L/O - Posted by Curt Darragh

Real Estate Investing
1

Posted by Ed Garcia on March 09, 2000 at 18:45:36:

Chris’

You are correct in regards to the fact that, it wouldn’t make sense to request
a short sale when the value of the property is more than the loan amount.

Chris, as far as the IRS portion of your question is concerned, that’s an
excellent point. I personally was involved in a discounted loan which would
be similar to a short sale, and I had to pay what they call PHANTOM income.

That means, the difference that you have taken off of your loan, will be counted
against you since you get the credit for that difference as INCOME.

In my case the lender 1099ed me.

Chris, a short sale could be considered if the loan amount was more than “Market
Value”, and the borrower was a good borrower who could show that they were in
distress on their loan.
The concept for the lender is, rather then to foreclose on the existing borrower who
has in the past showed that they have preformed on their loan. To give them a
second chance, buy adjusting the loan to match the market value. The lender would
of had to do that any way if they foreclosed on the property, in order to remarket it.

A lender would never consider a short sale on a lease option, PERIOD.

Banks do not do lease options of foreclosed properties.

The reason is, when a bank forecloses on the property, they have to post a reserve
for that amount, which would count against their capitalization.
Remember, banks are not in the real-estate business. If you ever notice, a bank will
not even fill a vacancy as a rule, they leave that option to the next buyer.

As far as determining if it’s a short sale or not, the bank will comp it, and have their
appraiser do a drive by. In this case a bank has no reason to do a short sale.

Ed Garcia

2

L/O - Posted by Curt Darragh

Posted by Curt Darragh on March 08, 2000 at 12:51:30:

I’m currently working on a Lease Option with a couple who’s moving out of state in June. The property is a vacant rental they own. I set up the L/O as follows: Purchase price $72,000, rent $859 (their mortgage payment), $100 rent credit, nothing down & a $7,000 repair credit, cash at closing $65,000. The property is a 3/1 comps for the area are $75,000-$80,000. The sellers were fine with the terms the problem is it seems they are behind on their payments and the $65,000 at closing is lower than the current mortgage balance (they’re requesting a short pay). Their attorney reviewed it and made some changes before submitting to the bank. I haven’t seen the changes yet, my question is does anyone have any suggestions for restructuring this deal. I doubt the bank is going to go for an assignable, sublettable L/O? I appreciate any ideas!

Curt

3

I’ll Eat My Hat… - Posted by JPiper

Posted by JPiper on March 08, 2000 at 20:46:06:

What do you mean “their attorney made some changes and submitted it to the bank”? Were these changes agreed to and signed off by you? This is what is more commonly known as a “counteroffer”, and there is not binding on you until you accept it in writing.

Second, I’m wondering why you are submitting a lease/option to lender who has a loan in default. I’ll eat my hat if that is accepted!

Third, I can think of NO good reason to enter into a lease/option with someone in financial difficulty, someone who you will need to perform somewhere down the road, a financially distressed person who is leaving town.

You need to get the deed, one way or another…and to make that fly you’re going to have to buy considerably cheaper than your current offer.

Let me know if I have to eat my hat.

JPiper

4

Re: L/O - Posted by Bill K. - FL

Posted by Bill K. - FL on March 08, 2000 at 13:43:07:

Hi Curt,
You failed to mention their current balance and how much it would take to bring them current. Look to your new buyers for enough $ to reinstate mtg. and be willing to adjust your purchase price if that would make sense. You probably can make this work as long as they are not upside down in the deal and aren’t too far behind.

5

Re: I’ll Eat My Hat… - Posted by Amillio

Posted by Amillio on March 09, 2000 at 05:11:16:

Mr Piper.

Do you use salt and pepper? I have done many deals with banks through Lease Option Agreements! 7 to be precise .This is not unheard of.

