I’m only suggesting that you be aware of the consequences inherent in an FHA preforeclosure, and preforeclosure short sale. I know that many folks advocate the taking of a deed Sub2 as an acquisition technique. I don’t share that view.
In my revised ShortSalePrimer, I describe the FHA calculations (subject to change):
Eligibility will be determined using the NET PROCEEDS, which must be 82% of the “as-is” appraised value. The ratio of the appraised value to outstanding
mortgage indebtedness must > 63%.
Short Sale, then resell/ Need hep - Posted by James (FL)
Posted by James (FL) on July 14, 2003 at 18:40:22:
Hello all,
I received a call from a lady today. She actually called to try to refinance but I could not help. She is in foreclosure, and does not have enough equity for me to help. However, there is some equity. The home FMV is approx $115K. She owes $95K including arrears. ($88 pricincipal, $7 arrears).
I asked her if she would consider selling her home to do nothing more than save her credit and avoid foreclosure. She said she had already considered that. She told me she spoke to someone last month, who said they would purchase her home for $70K using a short sale, bank willing. She did not know what this meant, and he did not explain it to her. She thought she would be responsible for the additional $25K on her own. She turned him down. I proposed the same thing to her today, but explained to her that the bank would consider the foreclosure satisfied, she would not owe them anymore money, and the two catches were, she could not receive any money from the sale, and the bank would have to agree to let it go for 70K. I explained to her the only way to do this, would be if the home is in need of repairs. She said the Central AIR went up last month, and she got an estimate of $3000 to fix. She also said that the house needs to be repainted inside and out, and the bedrooms are in need of new carpet. The rest of the home is tile. She said everything else is in good shape.
My thoughts… Home is in need of approx $7K in repairs. She is willing to sign over the deed and allow me to negotiate with the bank. Will it be possible to get the bank to agree to $70K and how do I go about it. I have never done a short sale before. I read the posts last night on the Short sale fad. I laughed, but now had one land in my lap today.
My thoughts to resell the home are either seller financing, or sell for $115K, hold a 20% private second so anyone can get approved (from my company of course) and then sell the private note for 70% of face value. This should bring approx $20K profit including holding costs, rehab costs, closing costs, etc.
Does this seem feasible, and if so, what steps do I need to take in order to make this happen?
First, let me say that I am not a “short sale pro” by any means.
I’ve done them, but certainly don’t seek them out.
With what you have presented, here is what I’d do.
Get the seller to sign a purchase and sale agreement, for the short sale dollar amount, and a contingency that the deal only moves forward when/if you have negotiated a discount satisfactory to you, with the lender.
Perhaps even get a deed to be held in escrow, by you or your attorney.
Also get an authorization form completed by the seller, to contact the lender, the lenders attorney, to gather loan account info.
Verufy comps and all due diligence, while at the same time contacting the lender to verify dollar amounts there.
While talking to the lender, get to the person who can make a decision about short sales.
They will in all likelyhood have some sort of in house “Short sale package”, that the seller and you will need to complete.
With that, a copy of the contract, and some pictures showing the house in the worst light possible, the lender will decide.
Whether they do or not, who knows?
As I said, I’m not a short sale pro.
Re: Short Sale, then resell/ Need hep - Posted by James (FL)
Posted by James (FL) on July 14, 2003 at 19:48:57:
Jim,
Nice to talk to you as well. When I first started posting here, I was Jim (FL) but kept getting people asking me extremely complex questions to which I could not answer at the time, and I could not figure out why… until I read a few posts of yours =)
I appreciate the input and read most anything you post on here. I will say I have learned a thing or two from you without you even knowuing it, or getting paid!!! For that i am greatful. Thank You again for the reply. I have an appointment to meet with her tomorrow afternoon to look at the house thouroughly and draw up any necessary contracts. She was personally referred to me by someone I refinanced a few months ago, so she already trusts me well.
before you even think about snatching the deed, make certain this is not an FHA insured mortgage loan, and,
2)the short sale Seller will receive a 1099 for the amount of debt forgiveness which the IRS considers taxable income. However, IRS rule 108 A-E imposes a test to determine insolvency. If the Seller can demonstrate insolvency at the time the debt was forgiven, all or a portion of the ‘income’ may be exempt. If addressed properly, it’s a non-issue.
I am not a CPA or attorney, however, I heard that debt relief (1099) would not be taxable if the person is insolvent (debt>income).
Also, if it is her personal residence, the 2 out of the last 5 years rule may apply. That means no capital gains tax for gain or realized gain in the form of debt relief.
I would verify this info with a CPA or verify on the legal boards.
Cheers,
Mike
“This may be a stupid question, but why does it being an FHA matter?”
Your question is not stupid at all. FHA preforeclosure short sale servicing criteria strictly prohibits the owner/occupant/mortgagor from conveying title prior to mortgagee granting preforeclosure short sale relief.
They’ll ask the Seller to execute an affidavit to that effect.
If an investigation audit indicates a prior transfer, this may cause the transaction to revisited…
Posted by James (fl) on July 16, 2003 at 10:57:55:
TheShortSalePro,
This is an FHA mortgage. So should I not have them sign over the deed to me prior top negotiating with the bank? Also, on the FHA gaurantee, is that 80% of the original note amount? The original amount was for 94K. Does this mean that my offer should be at least 80% of that to the bank? Please advise. Thank You.