patrick.net

Thanks Roberto.

Am I incorrect to assume that the bank approves the short sale at a particular price that's known to the seller in advance of putting the property for sale?

Or does the bank approve the short sale property to go on the market, BUT the min price to close the property is not disclosed? In this case, the seller would take the highest offer and present to the bank with the hopes that it is enough.

Which is it and why?

Thanks
BayArea

The bank wants the highest possible price because that will produce the smallest possible loss. If the loan were being fully repaid the bank approval would not be required.

Thanks guys. So it sounds like more often than not, the approval price is not known until the bank has a nice package in front of them with an offer and a bowtie.

With my situation of 25+ offers, could the bank really be stupid enough to not approve the highest one? If they don't, a safe bet is that the owner's next option will be to stop paying, squat, foreclose and both parties will lose.

>>>a safe bet is that the owner's next option will be to stop paying, squat, foreclose and both parties will lose.

That is the only leverage the borrower has. With foreclosures often taking a year or more, and with the financial outcome of a foreclosure unknown, lenders are increasingly accepting short sales.

BayArea says

To my understanding, with any short sale, the bank will come up with a figure that the property needs to reach to be sold and when it does,

In my limited experience (in Colorado) the seller/listing agent come up with an asking price. When they get offers, they negotiate them (or not) and "accept" the offer in a non-binding way...they pass the "agreed upon" offer to the bank, which will probably sit on it, especially if it is the first offer. The time delay (as of 2011) is due to the banks being overwhelmed, and not terribly interested in taking / recognizing the loss. Eventually, and possibly after other offers have been submitted, the bank responds, almost always with a counter offer. At that point the buyer can respond, and the rest of the process is probably a whole lot more like a normal purchase.

The problem is that it isn't really in the banks interest to take a big loss on the loan, especially with interest rates as low as they are now, the cost of the capital to them is small...the cost of recognizing the loss could actually be a bigger deal to them. Plus this isn't normal business for them...there probably isn't anyone making a commission to get the deal done.

At the end of the day the bank wants to get the maximum value out of the house, but they don't really have a clue what that is, so they are more likely to sit on it out of fear or something...

once they repossess the property, as I understand it, the process is a whole lot different (much faster..."make it gone")..

This is just what I have gleaned from talking to a handful of realtors and starting down the short sale path...I have never actually closed on a short sale...

BayArea says

Why would the owner give a flying F as to what that house sells for? They aren't getting any of it anyway, correct?

That's if the owner isn't actively trying to sell it to their cousins nephew at a discount... people aren't always honest.

And of course bank in a short sale scenario is more likely to take a higher offer than a lower one.

ptiemann says

The highest offer may or may not be fair market value (FMV). Probably it is not FMV, because nobody will pay FMV on a short sale, for good reasons.
It depends what the bank considers FMV, how much discount they are willing to give etc.

You are right that even with 25 offers, not one may be at fair market value. However, with 25 frenzy offers on the table from private buyers, there is little doubt that this is the better position for the bank than the alternative.

With the alternative, the bank stops receiving payment for what? 1 year? 2 years? Perhaps even longer these days? House deteriorates. And what, is sold at auction?

Like I said, the bank would be insane and careless not to approve in this situation imho, even if every one of these 25 offers is below FMV. Try chasing FMV at action after the house has been squated or sitting idle for 2yrs ;-)

FortWayne says

That's if the owner isn't actively trying to sell it to their cousins nephew at a discount... people aren't always honest.

Absolutely true. Just need to find someone I trust enough who doesn't share my last name, lol.

Ptiemann and Roberto,

The short sale offer I am describing above has two loans.

I'm wondering if you have any advise on this type of situation as a buyer? How can it complicate things?

Who was counteroffer from? Usually the only thing that matters in short sales is the counter-offer from the bank.

When bank counteroffers, you should counteroffer back - they will most likely accept.

The counteroffer from the seller means nothing.

Counter was from the seller.

Means nothing to a point, unless I believe that there are 25 offers on the table and I am trying to get this house.

But your point is well taken.

BayArea

AlexS says

The counteroffer from the seller means nothing.

