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Updated about 6 years ago, 10/25/2018
Short sale as an investor?
I have a rental I bough in the 90s. My first. Stable neighborhood at the time, but not anymore. We pulled money out during the boom years and the area is now severely depressed. (South end of Toledo, oh - 43609). I’m upside down on the mortgage and wondering if it is feasible to do a short sale?
House is worth $20k. Owed $50k. Also needs about $10k in repairs to become rentable again.
If it matters, I have other rentals I could sell that would cover it but I would rather not. I could also board it up and just pay the mortgage down over time out of the other rents I am getting.
Any suggestions?
A lender will accept a short sale and waive a debt when it makes sense for them to do so. If you show that you have the ability to continue paying, there is a good chance they are going to want you to continue to pay. I have experienced many circumstances where there is no “hardship” per se except for being underwater and wanting to sell. In these cases, there is a good chance that if your short sale were to be approved, the lender could ask for you to contribute to the loss by way of a cash contribution or promissory note.
@Brian N First step is to contact your servicer and start a conversation. Tell them that you'd like to do a loan modification or a short sale. Let them contact the lender and come back to you with an answer.
If your lender is a big bank or hedge fund, it might be difficult to get in contact with a decision maker since your loan is performing. Unfortunately, the big guys might only talk to you if you start missing payments.
If a private investor owns your mortgage, you'll have a much better chance trying to come to some sort of agreement that's a win-win. As the borrower, you know the principal balance of your loan but that can be substantially different than what the lender has into it. For example, you owe $50k, but your lender might be into your loan for $40k. If you explain your situation and provide evidence to back up your numbers, the lender might agree to a short sale or short payoff. You never know what might happen until you ask.
You could attempt a short sale or a deed in lieu if you have one lien on the home and if you're eligible with the servicer. If you're current on your mortgage and financially solvent ( you mentioned you owned other homes with equity ), you may very well be denied for affordability or potentially be asked for contributions or a promissory note. You never know unless you try though.
#3 Foreclosures Contributor
- Paradise, CA
Originally posted by @Andy Mirza:
@Brian N First step is to contact your servicer and start a conversation. Tell them that you'd like to do a loan modification or a short sale. Let them contact the lender and come back to you with an answer.
If your lender is a big bank or hedge fund, it might be difficult to get in contact with a decision maker since your loan is performing. Unfortunately, the big guys might only talk to you if you start missing payments.
If a private investor owns your mortgage, you'll have a much better chance trying to come to some sort of agreement that's a win-win. As the borrower, you know the principal balance of your loan but that can be substantially different than what the lender has into it. For example, you owe $50k, but your lender might be into your loan for $40k. If you explain your situation and provide evidence to back up your numbers, the lender might agree to a short sale or short payoff. You never know what might happen until you ask.
I'm not sure that strategy is plausible considering the poster stated he has the means to pay it and/or pay it off so, a loan modification wouldn't really be an option.
Also, while this doesn't appear to be an option for this borrower, if there was some hardship, Big bank, little bank, federal rules require the big boys (or little boys) to not only talk to you but, give you a single point of contact and, provide that information at your request within a reasonable, documentable period of time.
I talked to the lender and hardship is required. So at this point it is just a bad investment on my part. Mistakes were made and lessons were learned! I guess I Just get to eat this frog.
Thanks to everyone for the comments and advice!
Just Curious, are you breaking even with your current renter? If you could hang in I would.
@Ron S. My point in making the suggestion was that if the loan was owned by a private investor, you might have a chance of working something out. Usually, borrowers only know who services their loan, not who actually owns it and the owner makes the final decisions. People working for the big banks are limited in what they can do because that's the way their systems are set up. They are not allowed to think "outside the box."
As a private lender, my only limitations are legal and regulatory compliance which gives me far greater freedom to make the best business decisions for my assets and help out the borrower when I could. Sounds like the OP tried but was stopped at the hardship issue. You should always ask, there's no downside, only upside if you get lucky.
