When short-sales and sub-2 aren't deals - Posted by Kristine-CA

Posted by M. Osterman on July 09, 2007 at 16:43:21:

Try again.

When short-sales and sub-2 aren’t deals - Posted by Kristine-CA

Posted by Kristine-CA on July 07, 2007 at 09:41:06:

I’m getting a lot of calls that I’m not able to do anything with. I’m wondering
if I’m missing something obvious.

We’ve had a huge price corrections this year, so many homeowners who
bought since 2004 own a home worth less than what they owe. Many bought
with 80/20 loans and have no equity. Lots of homes in the 200-250K range
that were under 100K as recently as 2002. The lenders are taking back 99%
at trustee’s sales. The REOs are sitting. Many lenders are pricing things they
lent 220-250K on at 160-200 and they aren’t moving.

The average homeowner has more info now, because the subprime fiasco is
in consistenly in the news. So I get calls from people who let me know that
they just want to save their credit. They ask: can I take over payments? Can
I work a short sale with their lender?

My challenge is that I don’t see any profit. Rents are still very low so nothing
cash flows unless it can be purchased for 125K or less…with no repairs.

It’s getting kind of depressing. The phone is ringing but I’m finding it
difficult to get excited about talking to people when I don’t see a solution.

What is the solution? If I can work a short sale, I don’t see how to get it low
enough so that I can hold it and break even or cash flow. If I take over
payments, the only thing I can think of is to sell on a wrap. But I’d definitely
be working with credit-challenged buyers.

The appreciation game and the out of area investors seem to have
disappeared. We are back to the same players as in 2000 when I started. But
this time the debts are way bigger.

Can I do anything with these calls? Any ideas? Kristine

Re: When short-sales and sub-2 aren’t deals - Posted by M.Osterman

Posted by M.Osterman on July 08, 2007 at 18:26:18:

Kristine,
I’ve changed my marketing a lot in the recent months. I too found many folks in a similar situation and now take and extra step to make sure my marketing letters get to folks who have something to sell.

~Mike

Re: When short-sales and sub-2 aren’t deals - Posted by Mark (SDCA)

Posted by Mark (SDCA) on July 08, 2007 at 11:50:59:

No way I would take these Sub-2. Your profit is gonna have to come from the bank. But if they aren’t moving at 160K then who KNOWS where the bottom is?

I would try to short sale them or offer on REOs at or below your 125K figure. (If the props arent moving at 160K its not such a leap to 125K). Then either rent or do some kind of a Pac-Trust or LO-Equity Share deal.

Seems like a lot of risk for a 3-5K “flip” pay day unless you are sure of your buyers’ database.

GL

Re: When short-sales and sub-2 aren’t deals - Posted by Levi

Posted by Levi on July 08, 2007 at 06:12:12:

I refer these leads to a realtor friend who is supposed to throw me a bone if he sells a house. I haven’t seen anything yet.

Re: When short-sales and sub-2 aren’t deals - Posted by lukeNC

Posted by lukeNC on July 07, 2007 at 13:48:07:

There isnt anyone trying to take advantage?

Anytime I get a lead on someone willing to walk away from a house and they don’t care what happens, I’m all ears. Thats my dream situation.

We’ve got same the same problems here. A ton of foreclosures in the low equity, newer built homes. No down payment buyers whose loans adjusted and could they not afford them. Almost whole streets full of nice newer homes that lenders had to foreclose on.

There are alot investors scooping these up at 60-70% of value and then selling them on contract or renting them. They are mostly buying them as REO’s.

If it were me, I’d be trying to short these in pre-foreclosure and picking up $3k to $5k in the process, selling to these investor end buyers. 4 or 5 of these month and you’re sitting pretty.

Its a bonanza for the smart wholesale investor.

Re: When short-sales and sub-2 aren’t deals - Posted by joe

Posted by joe on July 07, 2007 at 11:13:02:

We are seeing the same thing here in Phoenix. Upto 5 calls a day sometimes and none are deals. Motivated, but the numbers don’t make any sense.

We have teamed up with a realtor that does short-sale listings. This way, my wife (an agent) can at least get a referral if the listing sells. These are the ones that are not discounted enough for us to buy and rehab or wholesale out.

As for the subject-tos w/o equity, only if they will cash flow as rentals would we consider them. None have met this criteria this year.

Re: When short-sales and sub-2 aren’t deals - Posted by Kristine-CA

Posted by Kristine-CA on July 08, 2007 at 19:59:40:

That’s the question…how low will it go? It’s only certain
neighborhoods though–the neighborhoods that had lots of investor
activity (flipping and more flipping and then rehabbing) and then re-
sales to subprime borrowers. A few of my rehab buyers own or are
partners in mortgage companies. Some were mtg. brokers. They knew
how to get the right appraisal and get the deal closed. It’s
discouraging to see those same properties as REOs.

It feels like everyone’s got their arms crossed to see how low it will go.
Back to 2002 prices?

Re: When short-sales and sub-2 aren’t deals - Posted by Joe Kaiser

Posted by Joe Kaiser on July 07, 2007 at 16:59:00:

Huh?

Violates virtually every fundamental real estate investing concept I
know.

No profit, high risk, negative EV, zero certainty, and on and on.

Ridiculous.

Joe

Re: When short-sales and sub-2 aren’t deals - Posted by Kristine-CA

Posted by Kristine-CA on July 07, 2007 at 14:27:44:

Hi Luke. Thanks for your reply. I don’t market to pre-foreclosure. My
marketing doesn’t mention no equity or defaults or foreclosures or
taking over payments. So if I’m getting calls I’d say it’s pretty bad out
there for people.

I’ve got a couple of calls to return today–people willing to walk but
hoping there is something someone can do so as to save their credit.
But they are not in pre-foreclosure…yet.

