Promissory Note - Killing Your Deals? The Buyer Might Come to the Rescue
Working wonders with short sales, Janet and I have a short sale where the second lean holder wants a $25,000.00 promissory note; which the seller can’t come up with. The second has PMI which adds to the challenge. Normally a seller who elects to sell short doesn’t have the capital to make the payment and is trying to do the right thing by using the short sale option and not foreclosures. The challenge where’s the money coming from; in some cases the agents will use some of their commission to close the deal. (On a side note that 6% commission is not what it seems to be, on at $100,000 short sale, some banks reduce the commission to 5% then with the splits with the selling side and buyer side that becomes 2.5%. Don’t forget the split with the Broker now we are at 1.25% that’s $1,500 gross. Added costs EO insurance and some fees typically $350.00 total in my office and we are $1,150 and with short sale taking 60 days to close (and that a fast one) the agent doesn’t have much to contribute.) We did the unthinkable, we went to the buyer. The home is just what the buyer wants in the right location and resale in a few years could be substantial.
The buyer ponyed up and we've pulled the deal out of the morgue and are looking to close in a few days… Having an expert in you corner with the experience in short sale transactions is a must, don’t let the deal die, there is always a way to make it work.
Richard & Janet - Certified Short Sale Professional
661-733-0507 OR 733-0508
Keller Williams Realty AV Serving Palmdale, Lancaster in California
www.HomesByJR.com
www.ShortSaleByJR.com
Comment
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Comment by Bryant Tutas on March 20, 2010 at 6:09am
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Amy, You definitely do not want to play games with FHA. Or any other lender for that matter. People do it because the chances of getting caught are slim to none. BUT it's still illegal.
I have spoken to many of the lenders and they are not spending much time investigating fraud....YET. But you can be sure the MI companies are. They are the ones taking the major beating. If they find out a deal is fraudulent they don't have to pay. I think we'll be hearing a lot about fraud in the next few years.
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Comment by Amy Cole on March 20, 2010 at 5:08am
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Victoria, Bryant and Richard, I am seller in an attempted SS since 7/09, and am a new Real Estate Licensee and have an agent handling my sale, and I rather innocently proposed this same sort of deal to circumvent the issue of FHA not allowing my buyer to contribute funds toward the 2nd lender's demands -( I admittedly am not yet well versed about SS issues- but am learning tremendously as I go through this process and a lot from the experiences on this website) and it was vehemently rejected by my agent and my atty as very very risky and officially illegal under RESPA. I wonder what would happen if the lien on the property for the illegal promissory note was req'd to bring legal action to collect... ?mm?
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Comment by Victoria Frieberg on March 20, 2010 at 2:38am
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Thanks Bryant! I was at an informational meeting with an FBI agent last week, and one very interesting part of the presentation was the fact that short sales have hit the top of their radar. Much faster than mortgage fraud! Anyway, the agent relayed that their flags go up with back to back closings most specifically. The most interesting statement of the day on many questions was "we have our eyes and ears open, it may not seem illegal now, but we may find that it is after more investigation". Wow. Some of the transactions sounded like clear and simple investment opportunities, legal flips with investors, no underhanded deals or false buyers. The person sitting next to me and I begged to ask when making a profit would become illegal in itself, but chose to stay under the radar! In the meantime, I document everything, and if it smells funny, walk away
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Victoria. Stick with the mantra in your head. Ain't no way I'm closing a deal with any side agreements that are not fully disclosed.
As co-founder of this site I do NOT recommend using the tactic as outlined by Richard. If he's comfortable doing a deal this way then that's between him, his seller/buyer and their attorneys.
ShortSaleSuperStars and ReGrow LLC does not condone any transaction involving secret agreements or funds transferring hands that are not fully disclosed on the HUD..
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Sounds a bit scary...the mantra 'if it is not on the HUD" sticks in my head..and the question 'are there any other agreements not known by the lender"...
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Comment by Richard OBrian on March 17, 2010 at 7:58am
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Here is an update on how we are working the deal, which was dead. The promissory note is signed by the seller and is put through escrow. The buyer signs a promissory note for with the same term privately to the seller. To protect the seller after the close of escrow the seller puts a lean on the property for the amount of the promissory note.
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i just called the Fannie Mae Loss Mit department, 888-326-6435 super nice rep on the phone. He suggested asking the first lien holder (wells fargo) to request from the investor an 'exception' due to the fact that I was able to negotiate a higher net to them then they would receive in another, possibly lower offer. He believed I would, in my case, get them up to allowing 20K as an exception. I am also contributing part of my commission, of course..waiting for the loss mit person who only works nights to come back on ..i hate weekends, can't work with the banks or the government...whos says they get to have lives! :)
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Interesting blog and is a great idea and more common these days it seems. Is exactly what we tried to do and got everything lined up but the buyer has a FHA loan and will not allow any contributions to the 2nd.
In this case for you... was it a conventional loan ? just curious... how much was the 2nd lien for that they wanted 25K to settle?
We are desperately trying to find a way around this roadblock we are in. Our 2nd wanted 25K on a 50K baln and we negotiated down to 15K but can't get the contribution through FHA guidelines. (California purchase money loans)... Any input or response is greatly appreciated !!!
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Comment by Elaine Kan on March 3, 2010 at 3:12pm
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email me at [email protected] and I can send you a copy
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how did the purchase price read?
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