Short Sale
I have a house here that I have a question about.
Im going to negotiate a short sale but Im confused about where to start.
Info:
Amount owed- $196,000
BPO will prob come in about the same.
Repair cost -$20,000
ARV- $210,000- $220,000
Will sell quick at $180,000.
What sould I offer the bank? What is a good rule of thumb ? Another investor said I should offer $105,000. Seems Low . I dont want to waste a lot of time or have bank reject me and not take me serious.
Help...Thanks 
Is it an FHA?
My experience has been that the bank will take about 85-90% of the BPO. But the million dollar question, is what is the BPO market price? You do not know, so you should assume that it comes in low for your first offer.
Brenda
hello
thanks for your time...
yes..the assessors report says its an FHA.. does that make a difference?
Should I offer $140,000 then minus what I consider fair holding/closing costs?
Find out if the lender participates in the HUD sponsored pre-foreclosure sales program (PFS). If so, then there is a standard formula that they must net 82% of the BPO price. And they will tell you the BPO over the phone. So whatever you P&S price, all of a sudden the buyer backed out and the new buyer is almost exactly 82% of the BPO. Image that. But be careful of repairs. Repairs can not exceed 10% of the AS-IS value.
Brenda
Thanks Brenda...sorry but im still a bit confused. The standard says they need to net 82% but is that including repair costs or minus repair costs from the 82 %. I know I must sound ignorant but I want to get this right. I really do appreciate your knowledge. Thanks again.
Ray :
Hello ...thanks Brenda for your info.
I have another question. Can the owner sign a quitclaim deed over to me? ...well I KNOW he can but how will the bank react to this? The reason: Im getting closer to sale date and I kind of promised the guy he wouldnt have any liability ...he just want out. Is there another ( legal and ethical ) form of deeding the prop over to me so he wont be liable in case the bank refuses the short ? Im sure I can sell the prop in the near future. What effect would this have on the foreclosure that is already in place? Thanks...
Ray
thanks to all...Ill try and keep you posted .
Ray
Hello
Ok ok ...Im confused...I just met with the realtor in referance to the BPO. On this particular property it came in at $170,000. (From above) ...owner still owes $196,000.
The realtor told me that she has NEVER seen the banks short anything more $1000. She says I should offer the bank 150.000 Hmmmm wouldnt that be a mute point? That would take care of the attorney/ missed mortgage payments etc...and HER commmision...which is almost 12 k.
What should I do? I went there with the owner to get the property listed and walked out with a settlement sheet. Seems she didnt want to list it because she feels the bank would say no anyway.
If the BPO is $170,000 I would think offering the bank $110,000 - $ 120,000 is more on target. Help..
Should I be working with a different realtor? ....gosh Its so hard to find an experianced foreclosure person.
if a BPO has not been done yet you can influence the BPO by being there and pointing out the defects and presenting the estimates of repair on the property. When the BPO comes in it is for current value and you may offer 80% of the BPO value. THey will probably counter.
I just shorted one that is worth 200K and I got the first to 158.225 from 178K and the second to 4K from 18. A few fees and 1114 tax lien and I wholesaled it for 175K...
[addsig]
A decent rule of thumb that I use is that the bank will take 85-90% of the BPO. I usually start with an offer of 80%, but I have rarely gotten it accepted.
I am seeing a trend where alot of investors at least from what I have read is that some have used a wild west approach when submitting offers by lowballing based on what one would like to see as a profit on a SS using homemade formulas for caculating returns.
The fact of the matter is do any of you use a formula that Secondary market investors use to calculate loss ratios SS vs. REO? Do any of you consider how MI companies evaluate losses in conjunction with the amount of coverage on the non-performing asset?
Fannie mae and Freddie mac loans are generally insured in any where from 10% to 25% or more depending on what program the borrower is intending on using and what DUS or other underwriting machines are used that approve the loan through the originator. With that being said when a asset is in foreclosure immediately the asset is monitored to reduce as much loss as possible or capital loss.
