Ron Caudle

Tag: lender

  • Second Misconception of Short Sales – Market Value Offers

    The second largest misconception of short sales is that the lender will not accept a bid lower than market value. This is a very common misconception. Let’s say that the fair market value of the house is $400,000 and the current owner owes the bank $500,000. Who would think that the bank would accept anything less than $400,000. It is amazing how many people think that way, but the fact is, that simply isn’t true. Many times, lenders will and do accept offers under fair market value. There are many times when a lender will accept as low as and sometimes lower than 10% of the current market value. The trick, is making the lender believe that the lower offer is the best they will get, and that it’s in their best interest to take the offer. Which is what I am trained to do. I can teach you how to put together a solid offer that will be accepted by the lender.

    The best part about the below market value offer, is that if the lender does not accept it, their alternative is to let the property go into foreclosure,  then sell it as one of their REO or Bank Owned Properties. If the lender was to accept the below market offer, they would be able to avoid the high costs of the foreclosure sale, and they would regain their investment right away. They also don’t have to risk other losses to the property such as, a real estate market down turn, or that they will not be able to sell the property for several months, if it can be sold at all.

    These arguments are what gives us our advantage. The use of these examples in our proposal to the bank makes it sound like it is not in our best interest, however it is in their best interest to accept our offer. Lenders will often decide that it makes the most sense to accept a short sale offer that is 10% less than market value, then to risk the thought of all the time and money, waiting, risk that would be in taking the alternative.

  • Third Misconception of Short Sales – At No Time Do Banks Take Less

    The Third misconception to short sales is that the bank would never accept (for example) $40,000 on a loan of $100,000. First, let me tell you, NEVER SAY NEVER. People generally believe that the banks care a lot more about loss then they actually do. It all depends on the situation and how you set up the sale and structure the hardship.

    Now wait a second because I don’t want you to misinterpret me, Banks do care about a severe loss a lot. Think about this, a $40,000 recovery on a loan that was $100,000 is a loss of 60%, that isn’t something that a bank is willing to just let roll off their shoulders.

    If a bank puts $100,000 up originally for the mortgage, there is no chance they are going to walk away with only 40% of their money without checking into it. The bank employees who set up your loan and the ones that answer your phone calls are subordinate level employees, and they are not going to have the clearance to approve a loss of that significance. Honestly, it is a good thing that the employees that you normally deal with are not the ones with the final okay or denial of the loss. Though they are the people that you will have to go through (or maybe around would be a better term) in order to get your file to the Associate Vice President (AVP), who one understands math, and can make the final decision on your file, and to who mitigates the situation, or makes the loss seem less severe than the loss that could have happened if the offer is not taken.

    If you can convince the AVP that the offer that is reasonable and/or reflects the current market value, then the bank may accept a severe loss, even one as high as 60%. There are and has been many cases where the banks have accepted a significant loss, even one of that severity.

    The severity of a loss that a bank would be willing to accept, again depends on the situation and how well you present the hardship and file. Okay, now let’s consider a property that now has a fair market value of $55,000, though the people that own the house still owe $109,000. No matter which way we or the bank looks at it, they are going to be out a very large portion of the money originally invested. In a case such as this, there’s a large chance that the bank would agree to an offer of $50,000 to avoid the hassle and uncertainty of letting the house go into foreclosure and having to resell it as B Owned Real Estate (REO). In this case even trying to sell the property as an REO, the lender would still not satisfy the lien originally placed on the property.

    First-position liens, which is a claim against a property that will be the first claim to be repaid if the property owner would declare bankruptcy or default on the loan, rarely sees a loss as high as 50%. However, it definitely does happen at times. Though a severe loss of 99% is not uncommon in second-position or other junior liens.

    Contact me on more information about how to package your file and hardship accurately and present the numbers. to the AVP.

  • Fourth Misconception of Short Sales – The Second Will Settle For Zero

    Most people are under the impression that on a second-position lien, they will be able to sign off on the short sale, even if you offer them $0.00. I am sorry to say that there are no second-position lien or junior liens that will accept $0.00. I’m sure even you would accept that deal. Everyone wants something for their time and to close out their position. Even if the lender knew that they had no chance in getting even a penny, if the home was taken to foreclosure by the first-position lien, they would still want something.

    Let’s think about it. A lender knows they will get nothing in foreclosure so why would they spend the time filling out paper work and the resources to agree to a short sale and still get nothing. If you are not going to offer them anything, their best chance would be to let the property go to auction, which they still may not see any money, but they still don’t have to put fourth any effort. Even if the property is worth nothing, the way they see it, their time is worth money.

    You need to satisfy all liens, and if they are already taking a loss, you need to make sure that whatever you are offering them is acceptable and worth the their time and effort. You can’t force a second-position lien that is going to lose $60,000 just to take $1,500. They might accept your offer and take the loss, but if they don’t, you can’t force them to. You have to make sure that you negotiate with the junior liens, or you stand to lose the short sale all together.

    The important thing to remember is that one dollar is better than nothing and two dollars is better than one. As you go through the liens, you must offer something that is reasonable in comparison to the chance of loss the lender is about to take.

  • Seventh Misconception of Short Sales

    A HELOC is a typical second position lien.

    A HELOC is not nearly comparable to a traditional second position lien. These must be dealt with differently than the traditional lien. A HELOC is not only a note attached to a piece of collateral like a traditional mortgage. It is rare that an offer between $1,000 and $5,000 would be accepted by a bank that holds the HELOC.

    Unlike any second position liens, a HELOC has revolving credit characteristics, like a credit card. They can also seek to recover deficiency of principal balance even after a foreclosure sale, though the process may go on for as long as 20 years.

    If the client owes $80,000 on their HELOC, and offers $1,000 to the bank, they will be turned down. Since they can almost guarantee that they can get more than $1,000 from the client.

  • Eighth Misconception Of Short Sales

    The Eighth misconception of short sales is that the lender/bank has to see the property on the market for at least a short time, listed at full market value. Where these rumors got started we will never know, but it isn’t true at all. There are a lot of agents out there that raise the price above market value and then you hear them saying, ” Hey I listed that house, I did due diligence at $600,000, and the property is only worth $500,000. I have no idea why it didn’t sell, so I decided to lower the price.”

    The Bank and it’s employees don’t even care if the house was listed at ‘Full Payoff’ or not. In most cases they don’t care that the house has been listed for five months. The main thing the banks and lenders want, you will notice, is that the offer you submit is at least close to the full market value of the property.

    So in all reality you do not need to list the property at full market value before making a short sale offer for less than the full payoff. It is important to make sure that you are aware and fully understand that the longer you wait, the worse things may get.