South Florida Short Sale

Foreclosures
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South Florida Short Sale

Dave House
Fort Lauderdale, FL · Member since 2010 · 14 posts · 0 votes

A friend of mine is in a difficult situation. He's "way underwater" and in danger of losing his home to foreclosure. BofA has a first and is in the process of foreclosing but there's a private lender who has a second mtg.

My friend says he completed a hardship package and BofA agreed to let him do a short sale, if he could find a buyer. He had one offer accepted by BofA but 3 days before closing, the bank wanted $5000 more and the deal fell through. Since then, he has filed bankruptcy, which he says only bought him some time before BofA actually forecloses.

In hopes of keeping my friend in his home, we've discussed the possibility of me buying the home before BofA forecloses and then either renting it out to him or selling it to him while holding the note.

1. What's the best way to move forward trying to buy this property before BofA forecloses?

2. How does the 2nd mtg affect the situation?

3. What happens to the 2nd mtg, if BofA forecloses?

Thanks!

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  • Stan Jackson
    Real Estate Broker · Fort Pierce, FL · Member since 2009 · 221 posts · 95 votes
    15y

    Are you saying that your friend has a short sale approval and it was changed? I've never had nor heard of that happening before, but then again anything is possible, especially with BOA.

    If BOA increased the approved value then, basically a new buyer has to be found.

    As far as the 2nd, if the short sale closes, then the 2nd is wiped out. At least this is how I understand it. Others will chime in.

    On one particular file I had, the 2nd actually purchased the first causing the homeowner to start over and renegotiate with the new primary.

    What are the details of the property, you may be able to find a buyer here on BP?

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  • Kenneth Smith
    Real Estate Investor · Dania Beach, FL · Member since 2010 · 74 posts · 41 votes
    15y

    Hi Dave,

    Is the property here in South Florida? If so, what neighborhood? Also, this "private lender" holding the 2nd. Is it a friend, family member, etc.?
    If you can provide as many particulars as you can, it would certainly help.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    The second will be wiped out if the first forecloses. The second might have some recourse against the borrower, don't know.

    BofA will not let you buy the house then rent it to your friend or sell it to your friend. They may not even be willing to sell it to you. But if they do, they will require you sign a statement that the seller is receiving no benefit.

    There must be something more going on. Being underwater doesn't result in a foreclosure. A borrower might choose to stop paying and let the lender foreclosure if they're underwater, but just being underwater won't cause a foreclosure.

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  • Dave House
    OP
    Fort Lauderdale, FL · Member since 2010 · 14 posts · 0 votes
    15y
    Originally posted by Stan Jackson:
    Are you saying that your friend has a short sale approval and it was changed?
    That's what it sounds like to me. 1) Hardship package complete & approved to find SS buyer 2) SS buyer offer accepted but then countered (+$5,000) 3 days before closing.
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  • Dave House
    OP
    Fort Lauderdale, FL · Member since 2010 · 14 posts · 0 votes
    15y
    Originally posted by Kenneth Smith:
    Hi Dave,

    Is the property here in South Florida?

    Yes
    Originally posted by Kenneth Smith:
    If so, what neighborhood?
    It's in a desirable neighborhood east of I-95.
    Originally posted by Kenneth Smith:

    Also, this "private lender" holding the 2nd. Is it a friend, family member, etc.?
    I believe it's a friend.
    Originally posted by Kenneth Smith:
    If you can provide as many particulars as you can, it would certainly help.
    What more particulars would you like?
    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    15y
    Originally posted by Stan Jackson:
    ...
    As far as the 2nd, if the short sale closes, then the 2nd is wiped out. At least this is how I understand it. Others will chime in.
    ...

    In a short sale, the second position will not release their lien without being compensated in some way - so saying they get wiped out is a bit erroneous. There will be no purchase of the short sale unless the second releases the line, or unless the buyer purchases subject to the second position lien remaining in place; but if the buyer is finaincing the purchase, the buyer's lender won't allow the original second to remain in place (since that original second is now first in time, placing the buyer's lender second in time - so second in line to foreclose).

    Now, Jon Holdman already explained what I will state next. If the first position forecloses, the second is then wiped out at the foreclosure auction (and the second lien holder will therefore have to bid to protect their interest in the collateral that is at risk here).

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  • Dave House
    OP
    Fort Lauderdale, FL · Member since 2010 · 14 posts · 0 votes
    15y
    Originally posted by Stan Jackson:
    If BOA increased the approved value then, basically a new buyer has to be found.

    What are the details of the property, you may be able to find a buyer here on BP?

    What details do you need? The owner and I have discussed the possibility of me buying the home before BofA forecloses so I'd like to see if this is viable option first and foremost. If so, I'm looking for guidance on what's the best way to move forward trying to buy this property from BofA before it forecloses?
    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    15y
    Originally posted by Dave House:
    ...
    In hopes of keeping my friend in his home, we've discussed the possibility of me buying the home before BofA forecloses and then either renting it out to him or selling it to him while holding the note.

    ...

    Please be careful in what you are planning to do; the piece that I have in this quote indicates you are planning to do a "sale and lease back". If something doesn't quite go the way that one of the parties to this transaction expects, this could end up in front of a judge - judges have been know to rule that these "sale and lease back" transactions can be considered to really be something else...

    http://homeequitytheft-cases-articles.blogspot.com/2010/02/new-jersey-sale-leaseback-of-home-in.html

    http://homeequitytheft.blogspot.com/2010/02/nebraska-supreme-court-ruling-reminder.html

    http://www.avoidhomeforeclosuretoday.com/seller-lease-backs/

    https://www.agentxtra.net/extranet/singlesource/content/underwriting/SaleandLeaseback.htm

    http://www.scribd.com/doc/45048765/Brown-v-Grant-Holding-LLC-394-F-Supp-2d-1090-D-Minn-2005

    http://www.scribd.com/doc/42781539/Foreclosure-Rescue-Scams

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    15y
    Originally posted by Dave House:
    ... I'm looking for guidance on what's the best way to move forward trying to buy this property from BofA before it forecloses?

    You are not buying this property from BoA before it forecloses, you are really trying to get BoA to approve sale of this property from this friend to you at a discounted payoff amount ("short sale").

    If this does become a short sale trascation that closes, the short selling lender (BoA in this case) will issue an approval letter that will have certain stipulations; among those stipulations there will typically be wording that says the transaction must be "arms length" (your arrangement might miss meeting this), and there will typically be wording that says the seller (your friend) will in no way gain from the transaction (the option to buy back could violate this, as well as letting the seller stay as a tenant).

    Proceed with caution ...

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