buying upside down properties

[Michael C Gregory]

If you see a property owner who is in trouble, and let's say his loan is for $200,000, and the ARV is $180,000. And you want to offer him $117,000. How does this work? Will the deal have to go through a Short Sale specialist? If he agrees to the deal, what happens to the balance ($83,000) of his loan?

Thanks.

Michael C. Gregory

Remedy Investments, LLC

[Michael C Gregory]

I want to help owners who are upside down. How can I buy their homes?

Mike

[Elizabeth Colegrove]

We have bought 5 houses this way all through the short sale process. As to the forgiveness, depending on the tax year and the owners circumstances, depends on if they have to pay tax on the forgiven amount (income).

[Brent Coombs]

@Michael C Gregory, the only way to help them is: pay off their whole loan for them. Not going to happen? Then, it's really only YOU who would be helped. Sorry to sound so harsh, but purporting to be an altruistic for-profit Investor is fairly close to being an oxymoron in my dictionary.

In reality, it's their LENDER who will decide how much they can be helped.

If you're investing, why treat underwater properties differently to any other?

[Michael C Gregory]

Brent:

The question is: How do you buy underwater properties and make a profit?

Thanks.

Mike

[Brent Coombs]

Originally posted by @Michael C Gregory:

Brent:

The question is: How do you buy underwater properties and make a profit?

Thanks.

Mike

Correct. That is the EXACT question. Find out from: their LENDER! Ha!

[Mike H.]

This statement is absolutely not true at all.  

"the only way to help them is: pay off their whole loan for them. Not going to happen? Then, it's really only YOU who would be helped. :

The reality is a short sale helps out a seller SIGNIFICANTLY!  The alternative is a foreclosure. A short sale is a lesser ding on their credit and they are able to get a loan on their next house far sooner if they do a short sale than if they do a foreclosure.

In terms of what the next steps are:

You don't necessarily have to get a short sale specialist to take over but it would probably help. Otherwise, you or the seller will have to deal with the bank direct and put together the short sale package of info that they need. Not something most sellers are really motivated enough to do.

In terms of what happens to that 83k, it depends. I believe that congress extended the forgiveness of that amount so you don't have to pay taxes on it. That "short" amount is referred to as the deficiency.

There are two ways to deal with it.
1) As part of the short deal with the bank, get it in writing that they won't issue a deficiency. 

2) Make sure that the tax deal is still in place so that the seller is not responsible for taxes on any deficiency that the bank issues. If so, then there's no hit to them. 

Without either of those the seller is likely going to get hit with a deficiency and the tax consequences on a 100k deficiency could be far worse than a foreclosure. That being said I think the bank can still hit the seller for a deficiency on a foreclosure too so not sure it matters. i.e. when the bank forecloses and sells at the sheriff's auction or takes the house back and sells as an REO, the difference of the sale becomes the deficiency amount.

So even with a foreclosure, the seller can get hit with a deficiency. And the bank may also have the right to pursue the full amount from the seller - which could be far worse than paying taxes on a deficiency.  Yet another reason why a short sale would in fact be very very beneficial to a seller.......

[Brent Coombs]

@Mike H., I hear ya. I knew my comments might bring out some REO-lovers. And yes, I am aware of all the altruistic arguments that can be given to underwater owners to make them THINK you might be trying to help them out.

I have read dozens of threads from those who know exactly what to say to those poor folk, if only they could find enough of them to practice their best lines on.

Here is another one of them. Profit seekers: all! Altruistic motives: none!

[Mike H.]

Yea. And let me be clear. I don't do any direct marketing at all. So I don't target people and convince them to do a short sale. The only short sales I've ever bought are ones that were listed on MLS.

That being said. Why in the world would you think a short sale is somehow worse for a seller than a foreclosure? Thats just being mis-informed there.

In terms of whether a wholesaler or investor or realtor is doing a short sale out of the goodness of their heart, thats not what anyone is suggesting either. If they were, then they would donate their fees/profits every time.

But that wasn't the issue I was addressing nor do I think there's anything wrong with people making money AND helping out the seller.  The fact remains though that a short sale is HELPING a seller out.  The alternative to a short sale is losing their home and getting hit with a foreclosure and the bank possibly coming after them for the full amount of the deficiency amount.

In a short sale, that can all be negotiated. Seller avoids the foreclosure so they can qualify to buy a home sooner. Seller can negotiate a deficiency only OR no deficiency. Seller can make sure that the govt extension for not paying taxes on a deficiency or still in place and not have to pay any taxes on it and they make out like bandits.

Either way, taxes on a deficiency are going to be a lot less than if the bank comes after them for the full deficiency amount.  

So I don't see how its even remotely possible that only the investor is the only one "that is helped" in a short sale.  That statement is categorically incorrect......

[Michael C Gregory]

Thank you Mike. 

So if a homeowner says that they WANT to sell their home (now worth $100,000.), and their note is for $120,000., I would need to approach their lender (with a signed release) and ask if they would take $75,000. rather than go through a foreclosure?

Mike - Finally we all must live with ourselves!

[Brent Coombs]

@Mike H.. I agree with your approach, and you got my vote. I never suggested that "a short sale is somehow worse for a seller than a foreclosure", which isn't the topic anyway. My rant has been aimed at those who, like @Michael C Gregory, write words like "I want to help owners who are upside down" - as if THAT is their motivation. But he came unstuck in my book by suggesting that he only needs to Offer $75k for their home that is ALREADY worth $100k - as if THAT is going to help the Seller!!! I reckon that their LENDER is likely to help them out in a greater way, by rejecting such low-ball Offers. What I should have said in my original reply was "the only way to help them is to pay them as-is MARKET VALUE for their home". Is Michael going to do that? Get it?

Mike, why I agree with you, and not Michael, is that you are not targeting (read: preying on) underwater owners. That's good in my book. Cheers...

[KC Morgan]

Michael C Gregory
Is there any follow up to your initial question? I'd be interested to hear if you were able to negotiate something that was mutually beneficial (i.e., you got a property at a good price, seller avoided foreclosure and deficiency, and bank got rid of a non-performing loan).

I should be talking to a seller today who is upside down and trying to make sure I understand how I can help him.

-KC