The house is in an area where comps come in at 155 to 165k for this type of house.
Based on the present conddition of the house, it is worth approximately 140k. With 5k in repairs, the ARV is approximately 165k.
The current owners owe 169k (they got a 125% loan on their property 1 year ago). The first is 129k with interest and penalties. The second is being reduced to 10k. So my total obligation is approximately 140k.
I have already sold it to a TB as a LO for 175k 12 mos. from now, so my end profit after it is refinanced should be approximately 25-30k.
The TB is going to give me 1400 per month rent. I will discount it 5% if he pays early. So the monthly cash flow will be approximately $250.
I have a short sale on a 2nd mortqgage pending with a national Bank. My initial offer was rejected but after much negotiation, my second offer was given a verbal approval. It is now pending approval by their upper management. They have given me three different options on how to do this.
Settlement of the note.
Short Sale
Note Sale
Here is the dilemma. If I go with option 1, I give them my cash offer, and they send a letter to the owner of the property that the 2nd has been fully settled. This can only work for me if the owner assigns his/her interest in the property to me.
If I go with option 2, the short sale is completed, shows up as “settled” on their credit report, they get a 1099-INT at the end of the year for the deficiency, and the owner has to assign their interest in the property to me.
If I go with option 3, the bank sells me their interest in the note, and then I am in the same position as the bank. The owner will basically owe me what they originally owed to the bank. This works for me because I can then basically write off the rest do the note and take control of the property.
For all of the more experienced short sale investors, how would you do this?
You haven?t shared with us the numbers of the deal so that we could discuss this knowing the different financial benefits of each step 1 thru 3.
I think that you should mention, that number 3, purchasing the note, should allow you to get the deal cheaper due to risk/reward. If you have an agreement or control of the seller, that would be the best way to go.
If you can?t get the note cheaper buy purchasing it, then I would of course go with number 2.