I sure am spoiled. 3-5K to work a short sale? Ouch. Maybe there is
more leeway in my market. But talking to lenders for that kind of pay?

Thanks for getting me started on some of the things to consider.

Will lenders take a short sale package when there is no default? I’ve
only attempted them on the behalf of estates that weren’t paying or for
owners who had defaulted.

Kristine

Re: When short-sales and sub-2 aren’t deals - Posted by Mark (SDCA)

Posted by Mark (SDCA) on July 09, 2007 at 17:05:03:

If you can rent it, it doesnt matter how low it goes (no margin call on houses. :P)

When I first got started the market was horrible. After 3 years I was break even or maybe even underwater. Different story 15 years later. And the rental market was very strong throughout all that.

Re: When short-sales and sub-2 aren’t deals - Posted by lukeNC

Posted by lukeNC on July 08, 2007 at 09:43:46:

I’m assuming that someone is calling you while in foreclosure…

Lender rarely takes a hit when the loan is good.

You’d be surprised.

All you’re doing is this:
Get borrower’s financials together and faxed to lender with your offer signed off and wait for their response.

No risk if you let the sellers know upfront there’s no guarantee, possible tax on the forgiven debt, etc.

You get offer accepted, get your end buyers ready to go and pick up your check via double close or upfront assignment.
Lender won’t play ball? On to the next one.

There’s so many of these out there its crazy not to try.

Re: When short-sales and sub-2 aren’t deals - Posted by Joe Kaiser

Posted by Joe Kaiser on July 09, 2007 at 02:17:24:

Luke,

You miss the point completely.

We are investors and that means the first thing we need to do is figure
out where the EV is and then figure out a way to get the money.

EV = Expected Value

Defined in its most simple terms, it’s your hourly rate. You figure out
where your hourly rate is greatest and then you know where to focus
your energies.

If strategy X is worth $20 per hour, and strategy Y is worth $100, you
forget X and become a Y specialist.

Now, when you stumble on to strategy Z and figure out it’s worth $300
per, you forget X and Y and take dead aim at Z.

EV is EVERYTHING to a serious investor.

We have no time to waste on ridiculous claims that i can tell you from
here (3,000 miles away) have zero chance of succeeding. I don’t think
it’s even break even (you have negative EV, a bad thing).

Short sales are ridiculously time consuming and the success rate is
ridiculously low. Put those two things together and you have a strategy
best avoided.

On top of all of that, you’re ending up with a deed, presumably.
Getting a deed today on a thin, speculative deal is a formula for
disaster.

I get deeds today, but only when things are a slam dunk, with 10x or
better returns and certainty that’s at least halfway decent. Otherwise,
that’s a blue pen flip waiting to happen.

And double closing are so yesterday. Get with it, dude.

Joe Kaiser

Re: When short-sales and sub-2 aren’t deals - Posted by Bob Smith

Posted by Bob Smith on July 08, 2007 at 13:27:27:

“I’d be surprised”, meaning lenders will short loans that aren’t in default?

special circumstances… - Posted by lukeNC

Posted by lukeNC on July 08, 2007 at 13:57:32:

A lender could short a loan where the borrower has already been discharged in bk but may not yet be in arrears. I’ve seen that happen.

The borrower has already notified the lender that this is their last payment before moving on from their “no equity pretty house”. The lender kinda expects to take a short.

Re: special circumstances… - Posted by Kristine-CA

Posted by Kristine-CA on July 08, 2007 at 17:30:32:

Luke: thanks for your posts here on this thread.

Most of the calls I get are from sellers trying to avoid defaulting, so
shorting does seem like a tough sell. I can understand the lender
lookiing at a BK situation and thinking a short sale would be the way to
go. But I’m mostly talking to people with no/low assets and big
mortgage payments (some getting bigger all the time).

I wonder if lenders won’t be reconsidering short-sales in the coming
months. I doubt they will be reconsidering the adjustable
rates…Kristine

Re: special circumstances… - Posted by JohnVosilla

Posted by JohnVosilla on July 09, 2007 at 10:02:42:

‘I wonder if lenders won’t be reconsidering short-sales in the coming months’

I bet bulk sales at 50-60 cents on the dollar for REO’s will be common late this year. Take 5-10 off the hands of a Countrywide or Bank America before year end… On the other stuff Joe Kaiser is right. Not worth messing with. Time and risk versus such small upside in this debt cleansing avalanche now upon us… It is all about the first mortgage discounted with sufficient equity while wiping out everything subordinate to it… Tax deed sales should be huge again as they are the ultimate first lien… Also watch who is actually able to buy at the foreclosure auctions at the steps and which banks are finally discounting way below market to not take it back as an REO.

Re: special circumstances… - Posted by Kristine-CA

Posted by Kristine-CA on July 09, 2007 at 10:17:33:

I’m betting on some of the same things you are and keeping my eyes
open.

Here in CA tax sales have a very long lag time (compared to market
value swings) and IMO we will not see much available for several years.
Regardless of their ultimate first lien status, it still takes 5 years of
unpaid taxes to get to power to sell status. Also, lenders do tend to
stay on top of taxes as they either escrow the amounts from the
borrower or pay them when managing them as REOs. So, the issues
created by the subprime fiasco will not be noticed at tax sales for some
time to come. Right now in my farm county there are less than 800
properties in power to sell compared to several thousand a few years
ago.

Re: special circumstances… - Posted by Kristine-CA

Posted by Kristine-CA on July 09, 2007 at 14:31:02:

Yup. 800 parcels of mostly junk. Similar to San Bernardino county, Kern
has lots of desert parcels and junk pieces in tax default.

800!!! - Posted by M. Osterman

Posted by M. Osterman on July 09, 2007 at 14:21:24:

Wow! I’ve only got 15!