Been eyeing a property here for a couple of years. The time has never been right to make a move, but maybe it is coming.
Current owner has basically walked away, leaving tenants who have had no need of paying rent for 3-4 months. First and second mortgage both going unpaid. Total of both mortgages is well over current value. First mortgage amount is approximately what the property is worth. Holder of second is previous owner who now has power of attorney to collect rent, evict tenants if applicable, market and sell property, etc.
I am probably going to make a short offer. From what little I have learned, the offer goes to the holder of the first, who will deal with the holder of the second, the PMI carrier, and whoever else there may be. The current owner should ideally provide some serious evidence of hardship, explaining why they can no longer pay as agreed. Dunno yet if this party will assist or not.
My guess is that the first holder will see little reason to discount their position, since it isn’t so bad. They may have some formula they use that tells them how much a foreclosure will likely cost, and they’ll discount that much and offer the remains to the second holder. If there is PMI maybe the carrier will have to kick in some, making the whole thing easier to swallow.
Also, the second holder has indicated that he may list with a realtor. From my position this does me no good, because that person’s commission will probably then weaken the numbers for everyone else.
Would love to hear comments from anyone who has been there done that, read about it, heard about it, etc.
Replies
well your right on the sales fee eating into everyones pocket, but that 2nd holder isn't ready to just get up and walk with zero or very little,so he wants to try and get as much as possible,he's in a bad spot period.
his only option is to pay first and hang on for a few years. or you might just ask him what he will take for his postion.maybe he wants 25 cents on the dollar. then i would go to first and see how bad he wants lose. they know to forclose will cost time,money in holding cost,probably still sell for less than owed and will have a 6% sales fee to pay.
so if they would discount the 1st 15% then you paid the 2nd holder that 15 do you think he might pack his bags and go?
if not someones going into the landlord bussiness....................
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There was a program on NPR on short selling just the other day. I think the audio clip has the full program, and the text is just the teaser.
http://www.npr.org/templates/story/story.php?storyId=104803015&ft=1f=1001
In short, the message was, if it's a business only decision, it's a decent avenue to pursue. But not the route if it's a house you can't live without. And anything can happen, and it frequently happens VERY slowly. There was at least one tale of a place that's still for sale, at a lower price, long after someone had made a previous offer for more.
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go to the bank... if thy are not getting paid... and "buy the note" I'd offer 50 cents on the dollar...
then foreclose.... a few things can them happen.... the holder of the second can buy the 1st for full value...
or you foreclose have an auction on the courthouse steps you can bid... anything over the full amount plus expenses of the first goes to the holder of the second...
no way for you to lose... you either get full value plus expenses for the first which you now own OR you own the property with no second...
3rd thing is... if the property sells for less than the amount owed on the first... you can now go after the the people that borrowed the money for the balance owed and you will be in front of the second holder who i'm sure will be doing the same... if they have anything you can ever get... you could end up with the property for free... depending on the auction price
p
I've talked to my lawyer about buying the note. Might not be a bad strategy but then I need to foreclose, which is not without costs and hassle. My attorney wants me to consult someone else who is more proficient in this type of transaction--he is not, and has just talked generalities with me. Other issue is that I need to borrow part of the money and I have not talked to a lender about what would be involved if I want them to fund the purchase of a note vs. the purchase of the deed.
Other issue is that I need to borrow part of the money and I have not talked to a lender about what would be involved if I want them to fund the purchase of a note vs. the purchase of the deed.
Just take out a second on your house and make it a cash transaction.
The first lien holder isn't going to put any effort into negotiating with other lien holders. They know in foreclosure, any other lien holders are totally wiped out unless they make the first lien holder whole. You need to have an agreement with any other lien holders before you waste any of your time with the first lien holder.
You will need to document why the value of the property is less than the mortgage amount with comps and repair costs. It is my understanding that it is seldom just a matter of writing an offer and putting a stamp on it. It often includes hours on hold to talk to the bank's loss mitigation department which probably has too few people and many other cases on their desks and you need to sell them on why they should take your offer with the facts and figures to back it up.
Your advice is pretty much in line with my understanding, except that the 1st lien's loss mitigation department may see some value in accepting a short offer (and negotiating with the 2nd lien) IF they can come out ahead vs. foreclosing. Thus they might broker a deal. I agree that most of the lenders are probably swamped with these types of deals right now and may do little or nothing.
i have discsusion with a real estate friend and she made some comments that both 1st and 2nd note holders can be willing to reduce their payoff amounts in a short sale situation. They both do not want to go through the legal, foreclosure, eviction and repair costs.
They also have to consider if the current home owner is possibly in bankruptcy. If this is the case, then they both could stand to lose even more and have no way to regain any loses.
Plus the process is lengthy and they increase their potential loses even more as in the previously mentioned along with maintenence, repairs, insurance, property taxes, theft, real estate fees, etc.
Were seeing houses around here where homeowners are selling used carpet, HVAC's, appliances, fixtures, landscaping, doors, door openers and whatever else that can pry off, on craigslist.
I am in the process of buying a short sale. At least I think I am. Its taking a very long time. Process started in early march and to date all I know is the offer has been accepted. I have a good faith deposit paid to escrow.
Once in a while I hear from the real estate people, they tell me we are waiting on Country wide to move on paperwork. But seeing them in the news again last week leads me to expect little to slow movement.
If you have time to wait, maybe your get somewhere. I have asked around and they all say its a very slow thing.
Lots of problems for the loser of the house too. When they finally get forgiven the difference in sell and outstanding monies. They might get reported on a 1099 for unearned income. Credit is as badly effected as a foreclose, but you often don't get 1099ed for that!
But when you can't pay for the roof over your head most other stuff is gone too!
I was talking to a realtor last week and she says she has seen short sales take over a year.
"When the spirits are low, when the day appears dark, when work becomes monotonous, when hope hardly seems worth having, just mount a bicycle and go out for a spin down the road, without thought on anything but the ride you are taking." — Sherlock Holmes, 1896
On the issue of the 1099, I read a few months back that the gov't was thinking about removing that requirement if someone had a short sale. I don't know the final outcome, but it may be that the "income" is now tax free.
Don K.
EJG Homes Renovations - New Construction - Rentals
Does your deal involve the current owner cooperating, or are they out of the picture?
Its a bit like the DMV, I'm just waiting! Its not easy for sure! I will keep everyone advised as it drags its feet along.
Different states have different laws and procedures and all that other legal boiler plate.
BUT unless the property goes thru foreclosure you HAVE to deal with the current owner.
Right now the current owner has a mortgage with lender #1.
There is also a 2nd on the property (previous owner carried some of the note from his sale to current owner)
The POA the #2 lien holder has is with the owner, not the mortgage holder.
I would be surprised if the bank would even answer any inquiry concerning the property without current owners written permission (disclosure laws)
As far as buying the note from the bank as PT suggested. Unless this is a local bank that is still carrying the paper, I think that's a dead end also.
The current owner can give the property back to the bank (called Dation en paiment in Louisiana). in exchange for forgiving the debt. Then the bank would be free to pursue an open market sale.
But I've never heard of that happening unless the deed was lilly white with no encumbrances.
Good luck to ya, but I think your wasting your efforts unless you want to bid on the property in foreclosure.
Once again different states and counties have different laws, but I saw an advertised foreclosure sale in S. Puget Sound area. 10% down on successful bid... balance within 30 days. In La. it's cash within 24hrs.