Posted by Tim (Atlanta) on October 30, 2001 at 11:35:39:
I have seen the terms used interchangably. The technique I was explaining was buying the underlying mortgage from the mortgage holder for an amount that is less than the face value. Thereby I would call it discounting the mortgage. I am unsure of what a short sale (as others refer to it) is.
Possible Short Sale? - Posted by Dan
Posted by Dan on October 30, 2001 at 07:00:53:
I have a very motivated seller with a brand new house. The guy is living across the country and his tennant moved out and left the house “slightly trashed.” He has paid to have the repairs made and is now wanting to give up the deed and get totally out of it.
The problem is has two mortgages on the house. The first is for $199K and the Second in for $35K. He is paying over $2,000 per month on the house, which is about $700 more than the house will rent for. He had the house listed for $249K, but is not getting any interest. He can’t afford to lower the price, because he doesn’t have the cash to pay the agent… The house has now been vacant for 7 months and he is desperate for a solution.
Would a solution for this be to get the deed and do a short sale with the bank? Although I’ve never done a short sale, I understand that the bank may take pennies on the dollar for the 2nd and may come down on the first.
To do a short sale, how does the process work? Do you contact the bank first to see if they will agree to the short sale and then get the deed, or do you get the deed first and then contact the bank?
Any thoughts would be appreciated!
another short sale tale… - Posted by David Krulac
Posted by David Krulac on October 31, 2001 at 20:21:40:
Short Sale - Posted by David Krulac
Posted by David Krulac on October 31, 2001 at 20:17:26:
Dan,
A short sale IS different from a discounted mortgage.
Either might work for you in this situation.
The 1st thing I would do is determine what this puppy is worth? Is there any equity for the 2nd? You will be in a stronger position with the 2nd holder if you are armed with the facts. If you can demostrate that an unbiased evaluation, whether through your research of comps or an independent appraisal, shows that there is no equity for #2, you strenghten your bargaining position. They might walk away for a nominal or little amount.
I just had a mortgage holder give me a release on a $1.2 million dollar mortgage for free. total cost to me was about $250 to a title company to call the mortgage company explain the situation and prepare the release. it was money well spent!
This was different from discounting the mortgage. I did not buy the mortgage and the mortgage is still recorded at the courthouse. I just got a release for the property that I was selling.
good luck
David Krulac
Short Sale Synopsis - Posted by Carmen_FL
Posted by Carmen_FL on October 31, 2001 at 14:32:32:
I put a short-sale synopsis in answer to another post:
http://www.creonline.com/wwwboard/messages/59094.html
It’s pretty long, but it summarizes the steps I normally take.
Saludos,
Carmen
Re: Possible Short Sale? - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on October 30, 2001 at 10:44:28:
See my response to Eric W. a page or so down from here for some more pointers on short sales.
What you want to do is get the property under contract so that you aren’t wasting your time with the bank. Make sure you have a weasel clause about satisfactory negotiations with the bank. You do not want to end up stuck with the seller’s problem. He paid too much for the house. Doesn’t mean you have to. Contact the mortgage companies after you get it under contract. Call the owner of the second mortgage first. He should be more motivated. Short sales are not as prevalent as they once were, but they can be very profitable if done right. Just make sure that the owner of the mortgage understands that you want to purchase the note from them at a discount. That is the only way you could profit from this deal.
Re: Possible Short Sale? - Posted by Eric W.
Posted by Eric W. on October 30, 2001 at 11:11:46:
Tim,
Thanks for the response to my questions regarding short sale. One more for you (or anyone): Is a short sale the same as a discount mortgage? We are using the same terms here, however I was led to beleive that these are two different techniques.
Thanks again,
Eric W.
They are two different animals… - Posted by JT - IN
Posted by JT - IN on October 30, 2001 at 11:57:48:
Eric (and Tim):
What Tim has described is a classic case of the lender discounting the mortgage and selling the note to you. This process is usually recommended, as it is normally a simpler approach than a short sale. This negotiation is between you and the lender, and has nothing to do with the property owner.
A short sale is triangular relationship, between the property owner, the lender and the buyer. The owenr generally has to make application with the lender, much like a loan application, to demonstrate that they do not have the capability to pay the mortgage form either income or assets. The lender underwrites this and if they grant the short sale, the amount of the forgiven debt, which is what is happening here, is the lender is actually forgiving soem debt owed by the owner/borrower, and the forgiven debt may be a taxable event to the owner/borrower. They will certainly get a 1099 for this amount, at year end. Unlike a discounted purchase of a note or mtg, there is no taxable event to the owner/borrower.
You are seldom seeing short sales on 1st mortgages today, because most of these are insured loans, and the lender has no incentive to relieve debt, when all they need do, is foreclsoe and collect from the insuring body; FHA, Fannie Mae, etc.
While these two scenarios may seem similar, they are quite different, and have different applications to attain a similar outcome, as far as we are concerned.
I have attempted to do a few short sales, but the lenders were really just jacking the owner (and me) around, so we left it there. Discounted notes are easier when dealing with a Jr. lender, where incentive exists, if there is jeopardy of repayment.
Hope this helps…
JT - IN