Posted by B.L.Renfrow on October 18, 2003 at 08:42:32:
The homeowner would approach it essentially the same as an investor…if they get a purchase offer which is high enough to cover the first and maybe a few bucks toward the second, they call up the second and say something like: “Look, Mr. Lender, we are getting a divorce and there’s no way we can afford this place another minute. The only way we can get out from under this would be if you are willing to take less than the full amount owed for your loan. If you can’t do this, well, I guess we will have to just let it go back to the bank, or maybe file bankruptcy…”
They should ask the lender for their short sale package, and promptly provide all the information requested. They should be sure the second understands that the property is encumbered for more than it’s worth, which means if the first forecloses, the second likely will be left with nothing at all.
As far as the homeowner negotiating this themselves, it’s entirely possible, although it would take some knowledge and persistence. There are people out there whose business is consulting and negotiating short sales, for a fee, which might or might not be an option for your homeowners. Some real estate agents are good at it also, though most aren’t knowledgeable about short sales.
Bottom line is that if the second won’t negotiate and just sits tight, and if the first is already starting foreclosure, the second likely will be left with nothing (assuming your numbers were correct), so this is the chain to yank to get their interest.
135K-range pre-foreclosure (3mo arrears) house with 125K 1st and 14K payoff 2nd. House has high payments due to owner getting equity out at 13% a few years ago, plus a room addition also at 13%; neither have amortized. Sellers separated; house vacant. 2700 sqft.
Nice uniform stable, but in a rural hard-to-comp neighborhood between horse farms. (high on tax record sale 137K; low 125K) 1-2 years ago.
I (as investor)was going to do a sandwich (?) L/O with a trust, but deal looks too thin on second thought, due to high payments ($1520 1st + $200 on the 2nd).
What if sellers sell for less than owed, and make up the difference themselves (as opposed to a shortsale).
Rationale: (if do-able) no tax to pay on the short sale, no short sale downside (credit ding).
Lease option was a possibility, but, now I don’t see any cash flow. Even if seller keeps the 2nd, the gap between payments on the first and going rate for area may be too great (probably) and pool of buyers small. (Rural, commute to anther city to work; new housing developments within 3 miles.)
Any possible way this can work out, or is it unfinancible by a buyer under my scenario?
Thanks.
Re: Sell for less than mortgage(s)? (HELP) - Posted by B.L.Renfrow
Posted by B.L.Renfrow on October 12, 2003 at 24:08:16:
It doesn’t sound like much of a deal. Even if you get the second to discount to nearly zero, or if the seller agrees to continue paying the second, you’ve still got a $125k first on a property which may be worth only $125k, using the low end of the tax records you quoted.
That would leave you with a property you’d need to sell at FMV just to break even. BUT, you note the high payments on the first make it unlikely it would cash flow either as a rental or L/O.
You are correct that subject to or lease option do not make sense in this situation. Unless you could get the first to discount significantly (unlikely) AND you have a qualified buyer waiting in the wings, I don’t see anything but grief here.
Remember also that unique properties are not only hard to comp, they’re hard to find buyers for too.
Sometimes, the best thing to do is wish the seller luck, tell him you’re sorry you can’t offer him any help, and move on.
Re: Sell for less than mortgage(s)? (HELP) - Posted by B.L.Renfrow
Posted by B.L.Renfrow on October 17, 2003 at 23:27:34:
They don’t really have any good choices. They could:
Try to sell at FMV and attempt to get the second to agree to a short sale.
Allow it to go to foreclosure.
File bankruptcy, but that would only make sense if their financial problems are temporary and they anticipate having an increase in income in the near future to allow them to resume payments.
Obviously, trying to sell and getting the second to discount would be the best solution, but if they can’t find a buyer at FMV, or if the second refuses to discount, they may just have to bite the bullet and deal with the foreclosure.
Re: Sell for less than mortgage(s)? (HELP) - Posted by Ann(NC)
Posted by Ann(NC) on October 18, 2003 at 24:00:40:
Good points. I’m pretty much out of this deal…but can you explain a little to me about how the 2nd can be dealt with.
They may very well be able to sell outright at FMV if the 2nd is out of the picture. It’s not a bad house, it had a lot of nice features, not a war zone, nice yard, above-ground pool, clean etc, just too much mortgage. Probably would bring a little more on an outright sale, compared with other houses in the area, but not enough rent or L/O payments to make it work with the high payments.
I appreciate your attention to my problem/situation.
Now: how do you sell the house outright with the 2nd on it, assuming the 2nd is going to be recalcitrant (I’ve already faxed them an authorization from the sellers, and they won’t talk to me directly–well, they might if I call them, but they refused to fax me back the payoff).
Just for my info to pass along.
I want out of this deal, (option) but would like to know how it could resolve.