Property underwater due to 2nd equity line
Preparing to list property where we're close to payoff on the first mortgage (BofA). Sellers have a 2nd HELOC (5th 3rd) that puts them underwater approx $80,000. Seller is needing to relocate for work out of state. Anyone have a strategy?
Replies to This Discussion
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Permalink Reply by Bryant Tutas on
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I would try hard to payoff the 1st in full. That way you only have to deal with the 2nd on the short sale. Prepare your sellers for the possibility of needing to make a cash contribution, sign a note or both for the HELOC. My experience with Fifth third is that they will require a contribution of some sort.
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Permalink Reply by SE Davis on
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Yes Amy I concur with Bryant.
Allow me to assist with the viability of that event.
Take your seller/borrowers current mortgage statement balance, add 2 months PITI then take that amount and multiply it by 20% that grand total may be close to what your minimum buyers purchase contract offer will most likely need to be.
That extra 20% presumably covers 6% agent commissions to be paid by the sub lien holder, any reasonable CC (3%) demand by the buyer, any seller per diems for taxes, HOA and etc. and a target of 10% MINIMUM NET to the sub lien holder post-closing.
That 20% can be “reduced or tightened” by your careful analysis and writing a path to short sale closing at the time of listing. No Seller paid CC, Your seller’s ability to maintain first mortgage payments and HOA expenses through the process and the actual balance of the second lien x 10% added to your plus calc. The minutiae data that establishes certain controls over a buyer purchase contract offer price may reduce that 20% down to 9%-12%.
If your seller/borrowers is in default on that first mortgage then you will need to adjust that first calculation formula to account for those default payment amounts + Foreclosure attorney fees if applicable to date and plus a projection of monthly payments through to an anticipated closing date.
When in doubt just pad the estimated payoff of the first lien on the Prelim HUD1 proposal because any overages will automatically be added to the sub lien holders net at the closing.
Working on one right now that we used this exact formula on and the buyers offer price places the estimated NPV paid to the second line at 48%. In other words this one is as close to a slam dunk as it gets.
I have done this a dozen times with a near 90% success rate causing really quick sub lien as lone decision maker approvals.
AMY DO YOUR HOMEWORK AND GOOD LUCK!
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Permalink Reply by Amy L Augenstein on
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On th
Seller Net Proceeds 187,316.25 Payoff 1st Mortgage 175,600 175,600 100% 100% Payoff 2nd Mortgage 80,250 11,716 15% 15% 255,850 187,316 Does this make sense? My thoughts where to offer the 1st 90% but I like the idea of only dealing with the HELOC as a short sale. According to the owner they are current on both mortgages. We've got a couple of weeks to develop a strategy.
Seller is starting a new job next week out of state and wife will be following at end of month. Plan is t have them moved before we start marketing
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Amy;
A quick glance at the minimal data you have provided it appears your seller is NOT QUALIFIED for a short sale with sub lien holder as sole decision maker.
Underwater collateral by itself is not sufficient reason code for perfect payment borrowers to be approved for any short sale. There must be a qualified financial hardship.
After and if they ever become qualified:
A minimum buyer purchase price of $219,900 may work to avoid short sale process with the first mortgage lender.
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I think they will qualify for the finaiancial hardship. He has been unemployed/underemployed for the last 4 years. They have depleted their 401 k and maxed their credit line trying to keep heads above water. Willing to provide all documentation to estabhlish the hardship. This is not a stratigic deflaut. New job is a fraction of his previous income and requires them to move several states away. The reasoning of work with the first is the potential for receiving some reloaction assitiance. Just did one where sellers got $3,000.00 requested. Have anotther in pipeline where Chase offered $20,000.00 to borrower. Paying 8% to 2nd lein holder and also paying off a judgement lein. Unfortunatlly on this one the buyer has walked due to some Home inspection issues.
The sale price is targeted at $205,000. I already fiqured the seller paid closing cost typical for our market.
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Good Job Amy
You've done your homework.
It's all about the short sale decision lender perception of Current Fair Market Value. Reducing the sales price to attempt to get your seller some relocation incentive may be thwarted by the sub lien holder anyway after they see all of the recent draws from that equity line to pay their other bills.
Stick with the $205ish sale price is my suggestion and as Bryant stated prepare your sellers for a small cash contribution and maybe a promissory note post negotiation.
You can expect Fifth 3rd to be tough.
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In that case I believe your sellers are "almost" qualified.
Remember HAFA and other first mortgage relocation incentive programs paid to the sellers DO NOT apply when submitting to only the 2nd lien holders as sole decision maker.
I adjust my super padded not qualified previous estimate from $219,900 down to $204,900 paying the 2nd lien holder 10% of their balance at the closing of $8025.
If you submit with the 2nd lien payment still being paid current you have a 75% chance of decline.
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