I have a motivated seller but what's the best strategy?

Question

Good Morning All, I'm a newbie to this site and I have control of my first property. I even have the keys to it. Well I have a lady whose house was up for auction in November and she filed bankruptcy so now I sent in my authorization to release information form to her lender and she REALLY wants to get rid of the property but since its tied up in bankruptcy what should I do? I'm thinking shortsale. I told her to get her financial documentation together. Can someone give me advice in how to proceed?

Jill Md · Answer

I often had keys to houses I didn't actually own prior to closing.  That's just the way it works. Motivated sellers wanted to get out, and allow me necessary inspections, etc.

John Michailidis. · Answer

I wear many "hats" in my business dealings, but one of the things I do is help sellers get short-sales accepted by their lenders.  The rules have completely changes as compared to what things were like a year ago as lenders have become inundated with foreclosures and have become MUCH more willing to deal.  Having pushed many such deals through, I can say the following:
1.  What the lender is owed is irrelevant.
2.  Current market value is all that matters.

I am consistently able to get banks to accept a 20% discount off of current market value (that's off of CURRENT MARKET VALUE, which is often much less than what they are owed).

Think about it and it makes sense.  What the bank is owed has nothing to do with what they will be able to sell for if they foreclose -- the best they can hope to get is current market value.  Since the typical foreclosure costs a lender between $20k-$50k what with attorney fees, court fees, accrued interest, delinquent tax & insurance payments, etc., a lender can take as much as a 20% hit off of current market value and still come out ahead as opposed to foreclosure.

I have not been able to get a bank to accept less than 20% of CMV.

All of that said, there is an art to getting a bank to accept the short sale and simply slapping together an offer that is 20% below CMV is likely to be REJECTED.

My typical package is about 35 pages and includes a complete BPO (broker price opinion), a HAND WRITTEN hardship letter from the seller, documentation backing up the hardship letter (medical bills, divorce decrees, job termination letter, etc.), a complete seller financial statement, etc.

Your goal is to PROVE beyond a shadow of a doubt to the lender that the deal you are presenting is legitimate, and as good as they could hope to "net" were they to take the property back.

Make sense?

Marquita Lucas · Answer

Thanks for your numbers break down and all the good advice. I have the keys because that's just how motivated this seller is to get rid of her house. I know I was shocked myself when she made me a copy of them.

Charles Whitaker · Answer

Just my curious nature but why on earth do you have the keys to a house that you do not own?

Also, using a "blanket" number system such as offering 40%-50% off from list price will get you nowhere. You will be lucky to buy more than one house this way. Your offers should be calculated, the easiest to remember is retail value x 70 percent. The 30% reduction usually covers holding costs, insurance, taxes, as well as your PROFIT. Then you would subtract the materials costs for fixing the place and then a wholesaler fee if you want to go that route.

Comps   $280K
Minus 30%     $196K
minus repairs of $12K      184K

If your comps are accurate, very accurate, then I would offer around $165K and work up slightly if I had to. I tend to go with 65% of retail or less for calculations, depending on the neighborhood and the ability to sale that particular house.

Good Luck,

Charles Whitaker
Amarillo Investors LLC

Lou Castillo · Answer

Generally I try not to have both conversations with a Seller - Lease Option and Subject To. My goal is to always buy ST and not do LO. Buying under a LO scanrio leaves you wide open to a lot of potential problems in the deal.

If my Seller is more "in the know" and brings up LO, then I tell them I'd be happy to do that, but I generally offer the ST since it has several advantages to the Seller:
1) The house is SOLD - I don't have the OPTION to back out
2) Under a LO, you the Seller are still responsible for repairs to the property - it's the law and a right that I as your tenant can not waive even if I want to
3) You, the Seller, are still responsible for keeping insurance on the property - and since it is in your name, you could still be sued if someone ever got hurt
4) The Seller must also continue to pay property taxes
5) With a ST deal you can walk away and never be bothered by this house again. You got rid of it.

When I position it like this as a benefit, they are usually very happy to go with ST.

If you are trying to give the Seller 2 options: LO vs ST I would recommend that you don't. A confused mind always says NO. Pick the strategy that you want and sell that idea.

By the way, I always get keys to houses I don't own - that's just part of the deal. They need to move out and give me access for 30-45 days prior to closing!

David Sanders · Answer

Hey Lou, may i ask you a question.

What would you explain the fundamental differnce between a Sub 2 and a Lease/Option to someone???

I try but I usually confuse them.

Thanks

Lou Castillo · Answer

It is basically a virtual RE investing club with a forum and eucation products and other resources.

Account Closed · Answer

What is REICLUB?

Marquita Lucas · Answer

Hey I listened to you on REICLUB before! Thanks for taking the time to answer my posts. We shall see what happens. Thanks again!

Lou Castillo · Answer

I may really be out of the "know", but I have not heard of banks accepting 40-50% discounts on their loans. Under 20% is a good bet. 20-30% is tough and requires a lot of follow-up. Over 30% is almost impossible.

Given your numbers, I would say that the MOST you could pay for the property is about $190k which leave about $10k in it for you and $25k for the rehabber. At $190 you are talking about a 33% discount.

Get other opinions, but if I were you I wouldn't put a lot of effort into this deal. Submit your offer to the Trustee and see what happens, but I think that the chances of success are low unless the bank is really desperate to get rid of this house.