Gotta love this advice. You're not even in contract & you say the counter offer from the short seller means nothing? Sorry bud, you're not in control at this point. It's still someone else's house that you're trying to buy.

E-man says

Gotta love this advice. You're not even in contract & you say the counter offer from the short seller means nothing? Sorry bud, you're not in control at this point. It's still someone else's house that you're trying to buy.

If seller is so smart, why doesn't he buy it himself at the price? Or start paying mortgage...

Show the seller and bank you are serious buyer, pre-qualified, and have 20% (25%+ is even better) down to close the deal. Tell him if bank wants more, they will counteroffer themselves.

Let me repeat - seller is just a guy who wants to get out.

If you want seller and seller's agent to be more sympatetic - show up without your RE agent (buyer's agents are useless anyways), pull aside seller and casually hint you would be willing, AFTER ALL IS SAID AND DONE, to pay him $500 (or whatever you are willing) "cleaning fee".

Here is why: RE agent will be more interested in your offer because of the double commission, and seller is just the guy who wants to get the fcuk out with some cash in his pocket. You know, seller will need to rent elsewhere and bring deposit and all.

Let me emphasize one point. Be very discreet about your cash offer to seller. It can't be for a house. It can only be verbal. Transaction can only happen in cash. And it has to be unrelated to the sale. But yes, technically speaking, you can hire seller to "clean" that place, or whatever. Oh, and if seller's RE agent has any brains (they usually do), he will casually need to step away, and not take part in the conversation...

BayArea says

Ptiemann and Roberto,

The short sale offer I am describing above has two loans.

I'm wondering if you have any advise on this type of situation as a buyer? How can it complicate things?

Two loans can complicate things. Prepare to contribute some money to the 2nd lender to get the deal close.

If you're the 1st lender, would you give any money or concession to the 2nd lender? They will get wipe out by foreclosure anyway so why give them some money?

Say the 1st lender is really generous & agree to give the 2nd lender $3k so that the short sle can go forward. However, as a 2nd lender, would you take $3k to settle for $100k or $150k worth of debt? Or should you say screw it. Let the 1st lender foreclose, and I will go after the borrower/seller. Well, unless the buyer is willing to bring some additional money to the table pay me off, I'm not going to approve the short sale. Sound like fun? Let's the fun begin. :)

It takes time for the fix to be put in place. These things have to look legit. They can't just print the money and give it to their friends, transfer the titles, collect the kickbacks, declare the pension funds extinguished and get out of Dodge in just one day. The 'it was all just a perfect storm' story has to be repeated enough times to cover the perps.

AlexS says

Show the seller and bank you are serious buyer, pre-qualified, and have 20% (25%+ is even better) down to close the deal. Tell him if bank wants more, they will counteroffer themselves.

If there is one offer, I'm on board with you. If there are 25 offers, unfortunately I need to play the game. Your cleaning fee idea is interesting. Sure I can't go to jail for this, lol.

BayArea says

If there is one offer, I'm on board with you. If there are 25 offers, unfortunately I need to play the game. Your cleaning fee idea is interesting. Sure I can't go to jail for this, lol.

BayArea - if he has 25 offers - then why is he talking to you? It means nothing.

Please re-read my post - I expanded on the "cleaning fee" idea. You are right - you have to be very discreet and stay within legal limits.

Once your bid is being reviewed you will get the "Arms Length Transaction" Letter from bank, which you have to sign, which basically says that you better not know or conspire with the seller - and you better DON"T :)

Alex,

How do you know the seller is not trying to buy it back? Isn't this the reason why 50% of the time the property goes pending immediately, you never get a call back from the agent, etc......

You think like a buyer & you speak with emotion like a buyer. The game has changed from 2-3 years ago. Adapt or be left behind.

Bay Area,

Without the FMV and offer price numbers, a $25k increase in the counter offer doesn't mean squat.

E-man says

Alex,

How do you know the seller is not trying to buy it back? Isn't this the reason why 50% of the time the property goes pending immediately, you never get a call back from the agent, etc......

You think like a buyer & you speak with emotion like a buyer. The game has changed from 2-3 years ago. Adapt or be left behind.

