A dollar short and many days late!

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

Last week, I was fortunate enough to get multiple offers, on one of my "short sale" listings. I received three offers on the same day. That's always a real good thing. I discussed the negotiating options with the Seller and we decided to ask for "highest and best" and gave the Buyers 78 hours to resubmit their offers. Well, the strategy worked pretty well, and one of the offers was increased by $11,000, which was just high enough for the Seller to be able to accept it. Being that the property is going to require a "short sale" it was important to get as high an offer as possible and as close to market value as we could. One of the keys in getting the bank to accept a "short sale" is to get them a realistic offer based on current market conditions. Low ball offers will not work.

Anyway, the three most recent sales were at $189,000, $193,000 and $200,000 in that order, from most recent sale. These sales show a distinct pattern of decreasing property values. The price, we have negotiated, is $200,000 with the Seller contributing $7,000 towards the Buyer's closing costs, this is effectively a selling price of $193,00 and is right in line with the recent comps. So hopefully, we will be able to get the Lender to accept the deal.

Here are the specifics relating to this transaction:

  • The house was purchased as new construction in early 2006 for $225,000.
  • It was purchased with $5,000 down including closing costs and the existing mortgages total $220,000.
  • The first mortgage is with Countrywide and had a starting balance of $157,000.
  • The second mortgage is with American Home Mortgage and had a starting balance $63,000.
  • When he bought the house is was probably only worth $205,000 to $210,000. A little fishy appraisal action took place here, in my opinion. 
  • After all costs and paying off Countrywide there will only be about $18,000 left for the 2nd mortgage.
  • There are currently 1,600 active listings and only 125 pendings in this neighborhood and the property has been on the market for 8 months. 3 with me.

So, basically, we are asking the 2nd Lender to take a $45,000 loss on a property they probably should not have financed to begin with.

What do you think? Any hope showing? Or, are we a dollar short and many days late?

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Comments (26)

Ann Guy
NA - Allentown, PA
If you don't ask, you will never know.  Considering that you can validate the the offer with the current trends, and the fact that Florida's foreclosure rate seems to be higher then the average, I say you have a shot. 
Jan 10, 2007 10:58 AM
Marguerite Crespillo
Marguerite Crespillo - Roseville, CA

Hi Broker Bryant:)  In my experience it depends on who you are dealing with.  Getting someone reasonable to handle the case and putting your phone on non-stop redial helps. Unfortunately I have not found any rhyme or reason to what they are choosing to accept and/or not accept, so like Ann said just throw it out there and see what sticks.

Do the seller's have a valid case as to why they can no longer afford the home? If they have any other assets, the bank will ask for them and/or ask them to carry a note and make payments on it.

Good luck:) If anyone can do it YOU CAN!

Jan 10, 2007 11:42 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hey great comments everyone. Thanks. My Seller actually made a very good move, based on my advice, and hired an Attorney to negotiate with the Lenders. I was concerned that the Seller was not understanding the repercussions that could happen with a "short sale" i.e. 1099 and being held personally responsible for the amount of the short. So to be on the safe side he hooked up with an Attorney to handle that part of the transaction. Gets me off the hook too, so that's a good thing.

I've handled several "short sales" so will be curious to see how the Attorney does.

I have two other properties listed right now that will be going through the same thing. I expect to have quite a few of these this year

Jan 10, 2007 12:03 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Bryant, I don't see where the Seller has much choice but to take the offer.  If the comps are what you stated, the bank only stands to loss more money in my opinion if they foreclose, so I don't think they have much of a choice but to accept also. I will be interested to hear what they end up doing.

