You must be dealing with Lenders in short sales that are way more forgiving and generous than I have ever seen.
I cannot imagine ANY Lender that would grant a discount of 25K or so, and let the property owner walk with 50K. Just isn’t going to happen as long as the Lender knows all the facts. Then by concealing some of the facts, (aka showing them bogus figures) is certainly fraudulent, and not worth the risk at any profit number.
Are you the same Micheala that used to be in Georgia?
Hey, couldn’t this guy buy the house on a short sale, and then at a later date, partner with the seller so the seller reclaims 25K worth of ownership in the property? (whatever that percnetage of value is), when Brian resells, the former owner collects. About as difficult as any portion of this situation, huh? Brian, you’re saving this guy from fclosure, that should be worth 50K on its own.
K
First of all, 350k in as-is condition may actually be conservative. I will not need to put 25k worth of work into this house in order to get 350k. House is in Seattle and doesn’t need any work except about 5k or so. House also can be subdivided.
The owner wants to net at least 54k. This is not negotiable.
The house, the way it sits, is subdividable. With the house only, it’s worth about 280k. The extra lot is worth about 130k to 150k after you finished with the shortplatting process. The agent doing the BPO may not be aware of the fact that it is subdividable and thus may value it lower than its true value.
In your example, I would definitely give my bank/employer all the 25k. As an employee, I’m bound ethically and legally to serve my employer and act in good faith to protect my employer and my employer’s interests.
However, in a short sale case, I have no relationship with the bank other than being someone trying to negotiate a discount. As the result, I’m not bound by any employer-employee relationship. So the two cases are different.
Let me ask you this. Supposed you lend 100k to someone to buy a house. Your loan is secured by 1st mortage and the house was worth 130k. Some time afterwards, the owner found some toxic molds along with a lot of other things which make the place inhabitable and thus cause its price to decrease drastically. An investor offered to buy the house for 70k. Upon receiving his short sale offer, you went and researched the property and found that it’s worth no more than 75k. So you grudgingly but happily accepted his 70k offer.
Before closing, the borrower called you up and apologize for the mishaps and accidentally informed you that the investor plans to give him 30k to move away. What would you do when you find out? Would you continue to be happy and accept that 70k or would you call up the investor to cancel the agreement which you happily agreed to before?
We all want to make money, and it’s not a bad thing to ask questions and investigate creative alternatives & their legality.
Here are some additional thoughts, for what it’s worth.
From the info posted, the seller seems to have enough equity to cover his desired cash out and pay off the bank plus cover other costs, possibly even some carry. Legality discussions aside, I’m not seeing any incentives for them to consider a short sale. It appears that only you would benefit from this.
Your ability to flip the property would be a benefit to the seller in a time crunch situation, but the bank still has little incentive to take less when there is equity available. So your flip profit margin may be limited to the sans short sale numbers.
Re: Giving Seller huge money back after short sale - Posted by michaela-CA
Posted by michaela-CA on June 26, 2007 at 12:49:02:
which investor in his’/her right mind would buy a flip like this. It’s enough that you’re tyring ot justify it to yourself, but now you think you’ll be able to convince others to help you in this fraud for something that’s not even a deal?
It has happened many many times. 99% of the time with small thrifts, Credit Union’s and private people holding 2nd mortgages. Sometimes it happens with 1st mortgages. Bank of America will discount a 1st where the borrower has been discharged and the loan is in foreclosure. Ditech also discounts their 2nds in the same manner.
There are a number of “vulture funds” out there buying bad 2nds from the big lenders. They will discount their payoff many times in a pre-foreclosure situation.
In the scenarios I describe above, the lenders dont ask for a HUD and don’t care to see one, they give you a date to get the funds to them and fax over a payoff letter describing the same. So, these are not “short sales” per say.
Re: Giving Seller huge money back after short sale - Posted by michaela-CA
Posted by michaela-CA on June 25, 2007 at 21:01:18:
Yep, it’s me, the one and only. Purple mohawk and all
Personally, I wouldn’t touch this deal. Not enough profit. Well, if he has all cash and it’s really a hot seller’s market and there’s no financing involved and there’s really only 5K in rehab (have never, ever seen that in all the years in the business, that someone gets away with only 5k). But with that added illegal stuff - not for me.
