Replies to This Discussion

Permalink Reply by Jim Schneider on October 25, 2010 at 6:38pm

Rapidmd,
sounds like you are a buyer on a short sale, congratulations.

When you're buying a short sale, you have to do even more homework then when you sell. Why? Because you need to know what the sellers and their agent are not going to tell you.

You need to check 1. the loan situation 2. the listing agent's experience 3. the value, because if any of these are off your chances of closing goes down.

1. the loan situation:

1a how many loans? sounds like your agent did part of this, their's 1 loan with BofA, but there is more you should know.
1b When was the lis pendes filed? (this is the legal document that get's recorded at the county recorder's office and starts the foreclosure procedure). If you know this and the usual time it takes for a foreclosure (ask your agent) you should know if it's too late to buy this home, I'd like to see that there's at least six months before a likely sale before I got my buyers involved, because a short sale will often take that long.
1c Is there a sherrif sale date scheduled? Often this can be found out by looking at the county sherrif's website or by calling.
1d are there any other liens, while your agent is researching the lis pendes, they should check if there are any other liens filed against the property, these can include HOA dues, back taxes, unpaid income taxes, mechanic's liens, even unpaid credit card bills. These secondary liens can be just as hard to deal with as a second mortgage

2. the listing agent's experience: I always pull up everything the agent has sold in the last 2 years. I want to know if the agent is active (has a fair amount of sales, at least 4/yr) and if they have ever been the listing agent on a short sale that closed. It would of course also be interesting to know if they have been the listing agent on a short sale that just went to sherrif's sale too! The reason you want to have your agent check this, is to make sure the listing agent who will likely be dealing with the bank, has any experience in this regard. Even in this market there are loads of agents that have never sold a short sale, you may not want to be in the deal that they are learning on, or you may at least want to have your agent (who is hopefully more experienced in this reguard) babysit a little.

3. Now we get to value. I get to this last because it takes the most time. Your agent should prepare a bpo(broker price opinion), just like the bank will have another agent do. Unfortunately, there are many agents who have never completed a bpo for a bank before either, so here's the magic formula:
A. find comps with the bank's system:
for a bank bpo you want to look within 1 mile of the subject for a suburban area (.5 mile for urban 5 miles for rural), comps should be within 15% of the subject's gross living area (that's the living area of the home and does not include basement) and built within 10 years of when the subject was built (GLA and age can usually be found at the tax assessor's website), and sold within the last six months or currently listed for sale. You'll want three sold and three for sale listings, try to get as close in style (ranch, split) and as close in the br/bth/bsmt/gar features as you can (different agents may place a different value on these features when they make adjustments for the differences).
This will give you the likely range of value for the "repaired" value of the subject, what it would be worth if it had no needed repairs.

B. Then get repair estimates, for now it might be okay to have a ballpark figure, but I'd try to get actuall written estimates, you'll have better piece of mind that you're accurate and it will cut more weight with the bank. Subtract 150%-200% of the cost of the repairs.
(I estimate higher when it would be a repair that requires different financing, if the hardwood floors need refinishing, you could still get an FHA loan: 150%, peeling paint, needs electrical repairs so you need a conventional loan 175%, the property is so bad that you need to buy all cash or with a 203k loan 200%).

Then it's just A-B=value
simple right :)

Well that's probably a lot more than you asked. I'd print this out and hand it to your agent, who has some homework to do.

Permalink Reply by Jake Bowers on October 26, 2010 at 4:34am

Hey Rapidmd,

This is neither expert or legal advice, but I have been going down this same road for several months now so understand your questions to some degree; you are trying to figure the likely negotiating steps here. Been there, doin' that!

For your question about the house value, you can follow Jim's process, or pay for an appraiser who will be willing to account for the 'issues' that the house has, and properly document this in their appriasal and discount the value accordingly. If you do neither prior to seeing if the bank counteroffers, then have the process set up and ready to go, as you may have limited time to get a valuation and prepare it for presentation to the bank to back up your offer.

