Posted by Nate(DC) on September 11, 2003 at 12:09:34:
“Substance over form”
NT
Can I short-sale my parents’ house? - Posted by Scott Buchanan
Posted by Scott Buchanan on September 10, 2003 at 12:27:09:
My parents are 6 months behind on their mortgage (~$60K balance on property worth $100K) and facing foreclosure. His business is slow but he’s trying different things to improve it. They’re also considering bankruptcy.
I’ve thought about approaching him with a short-sale idea to help him out. They would need to stay in the home though. He’d like to refinance (currently at 9.25%) to drop his payment but no bank will touch it while he’s in arrears. I want to avoid transferring the bank’s problems to me and creating a problem within the family. At the same time I don’t want him to lose his home.
My idea (crazy??) is to short-sale the loan to $35-40K, get a new first mortgage and let him make payments to me. I could amortize him on $50K with a 5-6 year balloon so I get out once his credit is good enough to qualify. That saves him $10K on the current loan, drops his payment, gives him time to clean up his credit, gives me a small monthly spread and a $10-15K profit for the work.
Should I do this? Am I just asking for trouble? Is there a way to do it that would head off a lot of potential problems? Thanks for any insight you can provide.
Scott Buchanan
Re: Can I short-sale my parents’ house? - Posted by Marc NJ
Posted by Marc NJ on September 11, 2003 at 21:30:39:
What gives you the impression that the bank will approve a short payoff? Is the property in a bad condition. There 40K in equity, banks are not just going to entertain a S/S without motivating factors. The bank will also do thier due diligence, to determine if they will short thier payoff.
Unless the property is in need of seriuos repairs,my recommendation would be to have your father sell the property to you, you or some other sibling, take out a new first mortgage.
Hope this helps,
Good luck,
Marc NJ
Re: Can I short-sale my parents’ house? - Posted by Brian
Posted by Brian on September 11, 2003 at 08:56:43:
While all of these reasons are valid. The main point that needs to be considered is that in most states, this would be considered illegal. You would be circumventing the foreclosure process by allowing them to stay in the home. Just my $.02
Let me clarify the value #'s - Posted by Scott Buchanan
Posted by Scott Buchanan on September 11, 2003 at 07:46:48:
I apparently need to clarify the home value #'s in order to get some more useful information. The $100K value figure I gave in my first post is an “after repair value” and in no way represents what their home would sell for on the open market. Their home is a perfect short-sale candidate from the standpoint of pictures making the case. It’s one room after another of unfinished projects and piles and piles of junk. Truth be told, they’d likely be better off to throw everything away and start over somewhere else anyway. Their hardship letter would also paint an excellent picture supporting the short-sale.
Repeating myself, I have no doubts of this home and their situation as a short-sale candidate. I don’t need help on the mechanics of the short-sale except for the complication of having the same last name as my parents. What I could use some advice on is whether or not I should do it and what my course of action should be once I get the short-sale. Thanks.
Scott
Re: Can I short-sale my parents’ house? - Posted by B.L.Renfrow
Posted by B.L.Renfrow on September 10, 2003 at 18:51:06:
Despite the fact that the current “hot” topic in creative real estate is short sales, it’s certainly not an answer to every problem, and definitely not this one. As Ken says, why on earth would the bank accept a short sale offer when they are owed only 60 percent of FMV?
Answer: they wouldn’t. They’d tell you to go pound sand, once they stopped laughing. If you were the lender, would that offer make financial sense?
Even if your proposal had merit, would you be prepared to foreclose on and evict your parents if they couldn’t pay?
Instead of this crazy short sale idea, I’d consider one of the following:
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If family members have the resources to make the back payments and help with the payments until your parents get back on their feet, that would be ideal.
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If not, they should probably list the house for sale immediately at a discount and find more affordable housing.
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If they have reasonable expectations that their financial difficulties are only temporary, and that their business really will improve, they could file chapter 13 bankruptcy, which would allow them to pay the arrears over time. But, they would still need the ability to make their current monthly payments.
If they do none of the above, they WILL get foreclosed on and lose the home. It’s only a matter of time.
Even though it may be emotionally devestating, it sounds as if their best option would be to get rid of the property and find something they can afford. I can’t tell you how many people end up holding out until the last minute, thinking a miracle will come around and save their home, then they get put out on the street by the sheriff. It’s not a pretty picture. They should immediately take action and do something, while they still have options. If they’re six months behind, it’s not likely they’ll be there much longer regardless.
Brian (NY)
Re: Can I short-sale my parents’ house? - Posted by Ken (in Iowa)
Posted by Ken (in Iowa) on September 10, 2003 at 14:27:32:
Scott,
Why would the bank accept $35-40,000 as payoff on a $60,000 loan against a property that is worth $100,000? (Your numbers.)
Banks don’t just lie down for us to trample on them - there has to be an overriding reason or reasons for them to accept a short payoff. Perhaps there is a good reason that you did not state, but the mere fact that your parents are behind won’t cut it. The bank comes out whole when they foreclose on a $60,000 note and the property can be sold for anything over that plus their expenses. With $40,000 to play with (difference between $100k & $60k), I think they’ll be okay.
Just my thoughts,
Ken (in Iowa)
Moreover, … - Posted by Scott Buchanan
Posted by Scott Buchanan on September 11, 2003 at 11:53:51:
The whole spectre of “illegality” you’ve thrown up is irritating. The reality is that once the bank has agreed to a short-sale of the property and has closed on the sale, what say do they have in what I do with the property down the road? Who are they to say who I rent or sell it to down the road? In a year’s time I could simply choose to GIVE the property to my parents and forgive their debt entirely. Even if the bank followed up on the transaction (which they never would) and saw a deed transfer recorded what would they do? They would have already sent a 1099 to my parents for the deficiency. Would they withdraw the 1099 (is that even possible?) and pursue the $20K loss in court? If so, based on what? How did I or my parents attempt to defraud them of the $20K? Were the comps provided fraudulent? Were the pictures of the house and contents fraudulent? Were the repair quotes obtained from contractors fraudulent? Was the letter describing their circumstances fraudulent? No. I believe your assertion of illegality based on the fact they’re allowed to stay in the home is baseless.
Scott
I believe you’re incorrect - Posted by Scott Buchanan
Posted by Scott Buchanan on September 11, 2003 at 11:33:27:
My understanding is that the seller can receive no proceeds from the sale of the home as shown on the HUD-1 closing statement. Since that would be the case and since my parents would no longer have an ownership interest in the property what’s the problem? Where is is written they can’t purchase the property several years down the road when they’re more able to qualify for a loan?
Scott
Re: I believe you’re incorrect - Posted by Brian
Posted by Brian on September 11, 2003 at 14:27:04:
Scott,
I appologize for upsetting you. I was just responding to your request for answers and advice on your post.
I hope that things work well with your situation.
Brian