 
Jan 10, 2007 01:03 PM
Lucky Lang
Premiere Plus Realty Marco Island - Marco Island, FL
Marco Island & Naples Florida Real Estate

Bryant,

Great job getting the offer up $11K!  Sounds to me like you've got them the best deal they'll see.  Smart move referring to an attorney.  That saved my clients and I on the last one that I did.  The acceptance terms of the offer they sent was not signed by the lender (just name typed in).  The attorney required them to sign it.  When they sent the next one, which was signed, the lender tried to pull a fast one by changing the deal that they negotiated over the phone. They had first agreed to having no liability to my seller for the shortage (deed in lieu of foreclosure).  Then they sent the signed agreement with my sellers being personally responsible for the shortage!  After threatening them for two days with having the sellers staying put and not making house payments, taxes, insurance, and sewer liens for 6 months they finally caved in.  Personally, I think the sellers should have been held responsible since they borrowed the money.  However, I was representing them and had to negotiate on their behalf.  Besides, it really p***ed me off that the lender outright lied to me!

BTW, BB, you left us all hanging on my blog about abbreviations with your "IAROTFLWPIMPA".  What in the world does this stand for?  Please drop back and explain.  Rob made a guess at it.  Is he right?

Thanks!

Lucky :)

Jan 10, 2007 01:34 PM
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Darlin' (Broker Bryant) I forgot to show you this...

  

 

 

It is my new signature and I intend to use when I feel like it. Jeff Turner made it for me. :)

TLW...ROAR!

Jan 10, 2007 01:34 PM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I am just curious, do they 1099 foreclosures too?

Jan 10, 2007 01:37 PM
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL
I Am Rolling On The Floor Laughing While Peeing In My Pants Again.
Jan 10, 2007 01:44 PM
Lucky Lang
Premiere Plus Realty Marco Island - Marco Island, FL
Marco Island & Naples Florida Real Estate

What a riot!

These acronyms never cease to amaze me!

Thanks!

Lucky :)

Jan 10, 2007 01:52 PM
Bonnie Erickson
Tangletown Realty - Saint Paul, MN

1099s for the "forgiven" portion of the debt is one of the secrets of short sales.  It's a good thing to warn your clients about.  They may need to figure out how they are going to pay their taxes!

As to whether you'll win.  Who knows.  The sure thing is that if you did not try, you definitely would not get it accepted by the lender!  So keep on trying.  Your statistics support the short sale! 

Jan 10, 2007 03:36 PM
Randy L. Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645
We really haven't seen much in the way of short sales in our market.  I am just now starting to see a couple of them.  I am following your posts to get an idea of what we may expect from the lenders in the future.
Jan 10, 2007 06:39 PM
Ed DeChristopher
Fredericksburg Realty, Inc. - Fredericksburg, VA
CRS Fredericksburg VA

How did we get into this situation of inflated sales prices on homes?

Think you identified one of the reasons - bogus appraisals.  Who's to blame?  The appraisers?  How many appraisals do you think they will do if they consistently tell lenders that homes are not worth the contract price?  The lenders?  How many loan applications will they get if the word gets out that they are not approving loans because of poor appraisals?  The agents?  Should they write contracts with prices they know are inflated?  Is that ethically proper and/or equitable?

Wow folks, I have just had an idea for a new posting here on AR.  Got to go!!

Jan 10, 2007 08:10 PM
Ron Withers ----Retired Mortgage Professional
Kissimmee, FL

BB,

Like someone said; you never know unless you ask.  My thought is that there is a fair chance your short sale will fly. Countrywide will come out smiling. American Home could come out worse if there is a foreclosure and they don't buy out the first to try to protect their position.

Jan 10, 2007 09:30 PM
Allison Stewart
St.Cloud Homes - Saint Cloud, FL
St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904
Ron raises an interesting point. Buying out the first to protect their position. The attorney was a smart move on your part. I would have done the same. You know your area better than anyone BB what is your gut telling you?  With your experience are they (the second lender) likely to take the loss?  I had success in  situation on a property I purchased the day before foreclosure in NH many years ago-the second position holder took the loss. But down here??? I have no idea! Please let us know how this one plays out.
Jan 11, 2007 12:26 AM
Carole Cohen
Howard Hanna Cleveland City Office - Cleveland, OH
Realtor, ePRO
Broker Bryant I agree with George, it seems like a very good market value offer. I am always amazed, and shouldn't be anymore, at how many of these are going on now. We were told via the State's Attorney General's office (in a newspaper article) that Cleveland short sales and foreclosures were more tied in to mortgage fraud than almost anywhere else in the Country and they are prosecuting quite a few 'peeps' this month. But back to the topic - I hope the two lenders work it out!
Jan 11, 2007 01:41 AM
Laurie Manny
Long Beach CA Real Estate - Long Beach, CA

