Posted by rayrick on May 03, 1999 at 13:31:55:
You may perfectly well be right, Jim. This guy says he’s got a lousy job that’s been working him to the bone for 17 years. His kids have moved out. A family member offered him a much better position in Florida and he wants to move down there. True or not true, your guess is as good as mine. I’m getting less trusting every day. Anyway, as I said, I’m done with this one.
-Ray
Is a short sale the way to go for these people? - Posted by rayrick
Posted by rayrick on May 03, 1999 at 10:26:15:
I had a rather depressing little appointment with some sellers last night. Seems some shifty mortgage re-fi co. did a re-fi with them last summer and gave them 98K on an appraisal of 124K. Turns out the house is only worth 70K. The appraisal was flagrantly fraudulant. Now these people want to move and they’re upside-down 20K+. They’re falling behind on their payments, but are not yet in foreclosure.
What’s the best option for these folks? I read a little about short sales below. What steps would they need to take to initiate this process? Would a realistic appraisal help their cause? The bank that got stuck with this piece-of-cr*p mortgage is going to be looking at one gnarly piece of REO if they take back this one.
I’m not looking for deal suggestions here, I just feel bad for these people and told them I’d ask my “panel of experts” for suggestions. Thanks a lot.
-Ray
Re: Is a short sale the way to go for these people? - Posted by Laure
Posted by Laure on May 04, 1999 at 04:17:45:
Hey, now… I’ll just bet these folks had fun spending all that extra cash ! You, know, they got their money, nobody stole it from THEM… The bank is the one who is getting ripped with the inflated appraisal.
Laure 
Short Sale - Posted by Sean
Posted by Sean on May 03, 1999 at 17:27:23:
This house is probably not going to fly for awhile. I’d say give the people a realistic offer based on what’s going on, have them submit it to their lender for approval and don’t give it much further thought.
Just make sure they have your phone number. It might very well be that 3 months from now when foreclosure is in full swing that the bank may be a lot more interested in your offer.
Re: Is a short sale the way to go for these people? - Posted by Jim Beavens
Posted by Jim Beavens on May 03, 1999 at 14:14:01:
This may or may not fly, and you should definitely not be the one to take this house off their hands, but it’s something for these folks to consider.
I’m actually in this same situation myself, however I purposefully took out a 2nd mortgage on my home for more than it was worth to fund the purchase of the two small apartment buildings I own now (this was after 5 months of negotiation back and forth when the seller finally said he would carry a wrap mortgage if he had more cash, and I figured I might as well take advantage of my credit and some lenders’ stupidity in making >100% LTV loans ;). I mentally differentiate between my two mortgage payments such that one is for my house, and the other is for this investment, thus this investment should cover the 2nd mortgage payment. Even if I sold this house, I would consider the money I borrowed for this investment to remain my responsibility.
Of course, the question becomes, how could I sell this house and not have to come out of pocket to pay down all the mortgages? The answer is a lease-option. I could rent my house on a lease-option at a reasonable rent to cover my first mortgage payment, and make the option price significantly higher than market (say 15-20% rather than the normal 5-10%). Selling on a lease-option when the deck is stacked against the buyer exercising their option may border on unethical, but as long as the rent isn’t unreasonable, then I personally don’t have a problem with it.
So in the case of your sellers, they should expect the sale of their house to only cover whatever mortgage payment a reasonable LTV loan would have. If they previously had borrowed $50K on this house and their mortgage payment was $400, and now their mortgage payment is $750, then they should expect to come out of pocket $300-350 a month even after selling this house. If they can’t grasp this concept that a big mistake has been made, and they’re partly to blame, therefore they should take responsibility for it, then the only other alternative is a short-sale. But if they were willing to take a big enough cut in their lifestyle so they could pay $300 a month on top of their new housing payment, then they could sell this house on a lease-option at a $98K strike price and at $400-450 rent, and pay the difference on the first mortgage.
Obviously you would never buy this house at a $98K option price, but they may find a renter or buyer themselves who either has no intention of buying, or who’s credit is shot so bad they’ll pay any price to get into a house (the former is far more likely). How much time you want to spend educating them on this is your choice, but obviously you shouldn’t spend much time if you’re not making any money (perhaps a small fee could be arranged for advising them, or maybe you could go ahead and sign the lease-option contract with them, and make it contingent upon finding a new tenant/buyer. When you do, simply assign the lease-option to them for a fee).
Just some random thoughts…
Re: Is a short sale the way to go for these people? - Posted by Redline
Posted by Redline on May 03, 1999 at 12:13:48:
RR, like Piper said below … don’t waste too much time on this one.
What they should do is … have them take pictures of the place … (preferrably the spots that need work, make it look kinda shabby) and send them to the mortgage company and talk to them about a short sale. The bank MAY take another look and if you’re correct in your assessment that the house is worth WAY less than the mortgage - they have a good chance to cut a deal. Right or wrong.
RL
Re: Is a short sale the way to go for these people? - Posted by JPiper
Posted by JPiper on May 03, 1999 at 11:38:00:
Ray:
Just a few thoughts for you to consider.
It really stretches my imagination that the only parties responsible for this situation are the lender and appraiser. Give me a break. Do you really believe that the borrower had NO idea of what his house was worth? I doubt it.
