Anything I can do with this deal?

Question

I'm a wholesaler but want to get deeper into this situation before passing along to a buyer:

Mom died June 2012 (last payment made). daughter is the heir. Records don't show foreclosure so "mom's" name is still on deed. Upside down Mortgage. They tried short sale with agent but didn't work out (for said reason). Vacant.

Capitol Heights (PG county)

ARV: $159k (Zillow says 201k)

(Seller WILLING to sale): $35k

Repairs: unknown at the moment (suspected 60k)

Mortgage: 1,370/mo

Owes bank: $105,951 as of (6/2012)

With the numbers above, is there any real estate solution that will help this circumstance? As said, she already tried short sale.. Not sure what happened during the process but she is seeking help elsewhere other than agent. If there is anything I missed to conclude this situation please let me know. I would very well appreciate insight! Thanks.

Denise Evans · Answer

i'm with @Wayne Brooks on this one. There are five reasons short sales don't get approved if the price is reasonable.

• The seller (meaning, usually, agent) did not submit all paperwork properly, the time limits expired, and the short sale was turned down.  This happens a LOT.
• The seller took so long to turn in paperwork that the bank-ordered appraisal expired (some banks require a new appraisal within 120 days of short sale approval), the bank ordered a new appraisal, and then the time limits for the financial information expired, the bank requested new financial information, the agent got fed up and said the short sale was turned down.  This happens much more often than you would think, but is not common.
• The paperwork showed the borrower had sufficient income to continue servicing the mortgage, or sufficient liquid assets to bring cash to closing. This happens almost NEVER.
• The bank ordered appraisal was too high, causing it to deny the short sale because, according to the appraisal, the bank would be better off pursuing a foreclosure and sale.
• The second lienholder is somehow under the impression that if the first mortgage forecloses, the auction price will bring enough to pay off the first mortgage plus additional money towards the second. This almost NEVER happens. The 2nd lienholder will virtually always sign off on a short sale if paid the $3,000 token amount at closing that the 1st mortgage almost always allows to be paid to the 2nd lien holder.

You should submit a new offer, get an authorization letter from the seller, and handle the short sale approval process yourself.  Follow all instructions to the letter, and submit all paperwork in a timely manner.

Meet the appraiser at the property. Provide a list of all rehab work necessary to get the property up to the standards of comparable properties in the neighborhood.  Include estimates for each type of work--roof, rough carpentry, finish carpentry, plumbing, electrical, flooring, wall covering, mold remediation, etc. This is much more persuasive than a lump sum.  Provide 6 comparable recent sales for after-rehab property condition. Explain (in writing) any anomalies on the high end of your comparables, such as custom finishes, corner lot, within walking distance of school, etc. This gives the appraiser the info he needs to do downward adjustments of those properties.

This should pretty much insure a realistic appraisal. If it still comes back high, ask the bank about the process to dispute it. Usually they want 3 recent non-distressed sales and 3 current competing listings. The competing listings show, for example, that even though recent sales were around $125,000 (to make up numbers) there are 3 comparable houses currently listed in the area for only $95,000, so why would anyone pay $125,000 for yours? The market has obviously declined.  If the property needs a lot of work, I usually also include 3 recent distressed sales, as a "bonus" to the lender. That shows them what their ugly future will look like. They know they aren't going to spend money to rehab a property after they foreclose. It's really pointless (you are saying to them) to discuss post-rehab comparables. But, if they ask for those, you still have to provide them.  Everybody has to play the game by the rules.

Doing a short sale deal like yours is time consuming, but not difficult. On the other hand, you are getting a great bargain. If you had lots of money, you could just buy retail. You don't, so the price tag becomes time, not money.

Good luck!

Rahdia Green · Answer

Account Closed

Update:

Some of the numbers were predicted by seller. After visiting the property here are the numbers:

SQFT: 1,279

Repairs; $94k

Second loan taken out: 20k (2007)

Mold and water in basement

ARV: yes $200k but I'd keep it conservative at $190k.

Rahdia Green · Answer

Account Closed The house is 1,279

Account Closed · Answer

Explain to daughter how the house will go to auction and she won't have to worry about it anymore. She could make some money on a rehab and sale, but only the bank (not an agent) can help her and she needs to be motivated to put some money into the deal. Best of luck with this investment.

Rahdia Green · Answer

@Wayne Brooks @Denise Evans Thanks a lot. Information I was not aware of. I will finalize and confirm these important pieces to determine my next step. (and thanks so much for the organization of this explanation haha helped a lot).

Wayne Brooks · Answer

You need to find out Why the short sale didn't work, as that is the Only solution, other than foreclosure, assuming there is $100k or so in loans.  If the daughter never got legal authority to sell, that is likely the reason, and everything else will be a waste of time.

Rahdia Green · Answer

@Lenzy Ruffin Thanks for your thorough response.

I brought this to BP's attention because I didn't see potential in this deal, and figured to share; in case an experienced investor know of any other solutions. OR if I can't take it upon myself, I'm hoping to lead the seller to a reasonable solution other than an investor. I  may just pass this one up.

Lenzy Ruffin · Answer

What methodology are you using to determine whether or not to pursue this, Rahdia? This looks like it might be a house where the juice ain't worth the squeezin'.

With a $190K ARV and your $70K repair estimate, the 65% rule puts you at a maximum purchase price of $53K. You're going to have to get both banks to get on board so that your total cost would be $53K or less. It can be done, but short sales can take a while and there's no guarantee that the banks will agree to settle those loans at the amount you need them to. The more immediate challenge will be getting the seller to cooperate fully and in a timely manner with filling out all the paperwork the bank will require. And even if everything comes together for you to get the house at $53K, you may find it difficult to find lenders willing to provide that much rehab money on such a relatively small house.

I'm not saying don't do it. There's good money in solving complex problems. But there's gotta be reward commensurate with the risk and that commensurate reward doesn't seem to be there with this house. And I don't mean just the rehab risk. There's a huge risk that you'll waste a ton of time going 'round and 'round with the banks only to not be able to reach an agreement. If you feel like the reward is there, go for it. I'd love to read a post on how you turned this problem into a payday.

Rahdia Green · Answer

@Chris Grenier I've gotten that number from an agent from its initial listing. Personally, I estimated 70k. Under my impression, with there being mold/water damage in basement the agent increased the repairs..

I'm still waiting on the response of my contractor's estimate.

Anything I can do with this deal?

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