Advice On An Unintended Short Sale
Folks,
Need advice on a property that we were about to close. We made an offer on a 4-plex that we thought was just a regular property for sale. However as escrow company digs deeper, turns out the seller hasn't been making any mortgage payments or HOA fees since he got the property 18 months ago.
While we still try to figure out who it is to blame to get into this situation (perhaps we should have demanded to see that HOA and mortgage bills are current), we're now in uncharted waters of dealing with the seller's mortgage bank. I was told that this is now a short sale, a situation I'm still trying to grasp.
While we were gonna pay near full FMV in the original contract, we understand that now the property would run the risk of losing tenants (since the seller obviously just takes their rent and neglects the building). Should we make a new, *lower offer to the bank? Would they try to deal?
I read somewhere that a bank's minimum line is about 70% of FMV. I know that even if we reduce our offer by 10%, the bank is still getting more than that number. We already have down payment in escrow, as well as funding from our new mortgage (which is expiring but could get the doc's re-drawn). Would that motivate the bank enough to deal?
FMV is 257K
Original offer is 250K
1st Mortgage owed is 228K
Thanks,
Dave
How about HOA fees? Property taxes?
Do you have an appraisal that suggests the FMV, or is this an educated guestimate?
the FMV of 257K is based on appraisal that we paid for as part of the mortgage process.
1st mortgage is 240K (with interest, penalties, etc.)
HOA fees and other total another $19K
So bank was gonna be out 9K assuming my original offer. The question is would the bank be willing to take less.
Thanks,
Dave
You certainly won't be able to close without one of three things happening.
Either the Seller will have to bring $9,000 to the closing table, the mortgagee would have to be willing to accept less than it is due, or you would have to be willing to an increase in purchase price.
It's possible to effectuate a mortgagee approved short sale. The Seller will have to request an application for short sale consideration. The Seller will have to qualify for short sale relief.
Obviously the seller being a deadbeat wasn't able to bring $9K to close. So now yes the bank and the seller are working on a short sale and I guess the bank would have to take a loss of $9K as it stands.
Would this be classified as a new sales contract, since I'm now dealing with the bank directly? If so, what's the likelihood of negotiating a lower price with the bank, since it's still well above the minimum mark they would accept for a foreclosed property? Would I legally be allowed to back out of this altogether if the bank balks at anything other than the original offer of 250K?
Thanks,
Dave
The mortgagee can only respond to an offer that the seller submits... at least in theory. So you are not actually 'dealing' with the lender.
You would have to revise the contract between you and the seller to reflect the proposed transaction. The seller would then have to present the offer to purchase along with his application for short sale consideration. In your accompanying Proposal, you should devise a compelling argument as to why the lender should accept an amount less than they are due.
Hmm... If I'm still dealing with the seller would I be within my legal rights to revise the contract? There should be provisions on the contract that let me back out when it's become a short sale or seller couldn't fulfill his obligations, right?
Thanks,
Dave
It should be clear to the Seller that he can't deliver title... so he'll have no problem amending the Contract.
Just make the revided contractual terms/price subject to mortgagee short sale approval.