Success - sort of - Posted by Jason

Posted by Ronald * Starr(in No CA) on March 24, 2002 at 23:42:07:

JohnBoy----

Your arguments make a lot of sense. I certainly don’t know what they lose, but I can certainly see that it could be the figure you mention.

Good Investing and Good PostingRon Starr*****

Success - sort of - Posted by Jason

Posted by Jason on March 21, 2002 at 17:38:58:

Guys, wanted to tell you that newbie found a motivated seller. Although, I couldn’t make the numbers work out ($14,000 delinquency on top of the mortgage balance. Ouch!), I consider this a success because I sent two hand-written letters to pre-foreclosures and had one respond. This definitely gets the juices flowing to get out and find more (with a deal that will work). Thanks for the info and the motivation on this website.

Don’t stop there . . . - Posted by JoeKaiser

Posted by JoeKaiser on March 21, 2002 at 17:54:52:

A hard money lender will loan 65 cents on the dollar to you if you can fog a mirror. Knowing that, you can pay about 60 cents on the dollar and walk away from escrow without opening your checkbook.

Write an offer accordingly, and walk the homeowner through the lender’s short sale program. It’s a longshot, but they may decide that 60 cents on the dollar beats the alternative.

I read recently where foreclosures now ultimately cost the lender in excess of $20k per property taken back. That spells opportunity in the short sale arena.

Joe

Re: Don’t stop there . . . - Posted by JoeKaiser

Posted by JoeKaiser on March 23, 2002 at 14:50:03:

I wasn’t clear . . . the $20k number (it was actually $22k, as I recall), was said to be the average loss lenders experience with each property they repo.

Joe

Re: Don’t stop there . . . - Posted by David H

Posted by David H on March 22, 2002 at 15:07:18:

So is that $20,000 irrespective of property value - ie:it doesn’t matter if it’s a $100K property or a $1.2M property? And irrespective of location - Flordia vs. California vs. Ohio?

Re: Don’t stop there . . . - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on March 21, 2002 at 21:31:23:

Joe Kaiser–(CA?)-----------

Do you have a citation for that figure of $20K? I am surprised, because I remember reading that the figure was about $3K a few years ago. I would be interested in knowing the figure.

Good InvestingRon Starr*******

Re: Don’t stop there . . . - Posted by Joe Scherb

Posted by Joe Scherb on March 21, 2002 at 20:52:14:

Joe,
Could you elaborate on your answer. Your a major league hurler throwing 100 mile per hour fast balls past a little league hitter (for me anyway).

65 cents on who’s dollar? Short sale program?

humor the ignorant,
Thanks,
J.S.

Re: Don’t stop there . . . - Posted by JohnBoy

Posted by JohnBoy on March 23, 2002 at 16:34:42:

$3k??? I think that would barely cover the legal fees involved.

Think about it. A lender forecloses on a $100k property. By the time they get it back most of these properties need work to get them to where they are worth $100k. So they end up taking about $85k just to dump it on a good day!

They had $95k owed on it. That’s a loss of $10k right there. Another $5k in legal fees and court costs. That brings the loss up to $15k. Another 6% to the realtor to sell it. That’s another $5,100 which brings the cost to $20,100.

Then figure at LEAST a year of no payments. That’s another loss of approx. $6,600 in interest on a 7% rate. That brings the loss to $26,700 on that property by the time the smoke clears.

I’d say $20k - $25k as an average loss would be well in line.

I think $20,000 is about right… - Posted by David Krulac

Posted by David Krulac on March 22, 2002 at 13:43:23:

I don’t have a source, but from my own experience the lenders take it in the shorts big time. I talked to an owner today where the 2nd lender will lose probably $90,000 on a $120,000 house financed for $200,000 first plus second.

David Krulac

Re: Don’t stop there . . . - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 22, 2002 at 24:23:40:

Ron, I’m guessing you and Joe are probably talking apples and oranges. I think Joe probably meant the average “loss of loaned funds and revenue” plus foreclosure costs per foreclosure, and you probably meant just the “cost” of foreclosing (legal fees, etc).

