SS Deal or no Deal - rental prop with tennants?

Question

I was approached today by a realtor who had a possible deal but it was way too complicated for me to give him a hard line "yes or no" and I wanted the BP community's take in it.

The homeowner owns an invesment property with tennants living in it.  The tennants pay on time and are interested in buying the property from the seller, but less than what they owe as they are underwater.  The rent is a little more than half of mortgage payments and the seller is about 3 mos behind with a NOD filed and trustee scheduled for Septemeber!!

I know it sounds like I should just pass......

But for education's sake, Deal or no deal?

I know insolvency has a lot to do in proving your case to the lender to sell short, so does the fact that the property is occupied by paying tennants show that the seller is NOT insolvent but just made a bad investment?

Bill Patterson · Answer

Joaquin,
As long as the owner can show a hardship, you can short sale this.  Maybe there was a change in the rental vacancy rate that caused rents to decrease.  There could be other hardships that cause him to be behind in his payments.  We had an investor short sale with no deficiency, but by the time the letter got to us, it expired on the next day!  We have requested a new one and hope to close soon, back to back.

One word of caution...Have the tenants made an offer?  You don't want to slide in under an existing offer.  If they have not made an offer....you should be good to go.  Submit your offer and then negotiate with the tenant and everyone should be happy!
Good Luck,
Bill

Maryann L. · Answer

Joaquin,

I see red flags everywhere but it doesn't mean it's not a deal.  Are you planning on buying and selling to the tenants? Are the TENANTS underwater?  I might be misreading your post but that's how I interpreted it.

Insolvency is more a tax accountant issue not necessarily proving your case to the lender.  I think you may have meant deficiency.  Only the homeowners accountant could really identify insolvency after the short sale is complete.

I THINK investment properties are harder to get a zero deficiency on but maybe that's a myth.

I wouldn't necessarily say no on this one, but proceed with caution.