6

Re: I’ll Eat My Hat… - Posted by GIO

Posted by GIO on March 09, 2000 at 15:16:19:

YEA PLEASE LET US KNOW SOME OF THE DETAILS, PLEASE
I once offered a bank a l/o deal but not suprising to me, it was turned down

7

Impressed … and Curious!! - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on March 09, 2000 at 09:31:41:

Amillio,

Congratulations on your use of a very unusual application of lease/options. I have enough difficulty dealing with lenders using straightforward purchase agreements much less attempting to structure a transaction with a lease/option!

Would you be willing to share some of the details of one or two of your lease/option deals with lenders? In addition to myself, I?m sure others who visit here would be interested in learning how you were able to convince a lender to use a lease/option.

Thanks in advance for any information you are willing to share.

Best of Success!!

Jim Kennedy,
Houston, TX

8

Re: Hold the Salt and Peper… - Posted by Ed Garcia

Posted by Ed Garcia on March 09, 2000 at 09:27:35:

Amillo,

each case is different. You may have done a lease option with a bank, but I doubt
under the conditions to which is indicated in Curt Darragh circumstances.

If you can show me you have, I’d like to know the details.

Here you have a borrower who is behind in their payments, are going to be moving,
and plan to go back to the bank and ask for a short sale, in order to do a lease option,
with a party that the bank didn’t qualify as a borrower.

I don’t think so.

First, the bank can’t cut any deals until they take control of the property.

Second, the bank would have to post a reserve for the lost of a short sale, with out
going to a realtor to test the market.

Third, your going to hook the bank into a lease option with out qualifying the party
who is doing the lease option.

No, No, No, somebody’s smoking AJAX. It will never happen, I agree with Jim Piper.

The bank will never post a reserve for a loss on an If, Come, Maybe.

Mr. Piper, you owe me one??.

Ed Garcia

9

Re: I’ll Eat My Hat… - Posted by JPiper

Posted by JPiper on March 09, 2000 at 08:05:26:

Goes to show, anything is possible. Just unheard of by me I suppose…pass the salt and pepper.

JPiper

10

Re: Hold the Salt and Pepper Piper… - Posted by Ed Garcia

Posted by Ed Garcia on March 09, 2000 at 11:07:00:

Hold the Salt and Pepper Piper??

Amillo,

each case is different. You may have done a lease option with a bank, but I doubt
under the conditions to which is indicated in Curt Darragh circumstances.

If you can show me you have, I’d like to know the details.

Here you have a borrower who is behind in their payments, are going to be moving,
and plan to go back to the bank and ask for a short sale, in order to do a lease option,
with a party that the bank didn’t qualify as a borrower.

I don’t think so.

First, the bank can’t cut any deals until they take control of the property.

Second, the bank would have to post a reserve for the lost of a short sale, with out
going to a realtor to test the market.

Third, your going to hook the bank into a lease option with out qualifying the party
who is doing the lease option.

No, No, No, somebody’s smoking AJAX. It will never happen, I agree with Jim Piper.

The bank will never post a reserve for a loss on an If, Come, Maybe.

Mr. Piper, you owe me one??.

Ed Garcia

11

Re: Hold the Salt and Pepper Piper… - Posted by chris

Posted by chris on March 09, 2000 at 16:16:36:

Ed-

While were waiting for Amillo to post back I have a semi-related question:

To make sure that I am on the same page, it is my understanding that a short sale is determined by the lender to be a defaulted loan that is of a greater
monetary amount than the current market value of a property. In other words, the owner gives the bank the
keys because the property isn’t worth the loan payoff amount.

Some time back on the topic of short sales there was mention of the defaulting borrower being able to get
the lender to not report to the IRS the defaulted loan
as income and the credit rating to not be affected negatively.

My memory is vague on the discussion so I would appreciate a refresher if you have knowledge of
any cases where the borrower got off without messed
up credit or reported income to the IRS for the forgiven loan. How did the owner arrange this?

Lastly, how does the lender finally determine that it is a short sale. Do they run comps or attempt to sell the property unsuccessfully over a certain period of
time at the defaulted loan amount or above?

-Thanks for the help, Chris