So, if a house worth $200K had an original $190K loan, but now a loan balance of $187K and $12K in arrears, the bank would really be out $12K of lost revenue, $3K in foreclosure and administrative costs, and probably another couple of months lost revenue while selling as REO (add another $2K). If they can’t sell it for any more than $177K, there’s 10K in loss of loaned funds. The total loss is $27K in this example.

I’m just guessing, but $3K per foreclosure seems very low to me.

Re: Don’t stop there . . . - Posted by JoeKaiser

Posted by JoeKaiser on March 22, 2002 at 24:09:30:

Ron,

Don’t recall where I saw it, but do remember that it knocked me off my chair. I’ll see if I can track it down.

Joe

Re: Don’t stop there . . . - Posted by JoeKaiser

Posted by JoeKaiser on March 22, 2002 at 01:11:13:

Okay . . . slowly . . .

HARD MONEY: Hard money lenders are the guys who advertise in the newspaper in the “money to loan” section of the classifieds. They advertise ?no qualifying? or ?equity? loans. Essentially, these are loans where the lender looks to the property for its security, not the borrower. The borrower?s credit or even his ability to repay is not a consideration.

It?s the property that matters and only the property.

That means that while they?ll loan to anyone, they?ll loan much less than a typical mortgage lender, usually only up to sixty five percent of the value of the property. The reason is simple, if the borrower doesn?t pay (which is not unusual), the lender must be able to fully recoup his investment from the property. By loaning no more than sixty-five cents on the dollar, that is almost assured.

Simply put, you can borrow $65k on a $100k property without a whole lot of effort if you know a decent hard money guy.

SHORT SALE: Many lenders, in special circumstances, will accept less than a full payoff and still consider their loan ?paid in full.? Foreclosure is THE special circumstance.

Foreclosures are ?problematic? for lenders. Distressed borrowers can sometimes drag things out with a bankruptcy (or two), refuse to vacate even after the foreclosure is completed, (?Now we have to evict them too?? Yes you do.) or even get mad and destroy the property on their way out the door. Once the disgruntled tenant is gone, they may now have to pay to get the property fixed up, and then there?s the not so small matter of getting the thing marketed, sold and off their books.

Ugh.

Simply put, lenders will sometimes take less for the ?sure thing? and be done with a problem loan than face the long drawn out, unpredictable and potentially costly foreclosure scenario.

Most lenders have a program to facilitate the this ?short sale? process.

Where to go from here?

Meet with the homeowners and tell them you?ll buy their house provided the lender will accept a reduced pay off or ?short sale.? Write your offer at sixty percent of the property?s value (you?ll need room for closing costs, that?s why you don?t offer the full sixty five percent).

Once accepted by the seller, obtain the lender?s ?short sale? package and assist the seller in completing it and getting it back to the lender. It?s something that needs to happen quickly because they often take a long time to decide, and the foreclosure clock keeps ticking all the while.

The homeowner rarely has a problem with this deal.

The lender, as you might imagine, will.

That?s why it often helps to include ugly photos and any other materials that will support the low offering price. You need photos, let me know . . . I?ve got plenty (yes, that?s a joke ;-).

When the dust settles, the lender will either accept or decline. Yes or no.

A ?yes? means you head on over to the hard money guy to arrange your loan, and then off to escrow to get the closing process started. A couple weeks later, you?re an owner with little or nothing out of pocket.

A ?no? means you go on to the next one with a little more knowledge under your belt.

Finally, it?s been awhile since I?ve put a ?short sale? together. Things change . . . you?ll need to poke around a bit to make sure you?re up to date with current info before proceeding. There are guys who do nothing but short sales, it couldn?t hurt to seek them out and run a question or two by them.

Joe

Re: Don’t stop there . . . - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on March 24, 2002 at 18:10:21:

JohnBoy------------------

Yes, your analysis makes some sense. Maybe you are more in touch with reality than I. And I try hard to undrestand what is really happening.

