Pre - Foreclosure... I got in now what?

Question

There is a property in my neighborhood that is in pre foreclosure (1 1/2) years. The current owners are underwater (to the tune of a 325,000 re-fi 4yrs ago) and there are liens on the property from tax liens and entities like health care providers and such. They (the current owners) are just waiting until the sheriffs sale and then just move on when they come to clear and lock the home. That said I finally got in the home and it is a disaster (my diamond). This is not a 10k reno more like a 75k reno on a home with a ARV today of 200,000 for the avg investor but because I own homes adjacent to it it has greater value as the property can be combined with my other properties to allow for a zoning change hence huge upgrade in total land value to me.

I know whom the lender is and lien holders are to include the amounts owed.   I know I can negotiate with the lien holders but the bank is another story.

In my county "some" of the properties when they go to sheriffs sale are bought high because there are so many investors. If the bank gets it back at auction I suspect I will lose out to other investors in the REO process.

ANY thoughts would be appreciated.

PS. Is there a way I can contact the lender (1) somehow if the current owner offers me contact info? If I get the contact info is a bank going to talk to me?

Ana Nomys · Answer

@Laura Marshall

Thank you for your insight. I have run the title report and I am fully aware of all the liens. I have a owner/seller that is willing to work with me. There is only 1 mortgage on the property and yes there are liens but they are relatively minor. That said the home is really a wreck (30 yrs as a rehabber/contractor/investor I am). I am a heavy contractor and most rehabbers would not touch this home in my area as the cost/numbers for most investors would not work. The value for me is that I can combine this property with others I have adjacent to it to create a large parcel that has a much greater value.

I appreciate the "qualified" agent suggestion but if you don't mind what does a Realtor actually have the ability to do that I cannot... or let me say what can the "qualified realtor" do that I cannot learn to do...

I look forward to your reply

Laura Marshall · Answer

I have closed more than 130 short sales. There is a 99.9% chance that they will NOT negotiate if the property has not been listed on the MLS. They usually require a copy of the listing agreement. Also, the owner must be willing to move forward with the short sale process. If the owner is willing, find an agent that has a LOT of short sales under their belt. It is not just a short sale to the 1st lien holder, but all lien holders. As previously mentioned, they will usually offer about 8% of to total purchase price to be paid toward subordinate liens. That is not 8% to each, but 8% of the purchase price total - no matter how many liens there are. Some will also state that the liens must be mortgages or HELOC's. The IRS is easy to deal with, but the owner will also have to cooperate with that one too. If the owner agrees and you have a QUALIFIED agent to work with, make sure that the title report is run ASAP ! There may be other liens that need to be cleared that you are not aware of. The amount that they are underwater is not the issue. I closed a short sale that was more than 1.1 million underwater. The problem is they want a fair market value offer, and ALL other lien holders must agree. If even one says no, and you are not willing to pay it off yourself, then it will not work. Good Luck .

Wayne Brooks · Answer

@Ana Nomys As I said, the bank won't let you do it on your own, they'll require it to be listed. Your Best chance of getting it done is to find an experienced agent to handle it.  And while you may not care if you lose a short sale deal, because you don't do it right, the owner who may not have time to try a short sale a second time, is the one who suffers if you screw it up, can't close, won't close, etc.

Ana Nomys · Answer

@Wayne Brooks

I appreciate the the typed response. That said I was hoping for some answers to my questions. I am a student of life not a sheep in a flock. I do not mind losing the deal as long as I give it a try based upon some true guidance by those (more than one) that have experienced and are willing to share. "Nothing ventured nothing gained".

@Ankit Duggal

Thank you for your sugggestion. I do know the lender and all the lien holders and amounts. I believe you suggest I ask that they (mortgage co) "sell" me the note not "see" it? Is that correct?

Ankit Duggal · Answer

Ana

If you know the lender. Reach out to their loss mitigation or mortgage credit department to see if they will see you the note.

Ankit

Wayne Brooks · Answer

@Ana Nomys in short...because you don't know, what you don't know.  You'd learn some things after the fact, and after the deal was dead and the owner foreclosed on.  IRS liens are fairly simple to eliminate, but can't be dealt with until after the SS approval has been given, and then you're on a clock.

The bank will require the owners to engage a real estate agent anyway.  This is not a DIY.

Ana Nomys · Answer

@Wayne Brooks

Thanks for the info.

Can you define what an "experienced" short sale agent is and there qualifications. Why can't I do what they do? What would they do in this scenario that I cannot learn to do?

Wayne Brooks · Answer

You'll need an experienced short sale agent.  The bank will require the property to be listed in the MLS.  They will be looking for something close to current FMV and probably won't discount the property for the full costs of renovation.  They'll generally be willing to pay about 8-10% toward the junior liens.  The specific process will vary depending on who the Servicer and actual investor is for the loan.