Learn from your victory. Prosper from your failure.

E-man, you maybe right, but seller buying back his own property on shortsale is called FRAUD. If caught, you will go to jail for this.

Short Sale is very specific - you must prove hardship. Yes, you are correct, there are strategic defaults out there, but buying your own shortsale is even more stupid than robbing police station.

Property goes pending immediately because often times investors find out about it before it goes MLS, and swap it. Or whatever, but I doubt it's the seller.

BayArea says

Means nothing to a point, unless I believe that there are 25 offers on the table and I am trying to get this house.

I was wondering about that one as well, sine there is no way I believe that there were at least 24 other people bidding on the same house at the same that I was (seems unlikely). That and if I really thought that there THAT many other people bidding on the house, I'd pass.

BayArea says

unless I believe that there are 25 offers on the table and I am trying to get this house

Food for thought... If there are 25 offers, does that look like a healthy market to you, or something very speculative?

And history on speculative markets is always the same, they crash, and those holding the bag at the end lose everything. This is one of the reasons why patrick.net started, to warn against the huge speculation in RE market.

My advice is to avoid speculation, and to keep money in a safer place. Today even stock market looks a lot safer of an investment.

BayArea says

Ptiemann and Roberto,

The short sale offer I am describing above has two loans.

I'm wondering if you have any advise on this type of situation as a buyer? How can it complicate things?

Basically, this will delay the whole process. Primary bank will approve with 30 day window, and by the time 2nd bank approves, it will most likely expire. Then first bank may give you another inadequate extension... and so on...

My only advice here is to just do your best at working the process.
Tell seller you are well positioned to close, and that's the only thing that should matter to him.

E-man says

Alex,

I won't debate with you anymore.

Would you be able to recommend a good book on the subject?
Btw, your advice is much appreciated.

AlexS says

BayArea - if he has 25 offers - then why is he talking to you? It means nothing.

Probably for the same reason that he is talking to others, to get more money out of us and better his chances of the bank approving the price. I agree with you that the offer has not yet been presented to the bank, but it's hard to say it means "nothing" at all when I am competing with others. I definitely acknowledge your point about the bank is the one that decides whether it's a go or not, not the owner.

E-man says

How do you know the seller is not trying to buy it back? Isn't this the reason why 50% of the time the property goes pending immediately, you never get a call back from the agent, etc......

Properties that go pending the day they come on MLS may have cases of fraud where the buyer is trying to buy the property back at a lower price. But I'm willing to bet that the majority of the time it's due to the selling agent having a collection of investors in their back pocket just waiting and salivating for something like this. I guess one advantage I have in this transaction is that the selling agent is my agent. Did I forget to mention that above? This is my first time trying that tactic since using a buyer agent was a waste of time.

AlexS says

E-man, you maybe right, but seller buying back his own property on shortsale is called FRAUD.

Currently, it seems to me that the only individuals successful in this business are the ones that are dipping into the fraud category. Short sellers buying back property, people temporarily losing their job to get loan modifications, agents representing both buyers and sellers, properties going pending the day they come on MLS, double agency... the list goes on. It's happening an a grand scale. Unless of course you are honest, ethic, moral, and behind the pack unfortunately.

zzyzzx says

That and if I really thought that there THAT many other people bidding on the house, I'd pass.

FortWayne says

Food for thought... If there are 25 offers, does that look like a healthy market to you, or something very speculative?

If I know the asking price and the number of offers while ignoring comparables + FMV, repair costs, property taxes, rental estimates, etc, then I am in no position to comment about whether one given property is displaying a healthy market. But I will acknowledge that 25 offers means the property is underpriced and at risk of frenzy. Typically not good for anyone on the buyer side. Biggest dummy wins.

Thanks for all the feedback guys. Will let you know how it all turns out!

BayArea says

Properties that go pending the day they come on MLS may have cases of fraud where the buyer is trying to buy the property back at a lower price. But I'm willing to bet that the majority of the time it's due to the selling agent having a collection of investors in their back pocket just waiting and salivating for something like this.

I think we have a winner here!