Exit strategies for pre foreclosure 4-plex other than Shortsale?

Question

I just heard back from an owner of a 4-plex, that I originally contacted late last year. He is ready to move forward. He has not made payments on the property for years, had filed BK and no LP has be filed yet (as far as I can tell on the clerk of courts). He is getting collection letters from the bank. And what is owed to cure the default (approx $270) is about $70-$90k more than what I am estimating for ARV (I am still waiting on comps from my realtor). Each unit needs work, but I am again estimating about $5-8k could bring two of the units up to speed to rent and get income coming in while the 3rd and 4th units are rehabbed. They need much more work. Conservatively, each 1/1 unit could rent from $700-$800. Rentometer report states Average $745, Median $725, 80% rent at $550-$1000 and 60% rent at $625-$850.

So with knowing what I know a shortsale seems to be the obvious route to go. However, I am curious if there are other exit strategies that might make sense. To me a subject to would not work because the loan is upside down. And a lease option would seem foolish because of the work needed and no guarantee that the bank won’t move forward with foreclosure. So, any other options anyone can think of? I do have an experienced shortsale agent that I will be working with, but I am just curious of what everyone thinks about other possible options.

I have an appt. with my RE lawyer on Monday to review the title search and so I am sure he will clarify a lot for me, but would love additional input here.

Lastly, in the Itemized list of amounts the bank gave him to cure his default there were a couple lines that I wasn’t clear about. Can anyone clarify?

Advances made on customer’s behalf

Escrow advance balance (deficit)

I originally thought these were the past due payments and then escrowed taxes and insurance, but the itemized list specifically states “Total amount due includes Escrow payments(taxes/insurance) of $0.

He is not behind on his taxes, so the bank had to be paying them.

Thanks for any input you can give me! =)

Joel Owens · Answer

The main problem is what the bank might require of him for the short sale him being an investor. Right now he is telling you he might want to do something. If the bank wants him to fill out all of this personal stuff disclosing all of his assets etc. he might say forget it. Especially if he is not living there (out of sight, out of mind). Generally these investors who own defaulted properties just want lenders to go along with things. Some lenders play dirty and are looking for assets when the borrower fills out the hardship forms.I have seen that happen before on those deals.You might could buy the note for a big discount and then have him quit claim the property to you the lender. If it's a local to regional bank that owns the loan they might look at that option but if a national bank generally not for single notes.With the short sale he would have debt forgiveness issues as well. The IRS sees debt forgiveness as a taxable event but if he was insolvent then there are forms for that his accountant could help with.With him not being an owner occupant it is doubtful he would get any money as assistance from the short sale. No legal advice given.

Wayne Brooks · Answer

Yep, a short sale is the only that makes sense, for you anyway. As Joel says, this sounds like a chapter 13 gone bad. The owner probably isn't in a big hurry, since foreclosure will likely take a year or two, and I rarely see the banks invoking assignment of rent clauses, so he can live free/collect rents for another year or two. As for the pay off....yeah, "advances" will be taxes and insurance. The reference to escrow being $0, may be the escrow balance "credit balance". The taxes and insurance will surely be in the total.

Martha Blumel · Answer

Joel, I am curious if you have ever purchased a note in this manner. His mortgage is currently with Select Portfolio Servicing for Wells Fargo, so as you mentioned this option probably would not work, but I am curious if you have had success purchasing the note at a discount.Also, once you purchased the note, wouldn't the process be more of a deed in lieu vs. quit claim?

Martha Blumel · Answer

Thanks @Joel Owens

Martha Blumel · Answer

Thanks for your responses. I believe that it was Chapter 13 BK and then he hasn't been making the payments. He does not live locally and all of the units are vacant, so he has no income coming in.

Joel Owens · Answer

If he is getting bank letters from collections then it is supposed to be out of bankruptcy and was dismissed for non-compliance of the repayment plan for a chapter 13. Either that or the plan was never confirmed just the BK was filed to stall and now the mortgage file had been moved out of BK department back to collections. Customer service, then collections is the second stop, then loss mitigation, then the pre-foreclosure department is how most loan servicers operate. In some areas if the filing of a BK has been longer than 6 months and then cancelled before the plan was confirmed then they might can file BK again and stall again the process.If their credit is trashed there really isn't much motivation for them. Do they live in one of the units currently? If so as an owner occupant some short sales programs offered money before to move up to 20,000 in some areas.If they are not getting paid anything to move from where they live then it would seem they would milk free rent for a much longer time.