deal of leg work on your part and the part of your seller just to put them together. Making these real estate approaches appeal to the masses by making them sound easy is what separates the say-ers from the do-ers. I've done several shorts and its a laborious process. This is not to say it isn't worthwhile because it is (assuming it is accepted) but they aren't a cakewalk.
"The problem is that the rule of thumb is to pay 10% of the second. "
This rule of thumb is what we investors go by, not necessarily what the banks go by. Because there are tens of thousands of banks, they all have their own internal rules and procedures. This means that the chances of us being able to get all of them to fall into our game plan isnt that likely. The goal is to get most of them to.
I shared with you some thoughts above on how I handle this, but even still it doesnt always work out.
BAMZ
maybe read the above posts again, i believe you have an answer to your origainal question and then some..nlsecor above , is a specific way to your specific question..what others may be telling you is not vague or sidestepping the question.. its a broad negotiating technique used to evaluate specific dilemas.. i hope i dont upset you with this response as i am no expert in SS, but, what one would say specifically to negatiate with the short may not work with your deal..theres no cookie cutter..such as, how you were told that a rule of thumb that you should get 10% on the second and you want to know what to say to get it. it may not exist with this lender but maybe with others..i believe in a SS and, from reading BAMZ and the SSpro, that if the subject owner qualifies to your specific SS criteria that its not so much the numbers anymore but who you are dealing with and the negotiating skills to get their, and that would be a very large topic..good luck..
regards-pat
ps- who is the lender on the second?
Actually, my numbers are a little screwy because I would have to get a hard money loan and then refi. It would not be a traditional mortgage. So there would be the cost of refinancing (about 2.5%), but my closing costs would be less so it is a bit of a wash. The big difference is that with the refi I would get cash back so my out of pocket would be -10k.