The borrower managed to borrow more than his house was worth, with the cooperation and aid of a mortgage broker and appraiser. He received the proceeds of the loan. Now you want to call him a victim? Let me remind you that the loan application process would have required the borrower to qualify for the proposed mortgage payment, based on his income. So why isn’t he paying? He did present his income accurately didn’t he? Or was he in collusion with someone?
Let’s call a spade a spade. The borrower got the money, and now doesn’t want to pay. He was helped to do this by a mortgage company and their appraiser. Personally, I have no sympathy for any of them. I do have some sympathy for whoever invested their money in this situation, and is about to lose it.
The advice I would give the borrower is to stay where he is?.pay for what he borrowed. The advice I would give you is to not waste your time being overly concerned for this borrower. Move on to something that will put money in your pocket.
JPiper
Re: Is a short sale the way to go for these people? - Posted by phil fernandez
Posted by phil fernandez on May 03, 1999 at 10:40:39:
Hi Ray,
Appraisal of $124,000 on a house worth $70,000. I’d pin the blame on the appraiser. See if your owners still have their appraisal on the house and from it take a look at the comps that were used.
Not the bank… - Posted by Sean
Posted by Sean on May 04, 1999 at 08:38:04:
I’m betting Fannie Mae is the one that will foot the bill.
Re: Good Advice, Sean (amended) - Posted by NJDAVE
Posted by NJDAVE on May 05, 1999 at 09:05:56:
The distressed homeowner could spend a few dollars (on an appraisal and cost benefit analysis) to help with the short sale proposal if only to expedite the transaction and preserve their creditworthiness by avoiding delinquency, default, and foreclosure.
Re: Good Advice, Sean - Posted by NJDAVE
Posted by NJDAVE on May 05, 1999 at 09:04:45:
The distressed homeowner could spend a few dollars to help with the short sale proposal if only to expedite the transaction and preserve their creditworthiness by avoiding delinquency, default, and foreclosure.
I tend to agree. - Posted by Sean
Posted by Sean on May 03, 1999 at 17:17:06:
These people agreed to refinance and to pay that mortgage. Regardless of what the property is worth they signed, accepted the money and now (if they are people of character) they should pay.
If I were giving them advice I’d tell them to put a tenant in there, accept the negative cash flow, move to where they want to go and pay their debts.
However, we’re giving advice to Ray. In that case, I’d say Ray’s best bet is a different house.
Re: Is a short sale the way to go for these people? - Posted by rayrick
Posted by rayrick on May 03, 1999 at 12:45:57:
Your points are well taken, Jim. I don’t think there’s any question that these folks hung themselves; the lender just provided the rope. I do think they are sincere about having had no idea what the place was worth- they have owned it for many, many years. The fact is they needed the money, someone was stupid or unscrupulous enough to lend it to them, and now they’re up a creek. I do not absolve them for their role in the matter.
I do have SOME sympathy for someone who is looking to change their life situation, genuinely believes that all they need to do is sell their place and move on, and then has a couple people walk into their living room and tell them that sure, they can sell their place, all they need to do is bring a check for 20K to the closing table.
As far as my own involvement, I gave them a call, let them know about the short sale option (they have just hired a realtor who told them the same thing) and I’m done.
As far as the lessons I took away- watch out for those re-fi appraisals, they do not necessarily have ANY relationship to FMV.
-Ray
Re: Is a short sale the way to go for these people? - Posted by Redline
Posted by Redline on May 03, 1999 at 12:11:30:
Piper - that’s one way to look at it! I mostly agree with what you’re saying … and I wouldn’t want to waste my time with it either …
but there certainly are people out there that are as DUMB as the day is long … and they really don’t know what their house might be worth. They figure “well, the mortgage company and the appraiser are professionals and they must know more than me!”. They don’t get it until they try to sell. And half the time the proceeds of the loan were used to consolidate other debts so that money is gone - meanwhile the credit cards have been charged back up. Sad situation.
RL
Re: Is a short sale the way to go for these people? - Posted by rayrick
Posted by rayrick on May 03, 1999 at 10:48:14:
I agree that the appraiser is the most culpable party here, though I have little doubt that they were working in collusion with the mortgage co (funny how that number came in just high enough that the home owners could take on all the debt they wanted and the loan would still be 80% LTV)
What would the homeowners do with that info, if they had it? I recently re-fied my house and I had to bug the company for weeks to get my appraisal out of them. Money says these people don’t have theirs. Anyway, I’m just wondering what their next move would be if they did.
-Ray
Re: Is a short sale the way to go for these people? - Posted by JPiper
Posted by JPiper on May 03, 1999 at 13:00:48:
You’ll notice they ONLY want to change their lifestyle AFTER they received the loan proceeds last summer.
Chances are also high that even if the lender agrees to a short sale (questionable), the borrower’s only change in lifestyle is going to be moving to a rental, with an outstanding tax bill due on the amount of the loan forgiven.
JPiper
Re: Is a short sale the way to go for these people? - Posted by rayrick
Posted by rayrick on May 03, 1999 at 12:48:32:
You nailed it, RL. That’s these guys all over.
-Ray