However, I think the figure that I saw was an average figure for the amount of loss on all lender-owned properties. There will be some properties with some proft, some that will break even, and then those, such as you analize, that lose month. However, I could be easily persuaded that the amount is more than the $3K that I remembered. However, here in CA, the cost of the foreclosure is probably about $1K, not $5K. Attorneys do not have a monopoly on doing foreclosures here. Many of the other figures you mention make sense. Although, again, here in the San Fran bay area, the lenders are probably getting $190K for the $200K houses (There are no $100K houses here.)

Good Investing and Good Educating************Ron Starr***************

Re: I think $20,000 is about right… - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 22, 2002 at 14:59:40:

Holy cow! Loaning at 167% CLTV? Incredible. Maybe the lender deserves to lose 90K.

Re: Don’t stop there . . . - Posted by Bud Branstetter

Posted by Bud Branstetter on March 22, 2002 at 09:31:15:

I had a similar conversation at our investor breakfast the other day. We were estimating 10K only because most of our foreclosure market is in the 100K range.

Have you found the short sale possible foreclosures need much fixup-paint/carpet? Do you deduct that cost from your offer?

Where are the REAL Hard money lenders… - Posted by evelyn

Posted by evelyn on March 22, 2002 at 09:31:33:

in FLORIDA? I loved your explanation on hard money lenders. I know of a couple of properties I would like to obtain this way, but since I have no cash and crappy credit, I need a true hard money lender (i.e…don’t even THINK about looking at my credit!!) that is located near me. (FLORIDA)

Any suggestions?

evelyn

Re: Don’t stop there . . . - Posted by JohnBoy

Posted by JohnBoy on March 24, 2002 at 19:22:46:

Another thing is that a lot of lenders that have bad paper will end up selling it off to other companies for .60 on the dollar. The company that buys it will make out in most cases, but the original lender takes a 40% hit on the amount financed just to be rid of the bad paper.

So all in all, I’d venture to say lenders take far more losses than they do on getting property they make out on in the end, causing the over all averages to be easily in the $20k range.

Re: Don’t stop there . . . - Posted by JohnBoy

Posted by JohnBoy on March 24, 2002 at 19:15:59:

I assume most lenders in CA. end up using realtors to sell off their foreclosures. So even if they get $190k on $200k houses they have $11,400 in commissions to pay right their, plus the lost interest on their money from the time payments stopped being made until they get the property sold, (what’s the average time frame to foreclose in CA. plus the 60 days or so the borrower defaults before the lender even starts foreclosure?) plus the cost of foreclosing. So I would find it very easy for lenders on an over all average to lose $20k on foreclosures.

Then there is all those lenders holding seconds that are getting wiped out or taking big losses on most of it and in CA it seems common to see 3rd and 4th mortgages on property there. Add that into the equation and losses could be even more.

Re: I think $20,000 is about right… - Posted by David Krulac

Posted by David Krulac on March 23, 2002 at 10:54:16:

there are several factors inlcuding:

  1. it was appraised at the top of the market for top dollar, and the market has declined since then, also the house since in foreclosure has declined in value due to deferred maintenance.

  2. it was probably a 125% equity loan, risky at any time.

  3. the foreclosure was delayed by a bankruptcy so there will probably be 2 full years or more with no mortgage payments between the start of foreclosure and the sheriff sale. the interst and penalties from not paying mortgages for 2 years adds up tremendously.

  4. the cost of foreclosure is not cheap, an average one costs $5,000 in legal and filing fees. on this one the legal bills are larger due to the delay and the bankruptcy filing. now there is another delay as own of the owner has moved away and left no forwarding address. state law require notice and the notice previously given is too stale for state law. this results in another delay. also sheriff sales are only held 4 times a year, so if you miss the filing date for one, which is 10 weeks before the sale date, then you have to wait for 3 more months for the next sale date.

all in all $20,000 seems like a good figure to me.

David Krulac