Taking A Loss On A Property???
How do you get a seller to take a loss on a property if what he owes is more than what he could get?
What can a sophisticated investor / buyer tell the seller to get the terms in the investor favor.
Example:
Seller owes 125K
Comps @ 115K
Market is depressed; more sellers than buyers.
This is a tangent from a previous post but thought I should focus the discussion on this topic only.
Thanks for any and all input
You can't convince them to take a loss. The owner has to convince himself that a loss is acceptable in consideration of other consequences. What are those consequences? That's your job to find out...what's this guys story and why does he NEED to sell? If he doesn't absolutely, bottom-line NEED to sell you're not going to convince him of anything.
I read your other post and it seems you want to find a house to live in. Good plan. In fact, you should find a good deal and live in it for two years (not just one). Buy yourself some instant equity by buying below market value and in an area that is (or at least will) appreciate. After two years you can sell that house at the full appreciated market value and pocket all of that excess equity tax free. That's right...live in it for two years and there's no capital gains tax on your profit.
But back to your situation. When the guy has no equity (in this case upside down) and can't sell in a buyer's market your best bet is to keep looking, but stay in touch. If he runs out of money and starts falling behind in his payments (assuming his loan is current now...hint, hint...find out) then the bank will eventually foreclose. Now, my friend, you have a candidate for a short sale. You won't be convincing the seller to take a loss on his house. Instead, you will be convincing the bank to take a loss on the note.
How many liens are on the property? Is the 125K owed a first, or the sum of a first and second? Are the taxes current? Any municiple or machanics liens against the property? IRS liens? Collections? Do your due diligence.
If all he has is a first then don't expect a huge discount. But if I was going to live in it I'd try to get it for no more than 90K (about 80% LTV). Offer 60K or 70K and see if they counter, but don't go above 90K.
But if he has a second, especially for a substantial amount, then you're in business. If he owes 90K on a first and 35K on a second (90 + 35 = 125) then you wait for the foreclosure to begin. Contact the second and remind them that they're about to get wiped out by a foreclosing first and offer them pennies on the dollar. If you can discount the second to 4 or 5K then you've already knocked the price down to 95K...get to work on getting that first discounted!
The one thing about a short sale is that the owner gets nothing. You cannot pay him a cent or else the banks will bust a gasket. If you need to give the owner some money to get this thing done, then buy a piece of furniture or something at a steep price...something that won't draw attention.
There's so much to say here, but I had to compress it for brevity and time...I have to cut it off here.
Find out this guy's story...why he NEEDS to sell. Get him to sign a release so you can get the real numbers from the bank (or banks)...vital if he's behind in payments and the foreclosure clock is ticking. Get some title work done to see who has a lien against the property...find out who will discount or in some cases simply release their lien.
Hopefully someone more experienced than I will chime in and give you better advice. But that's my $0.02.
Good luck...and do keep looking for another deal 'cause this one may not be the one.
Start reading the posts on this website under the "Short Sale Forum" What you are trying to do is described there. It's the lenders that you negotiate with to discount the notes, after the seller acknowledges he's in a sinking ship.
You're not trying to steal the property from the seller, you're working with the lendeers. This type of deal often involves quick closings, and cash purchases but it can be very profitable.
Good Luck,
Jeff
Thanks for the advice. I'll continue my due diligence.
If the guy has a bunch of junior debt you may be able to work the short sale crunch. You go buy the first from the lender at full price.
You send notice of your intent to foreclose to all the junior debt.
You negotitate with the juniors for reduction in their principle.
Youv'e now sandwiched the junior debt between the first (which you own) and the title holder/seller. Needless to say this is not a good position for the junior debt
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Mark Reynolds[ Edited by JohnLocke on Date 03/31/2004 ]