BB,  It will be interesting to see how the lender handles this.  Based on your information it seems that the logical thing to do would be for the lender to accept this offer as the lesser of two evils.  Unfortunately the lenders are not all choosing the logical route right now.  Please keep us informed on the progess.

Jan 11, 2007 04:32 AM
Anonymous
Stan

BB,

I'm curious if you could share whether the buyer is another flipper or someone who's actually buying a house to live in it.

Regards

Jan 11, 2007 06:14 AM
#23
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hi Stan,

He was a flipper. This particular builder was a little mom and pop shop and sold about 30 houses in my area. They were all the same deal. $225,000 with $5,000 down. As soon as they are completed we will resale them through our affiliated Real Estate company at $275,000 before the first payment is due and Eureeka!!! you will make a $35,000 profit. Well all 30 of these homes are now in the same predicament. The builders gone and 30 people have been screwed. The biggest isssue is the houses were NEVER worth $225,000. The prices were inflated to begin with. 

It will be interesting to see how it plays out.

Hi everyone, I really appreciate all the comments. Sorry I can't respond to everyone individually today, I'm a little buried in work.

Jan 11, 2007 06:28 AM
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Bryan,

You lead an interesting life. I find this case very interesting, but I don't have the necessary information.

You have an effective offer of $193,000.00, which nets $45,000.00 less than thepay off on the property, and you want to do a short sale.

Short sales are really simple, lenders will accept a short sale/settlement offer when it's in their best interest.

Countrywide is not going to gift the seller with any of their money, because they're not at risk. $157,000.00 on a $193,000.00 leaves them room completely recover their money.

That leaves American Home Mortgage. Why should AHM take a loss? You don't tell us about the sellers current finances.

Just having a CLTV of 123% is not sufficient to compel a short sale. I've still got lenders offering 125% new loans!

That the owners want or even need to move is not a good reason for the bank to lose money.

To many Gurus teach that "a short sale" is found money, a superficial reading of some of my books and you might get this idea, but a closer look points out that all short sales are accepted as the lesser of two evils.

Is the first, Countrywide in foreclosure?

Has the owner lost their ability to pay?

Does FL allow deficiency judgements?

If AHM knows your seller had intended to "flip" the property they're not going to look at this favorably.

Was fraud involved in the origination of the loan? Conspiracy?

How many loans does AHM hold in the area?

How will AHM benefit from a settlement?

Assuming AHM is interested in talking, watch out for you commission! Your offer included $7,000.00 in concessions, do the current comps show concessions are necessary?

Short Sales are a wonderful tool, but I keep hearing REALTORS® refer to them as if they were an automatic and for drawn conclusion. I hear about "short sale listings" how do you list a property that the seller can not be sure to deliver?

You've got people commenting on "1099" tax issues as if they just discovered that sellers sometimes have taxes to pay. A foreclosure can also have tax problems, too. If the loans exceeded the basics. The taxes on a settlement need to be consider by the owner when deciding not to continue making the payments.

My experiences with short sales with one huge exception have all been from the buyer's side. Brian Brady has worked the other side, he recommenders not a short sale but a substitution of collateral to solve such problems. Does you seller have $45,000.00 equity elsewhere that he could use to secure AHM's interest?

There is always more than one way!

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

PS: When TLW gets back from changing her pants , please tell her that I like the new logo.

 

Jan 11, 2007 08:25 AM
Laurie Mindnich
Centennial, CO
BB, you'll likely never find this comment this late, but what happened with this?  I need to go back to before I joined and do some great reading.  My "accidental" short sale has been a NIGHTMARE.
Sep 12, 2007 10:02 AM