Preforeclosure Short Sale Advice? - Posted by Stacy (AZ)

Posted by richk (OR) on April 11, 2000 at 14:25:28:

So how do you as an REI make a profit if there is not equity? Would you mind giving an example with some specific numbers?

Intuitively I understand that equity can be a short sale deal killer for the reasons you mention. But it seems to me that in order to make any profit, you have to sell short enough to get some equity. Which means the deal is dead anyhow. And my mind starts to spin…



Preforeclosure Short Sale Advice? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on April 10, 2000 at 06:26:39:

I just put a preforeclosure under contract, contingent on successful negotiation of a short sale with the first and second mortgage holders. The first mortgage holder is owed $105K principal balance, plus about $3500 in late payments and fees. I am offering to pay the 105K balance, only. The first is foreclosing, and the trustee’s sale is scheduled for May 15.

The second mortgage balance is $13K, and I’m offering to pay $6K. FMV is $142K, and the only way the sellers would sign is if I also promised them $6K. They’ve already been through a couple of investors that have not included the $6K at close, and the sellers would not sign a contract with them.

I have attempted short sales in the past with no luck. For those that have had success, would you recommend that the sellers speak to the lenders themselves, since they already have a contact that has been working with them? Or, would you recommend that I start the negotiations myself? I’ve got a release signed by the sellers that allows me to discuss their accounts.

Since the trustee’s sale is now scheduled, do I need to go through the trustee with the short sale negotiations on the first?

And last, the lenders are not going to be very “happy” when they see that I’ve promised the sellers $6K, while asking them for a short sale. I’m not sure what to do if the lender needs to see a copy of the contract.

Any help would be appreciated.


Some answers - Posted by TCB

Posted by TCB on April 10, 2000 at 21:26:07:

Stacey, the majority of lenders will not allow money to go back to a note holder in short-fall payoff circumstances. The longer you wait, and the closer to the foreclosure date, the less the sellers will demand money from the sale of their distressed property. I am not saying don’t give them anything, but lenders don’t usually allow it to happen (and 6k is alot since you are bailing them out of their situation.) They do not have room to refi, so they’re stuck with you!

Another thing to keep in mind is the lenders (1st and 2nd lien holders) may not have accurate market values. Most people in foreclosure do not allow the lenders inside to get full appraisals, keep that in mind. Offering the second lien holder less than 6K can’t hurt.

Finally, getting info directly from the lenders involved is a good idea. People in foreclosure tend to bend the truth. I consider it to be quality control on your part. It doesn’t matter what business you are in, direct information is better than second hand information. Talk to the lien holders.
Reasoning: lenders can sometimes provide information to you that the seller does not want to tell you (i.e. judgments on a credit report that need to be paid, delinquency not included in the payoff amount provided by the seller, specific legal dates that may save you money, etc.) Also, the people you speak with at banks work on commissions. You may be able to “feel them out” to see what will be expected as an acceptable payoff amount, since the 6K is probably not going back to the seller.

Good luck!

Followup: Has anyone bought a note from City Mtg. Services? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on April 10, 2000 at 15:56:48:

The second note with a balance of 13K is owned by City Mortgage Services. This is the second time in the last year I’ve had to deal with their Short Sale dept.

Everyone I’ve spoken to there says they do not sell their notes. They only do short sales. Does this sound correct? Has anyone bought a note from them before? Maybe I’m just speaking to the wrong people.

Anyway, I requested the short sale package today. The documentation says they’ll only go down to 70% of the balance. But I remember speaking with someone in the SS dept last year, and she said they’ll go even lower under some circumstance. Now, how to get them to 50% or below…


What’s a short sale really? - Posted by messerb

Posted by messerb on April 10, 2000 at 09:58:44:

Stacy and others,

I follow the responses you got, but I’m not quite sure what a short sale is. It seems to be different from negotiating with the lender to take a discount on their outstanding loan balance for cash.

For the still-new-at-this crowd, what is a short sale really?


Re: Preforeclosure Short Sale Advice? - Posted by JoeKaiser

Posted by JoeKaiser on April 10, 2000 at 08:48:02:

Short sales, at least in my area, just don’t happen often enough to make it a viable technique.

Take a long hard look at that 2nd mortgage holder. If this foreclosure is in my back yard, I know that 2nd mortgage holder will likely end up with zip. They walk away from these sorts of things everyday, and $500 or $1,000 is all it would take, in many cases, to buy that entire encumbrance from them.

With that in your pocket, you can now structure whatever sort of transfer you and the owner may want to put together. That means you can pay them, get a deed in lieu, or even foreclose yourself.

Waiting for “short sales” approval means waiting a long long time, in my experience.


Re: Preforeclosure Short Sale Advice? - Posted by phil fernandez

Posted by phil fernandez on April 10, 2000 at 08:36:44:


I normally don’t like to reward deadbeats. Right now the owners want $6,000. However as the May 15th sale date gets closer and closer, the owners may soften their demands. Come May 15th they will get nothing.