More info on the present loan: If the sellers purchased the property for $173,000, why are they in a short sale situation now with the bank now? If the value of the property is in the $200k+ range, then they are not 'under-water' for a mortage from 2000 for $173k or less; if they sell the house for $210k then they have enough to pay off an old mortage of $173k or less.

For this to be a short sale, how did the mortage get to a level over $250k? Did the sellers take out a larger loan than the original purchase price of the house, either originally, or, more likely, when the housing bubble was peaking? This may be of more concern, as this may change the deal that bank will offer to the sellers to release the lien on the property to allow the sale to you, and thus the decisions that the sellers face. If they refinanced the house and got cash out of the loan for other things (a cash-out, refi loan), then if the state has any anti-deficiency protection, it is probably gone, and the sellers face a deficiency issue. So, what state are you in, and do they have anti-deficiency statutes, and, what do these say? It may be time to consult a Real Estate attorney, or at least do some more homework. (BTW, your agent may know, but has to be careful to not dispense what could be considered legal advice; agents are not licensed attorneys, and cannot engage in offering legal advice.)

Other questions: If the sellers have already left the house vacant (red flag already), would they will let it go to foreclosure rather than deal with the bank too much? What are their personal circumstances? And is there mortage insurance (MI) on the laon? Who actually holds the loan (investor)? You can find info on this site as to how to determine if it is a FNMA or Freddie Mac held loan. (These entities may have everything to say in the counters and decisions.) How badly do you want this particular house, and thus how much pain can you bear in this process? So, there is a lot more you may face in this process that just the bank's couteroffer to your offer.

And to Jim's point about the seller's agent; this person, and their relation to you and/or your agent, and to the sellers, is critical. An inexperienced sellers' agent is a real potential for problems in the negotiation, as they handle everything to/from the bank in the process. Follow Jim's advice, and figure this out very soon. Weigh your own agent's opinions on the seller's agent carefully; your agent may not really know, or may be hesitant to criticize a fellow-agent. If the seller's agent looks to be not aggressive, or not experienced, then hopefully they will be open to working with your agent as a team, or maybe even bring in a short-sale negotiator to do the hard work with the bank. (Who pays for a 3rd party negotiator would have to be settled, but in our situation, I would pay for it in a heartbeat, if I could get everyone to agree that it was the best thing to do.)

Sorry to offer more questions than answers; good luck to you!

Permalink Reply by Kelly Timm on October 26, 2010 at 6:16am

Based strictly on what you wrote, this is not a short sale. Ask the escrow officer/ Attny. what the pay off demand came in at. If they paid 173 and they are current with no other liens against the property, this is an equity sale. Even if they are behind on the mortgage, the delinquency will be added to the balance and in some cases can actually cause the property to be upside down. Someone is not telling you the whole story here. Every house listed these days is not necessarily a short sale. As far as all of the other numbers you are throwing out, sounds like they were asking for fair market and due to the houses disrepair, they lowered the price. The banks BOTTOM line is getting the note paid off. If that is done, they dont care if the comps are showing as 500K... Once the note is paid, the seller can ask what they want.

Permalink Reply by rapidmd on December 28, 2010 at 2:52pm

Thanks for all your responses, well today is December 28.. no word as yet.. It was listed as shortsale, so I am thoroughly confused.  Our contract ends next month.. Haven't heard one word on it.. grrrrrrrrrrrrrrr

I am hoping as the new year comes, we will hear something.. I will keep you updated.

 

Thanks everyone

 

Kelly Timm said:

Based strictly on what you wrote, this is not a short sale. Ask the escrow officer/ Attny. what the pay off demand came in at. If they paid 173 and they are current with no other liens against the property, this is an equity sale. Even if they are behind on the mortgage, the delinquency will be added to the balance and in some cases can actually cause the property to be upside down. Someone is not telling you the whole story here. Every house listed these days is not necessarily a short sale. As far as all of the other numbers you are throwing out, sounds like they were asking for fair market and due to the houses disrepair, they lowered the price. The banks BOTTOM line is getting the note paid off. If that is done, they dont care if the comps are showing as 500K... Once the note is paid, the seller can ask what they want.