The loss mitigator is nothing more than the dept. that represents the investor and/or MI company who really has the decision power of accepting a loss.
So to give my 2 cents on this basically if a loan is in default and a buyer willing to procure a sale through SS channels, we must look at an important factor. what is the MI coverage on the loan...?
20% ok well if a home that has a "as is value" of 100K and the loan balance with arrears and fees is 100k well we no that the investor (Fannie Mae/Freddie Mac) is potentially willing to accept a loss of 20K if in fact if the MI company approves, by all means its not the investor losing money its the MI company at a loss. Lets calculate repairs in the equation...if there is 10k in repairs needed then better be damn sure you have a proof and documented justification for this reduction cause now the investor is losing out now. Obviously market conditions come in to play as well as offers coming to the table. we all know investors are not willing to hold these assets as REO but keep in mind if the loss of the SS is greater than holding for REO you will most likely be rejected or countered. So if some of you are shooting from the hip without understanding formulas the investors use and you are most likely never gonna close a transaction. There are exceptions to this rule, especially in MH land packages and run down SFR but for the most part its pretty standard operating procedure. Now subprime investors are a different animal in itself with different set of rules as well as FHA/VA as mention in the above response...Any responses in reference to this reply?
I have done maybe 14 short sells in the last 12 months. I am not discounting what you are saying, and I would love to learn more - but my experience when it is not an FHA, is to put an offer in for 80% of the BPO. The rep then counters and we start the negotiation. The reps are usually pretty blunt about the numbers that they are looking for and they usually tell me a ball park of what the BPO came in at. The rep will try to get the most that they can for their investor and they relay heavily on the BPO to make that decision. Maybe it is because the FL market is so hot that they know properties are selling at the auction almost for retail and the REO market will get a contract the first day.
Hello all...
Wow...I am very grateful for the very informative responses. I am learning a lot and I WILL take all this information and put it to use. Please feel free to share more detailed information especially about the rules/regs of all types of lenders - eventually we will all want to know how these enities work.
I am new to this aspect of investing and you dont know
( or maybe you do ) how grateful we begginers are for you folks stepping up and giving a helping hand. Thanks again...one and all...look forward to learning more. Ill keep you posted.
Ray..
That is very good point nickel, FL is very hot and contributes to alot of what I mentioned in my previous post in regards to the market....
Hello all..
I appreciate your patience with me...I have more questions..
1. The realtors are saying that the HUD -1 are to be filled out by a lender or title company. I was under the impression the we ..the investors filled them out. Who does?
2. I had a busy day with contractors giving me written estimates for the repairs. When I make my offer based on the MI on the loan and the BPO it will range somewhere between 20 - 35 % of the BPO. Do I then subtract my contractors estimate amount from that number ? Say contractors estimate of repairs is $15,000. (Eg. for simplicity sake --- BPO= $100, 000 minus 20% = $80,000. Do I also subtract the $15,000 also leaving $65,000.) OFFER = $65,000????
Please if you can show me an actual example that you have actually done....by the numbers... What it looks like.?
3. On the HUD-1 is their any specific info that I need from the bank to actually prepare it acurately? ( besides the usual of realtors fees - back payments - atty fees...etc?
4. What is the most important factor in preparing the HUD-1?
Thanks ...very much..
Ray
BTW...
I forgot to mention that when I was at the subject property today a man came up to me asking if he could buy the house. I was busy and didnt think about the situation MUCH... but.... I think I already have a BUYER !!
In reference to the short sale ..if I were to be so lucky to have a buyer at hand Is there anything that I should do differently or take into consideration when dealing with the bank...Help...
To moflow
Very interesting post. Could you explain SS on 2nd mortgages/liens? How you approach them? How do u justify your offer to them? What the magic formula if there is any? How do they operate and decide what kind of discount they are willing to give you.
Thank you for taking your time to answer!
AS