#3 Foreclosures Contributor
- Paradise, CA
Originally posted by @Andy Mirza:
@Ron S. My point in making the suggestion was that if the loan was owned by a private investor, you might have a chance of working something out. Usually, borrowers only know who services their loan, not who actually owns it and the owner makes the final decisions. People working for the big banks are limited in what they can do because that's the way their systems are set up. They are not allowed to think "outside the box."
As a private lender, my only limitations are legal and regulatory compliance which gives me far greater freedom to make the best business decisions for my assets and help out the borrower when I could. Sounds like the OP tried but was stopped at the hardship issue. You should always ask, there's no downside, only upside if you get lucky.
Andreas...I got your point. My response would be...maybe. Your one time mom and pop lender carrying back their own private mortgage may be one thing but, an investor calling themselves a private investor, but practicing in the arena of negotiating/carrying/servicing paper on real estate, may subject themselves to the same rules as the big boys. Again, I get your point but with the environment we are in today, that "thinking outside the box" could land you in court as a defendant in a discrimination, fair housing, EEOC, etc. lawsuit. I can see it now, "Defendant, why did you think outside of the box for this white Anglo Saxon protestant male borrower but, didn't think outside the box for your black African widowed female borrower"?
Not saying that is the case. I'm just saying that even as a small player when compared to the big 5, nothing I do is without scrutiny as a lender/investor from some ambulance chaser looking to shake a few bucks off of my tree.
@Ron S. It's too bad we've gotten to this point as a society when we have to worry so much about these things. If people can't think outside the box because of this fear, the system freezes up and becomes less efficient. Frustrating, especially when it significantly impacts someone's life. Just the way it is, I guess...
We use a servicer so that we transfer the compliance risk to them. We make final decisions on loan mods but have the servicers prepare them as well to make sure what we are trying to do is in compliance.
I feel your pain regarding some of the attorneys out there. We've been sued twice in the past year by borrowers doing whatever they could to stop foreclosure but we came out ok.
#3 Foreclosures Contributor
- Paradise, CA
Originally posted by @Andy Mirza:
@Ron S. It's too bad we've gotten to this point as a society when we have to worry so much about these things. If people can't think outside the box because of this fear, the system freezes up and becomes less efficient. Frustrating, especially when it significantly impacts someone's life. Just the way it is, I guess...
We use a servicer so that we transfer the compliance risk to them. We make final decisions on loan mods but have the servicers prepare them as well to make sure what we are trying to do is in compliance.
I feel your pain regarding some of the attorneys out there. We've been sued twice in the past year by borrowers doing whatever they could to stop foreclosure but we came out ok.
Sucks to be in California sometimes! No good deed goes unpunished. I once got sued by a borrower that opened their loan in 2007, paid the loan off in 2010, filed bankruptcy in 2011 and sued us in 2016 for not reporting their loan as included in bankruptcy....the loan that paid off a full year before they filed! The garbage attorney advertising on the side of a bus shook us three times for $1,500 per pop until we finally said, "Ok...no...let's go to court". Only then did they go away.
Compliance is expensive. Non compliance is more expensive. Good to hear you smartly have your loans serviced by an institutional servicer. Hopefully they are a good one. (Not SLS or SPS is it!?)
@Ron S. Not sure who SLS or SPS are. We just moved the last of our loans from SN Servicing Corp to FCI Lender Services. We'll never go back to SN and FCI has been ok. I've been hearing good things about Madison Management and I think we'll have them service the next pool that we buy.
I've heard that servicers range from mediocre to terrible and I agree with that so far!
#3 Foreclosures Contributor
- Paradise, CA
Originally posted by @Andy Mirza:
@Ron S. Not sure who SLS or SPS are. We just moved the last of our loans from SN Servicing Corp to FCI Lender Services. We'll never go back to SN and FCI has been ok. I've been hearing good things about Madison Management and I think we'll have them service the next pool that we buy.
I've heard that servicers range from mediocre to terrible and I agree with that so far!
SLS - Specialized Loan Servicing out of Colorado. SPS - Selective Portfolio Servicing (Used to be the old Subprime Fairbanks Capital) out of Utah. Both big shops. National Portfolios. Both high Tech if not high touch. FCI has been around for a while.
I agree with your assessment too. mediocre to terrible although the big banks don't' get much better ratings sadly.