I’d wait them out a bit

Re: Preforeclosure Short Sale Advice? - Posted by NJDave

Posted by NJDave on April 10, 2000 at 07:44:51:

Every approved short sale that I’ve worked on have several characteristics in common including the language, “Seller will receive ZERO PROCEEDS from sale.”

As a short sale administrator, your Proposal must answer a series of ‘tests’ including the all important:

Will the foreclosing lienholders to be made whole if they complete the foreclosure process?

If they will be made whole, there is not too much incentive for them to agree to a short sale.

Successful short sales require a clear understanding of the entire process, considerable time (months), energy, and to some degree, luck. Not every candidate will be successful. You’ve got to pick and choose carefully, walking away from ones that do not hold much promise.

Re: Preforeclosure Short Sale Advice? - Posted by Ben in Ohio

Posted by Ben in Ohio on April 10, 2000 at 07:25:09:

Generally it is probably better to negotiate with the lenders yourself, after all the owners have a problem that can only be solved by you or another investors intervention.

In the first place you must find out if the first lien holder will even consider a short sale. I have found many will not. By the way it is a good idea to find out “why” a lender won’t short sale as this gives you ammunition for further negotiations, now or in the future.

Secondly, if they are interested it will generally require an appraisal, of their selection. This can help or hurt your proposition.

I’m not sure why you would tell the lender of your side deal, there is no disclosure required. If it make the seller more comfortable give them a promissory with a contingency.

Will the first lender reinstate the loan? If so, maybe you could ask for a forbearance. It may be too late for this, however.

Hope this helps, keep us posted.

TCB, Are you PSYCHIC? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on April 11, 2000 at 14:37:29:

I appreciate all the advice I’ve received from the posts below. Good advice, all. But TCB, I have to say, I actually wondered for a few seconds if you were psychic, or spying on me.

Almost everything you wrote in your post has proven to be true of this deal. The 1st note lender has this week mis-appraised this house ($12K under) because the sellers wouldn’t let the appraiser in the house (good for me). Getting info directly from the lenders has proven to be a good move. The sellers have been in LaLa Land, they owe $12K more than they thought on these loans. And in working with the Short Sale representative at City Mortgage, she’s given me some great “just between you and me” advice for getting the short-sale approved.

Thanks for the wish of luck…I’ll need it tonite when I explain to the sellers why I can’t give them 6K.


Re: Preforeclosure Short Sale Advice? - Posted by Dan

Posted by Dan on April 10, 2000 at 13:28:02:

Joe, So you’re saying “buy” the 2nd not “satisfy” it right? And then cure the 1st (assuming its not too late)? You would then deal with the seller OR foreclose on your newly aquired 2nd.
TIA, Dan

Re: Preforeclosure Short Sale Advice? - Posted by Ben (FL)

Posted by Ben (FL) on April 10, 2000 at 13:19:31:

I spoke with a seller in preforeclosure. He has a first for $60k and a second for $52k. He will sell for $112k. FMV = $128k. If I understand what you are saying correctly, I may be able to go to the second mortgage holder and say, “If the foreclosure goes through, you get squat. How about discharging the loan for $10,000.” Then I buy the house for $70k, payoff both mortgages, mow the lawn, clean out the pool, and re-sell quick for $115,000?

Ben (FL)

Re: Preforeclosure Short Sale Advice? - Posted by JoeKaiser

Posted by JoeKaiser on April 10, 2000 at 15:41:31:

The “play” is to buy the 2nd. 2nd’s are sold all the time. What you actually get from the lender is an “Assignment” of the beneficial interest in the note and deed or trust or mortgage.

Now, you own it and have all the rights of the 2nd mortgage holder. You can take a deed from the owner in lieu of foreclosure, pay them for a deed, foreclose yourself, etc.


Equity is the Short Sale Deal Killer - Posted by NJDave

Posted by NJDave on April 10, 2000 at 13:44:01:

Q. If the property had confirmed equity, and the second mortgage lienholder would be made whole via an executed foreclosure, why would the second mortgage lienholder walk from $50,000?

A. They probably wouldn’t walk away. They would probably join in the foreclosure lawsuit and get paid at Sheriff’s or Trustee Sale, or simply pay-off the first and continue the foreclosure.

Equity is the short sale deal killer

Re: Equity is the Short Sale Deal Killer - Posted by Ben in Ohio

Posted by Ben in Ohio on April 11, 2000 at 06:43:40:

Equity is the Short Sale Deal Killer…or lack thereof!

Re: NO! - Posted by NJDave

Posted by NJDave on April 11, 2000 at 08:20:21:

You misunderstood. Properties with EQUITY are NOT good candidates for short sales. Properties with little, zero, or negative equity are better candidates for short sales.