I’m not a novice at this. I buy about 15 houses a year. This year it is going to be 22 houses or so. I haven’t lost on 1 single deal ever since I started doing this.
I should not have to justify how much I can flip this for to you. I just want to know if there are ways to get around the situation. Don’t get too technical with me in term of the numbers. You have your own criterium in term of what you would consider a deal. I have mine.
As for my object, one way I have been able to find out, which I have done before, is to buy the note at a discount.
is $1k for a $60k 2nd mortgage that was about to lose their interest in a property due to a 1st foreclosing.
It was with Beneficial / HSBC mortgage, no HUD required, they just faxed a payoff letter stating it had to be paid 30 days from that date. Borrower had been discharged in bk 2 years earlier.
Re: Giving Seller huge money back after short sale - Posted by Kristine-CA
Posted by Kristine-CA on June 25, 2007 at 23:17:24:
Brian: you’d only have to be the lender once to get an idea of what it
would be like to be a lender that is asked to agree to short sale. The
short sale package will contain all kinds of biased info about value–
lenders are used to that. But the info the borrower/seller provides is
supposed to paint a picture of inability to pay.
If you found out after granting a short sale that a borrower got 50K
through an arrangment with a buyer, wouldn’t you think the borrower
was stealing from you? How hard is it to put yourself in the lender’s
shoes? IMO the scenario you describe is the the new post-subprime-
fallout collusion.
I can’t speak about the legality issues and if what you are proposing
constitutes fraud. However, it’s not honest. Kristine
If you defraud a bank or engage in an illegal kickback to the seller at the bank’s expense (i.e., they grant a short sale and you pay more than the difference back to the seller), the word for it is fraud. Be aware that for fraud, jail time is a very real possibility.
Before granting the short sale, a BPO is peformed at the lender’s request to determine the value of the house. Only after getting the BPO that the lender decides upon what they would settle for.
I sincerely feel that if I’m in the business of lending money and also has a chance to evaluate a house before accepting a short sale offer, any negative result from this transaction ultimately is my responsibility. Of course, the borrower must not conspire to cheat me by sabotaging/destroying the house to bring down its value. Naturally, I never asked any seller to destroy any part of the house other than leaving it a little messy.
Finding reasons to do something just because you want it and to hell with those that get in your way is lacking in maturity.
If everything is above board and honest and legal then there would not be a need to play games.
As for your statement if you were in the lending business you would do it. The fact if you were in the lending business and it was your money I know, yes I know, you would quickly change your opinion. And if you were handling other peoples money I would expect you to do it properly.
The most direct way to do this honestly is to buy the note at discount and then you can be free to give as much money as you want to anybody. But if someone owed me a lot of money and wanted me to forgive the debt so they could put $50k in their pocket, you know where I would tell them to put it. And if an employee of mine allowed it, they would be an ex-employee.
You want the lender to give this guy the money, why don’t you just give it to him yourself by paying off the lender, you want to be a big spender with the lenders money, why not be a big spender with your own.
If you really want this guy to have $50k, then just give him $50k, oh I’m sorry, you don’t want to give it to him, you want someone else to give it to him.
First of all, I have a valid and sincere concern. If I truly wanted to give the money regardless of who says what, I wouldn’t have asked this question. I just want to find a legal and “graceful” way to do this.
I don’t know about you but I honestly would make my decision based on well informed researches and analyses instead of who gets what. So if I’m a lender, I would definitely rely on my resources and knowledge to determine if the discount would benefit me or not and nothing else.
So to you, if you’re buying the note at a discount then you have the right to give the owner whatever you want. That’s ok? If the lender, upon selling the note to you, find out that you ended up giving a chunk of money to the seller/borrower, would they be happy? Note discounting and short saling is pretty much the same concept but each is simply done using a different method. I see contradiction in what you’re saying here.
I don’t know how experienced you are but you care too much as to what people get out of something instead of what you can get out of it.
