I have been in mortgage lending since 1993, and until recently, I had never actually had a short sale close successfully.
One of the real estate agents I work with regularly, Rachel Hillman of Realty Executives, introduced me to Mike Ouellette of Loss Mitigation Specialist Group ( LMSG). For those that have followed me on Zillow, I am a bit of a skeptic when it comes to these types of things.
Rachel called me about a deal she had that was falling apart and she was hoping that I could pull the deal back together.
Basically, the way this company works is that they sign an agreement with the current owner of the home to essentially buy the home in a short sale. The current owner gives them permission to deal with the current lien holders. While they are negotiating with the current lien holders the property is being marketed. In most cases the property is listed and marketed by the agent that has introduced the seller to LMSG.
Unlike most short sales with this company LMSG actually buys the property after negotiating the short sale, then turns around and sells the property to a third party — the best offer that the listing agent is able to find.
The reason that Rachel called me in on this transaction is that many lenders have adopted the FHA anti flipping rule and are requiring 90-day title seasoning.
Reducing the length of time they need to hold the property increases the profit margin but also allows them to list and market the property at a more competitive price generating more interest and multiple offers.
Nobody works for free and I don’t begrudge anyone for making a living. Many lenders shy away from these transactions, some will even say that Fannie Mae and Freddie Mac have the same title seasoning requirements that FHA have.
Currently that is not the case. The concern is fraud and you can read Fannie Mae’s guideline on these transactions here and Freddie Mac’s here
Essentially both agencies have the same concern that the sales price is over inflated. It is critical that the underwriter and the loan file support the sales price from LMSG to the end buyer.
It is no secret that is costs the banks real money to foreclose on a property.t is also no secret that the property value is…. what it is! The bank has no guarantee, that if they foreclose on the property, that they will be able to sell the property for its current value.
If you know what you are doing you can essentially cut a deal with the bank for an amount less than the property is worth and likely a little more than what the bank estimates it will cost to foreclose on the home.
If the bank agreed to a short sale, before they foreclosed, and sold it for $195,000 rather than the $250,000 they would reduce their losses by $5,000 and eliminate the risk of the property value decreasing further and increasing the banks losses. For this to work you have to know what it costs the bank to foreclose, I just told you so that’s not such a big deal.
The real trick is knowing who to call and how to negotiate the short sale or you end up in lender limbo waiting for a response that you may or may not ever get! All the while stressing about what is going on!
I have closed 2 of these transactions and it almost seems too good to be true! These are the real numbers….
Property One: Purchased for $207,000 Appraised for: $225,000
Property Two: Purchased for $220,000 Appraised for: $255,000
Both appraisals were done post-HVCC so I know if anything, these appraisals are on the low side.
How many transactions have you seen recently that are appraising 15-20 thousand more than the sales price?
If you want more info on short sales you can read Mike’s Blog. Mike works with Realtors, Lenders, Attorneys, and Sellers.
Source: zillow.com