Years ago, before I became a realtor, I was a computer audit specialist in the banking industry. While it may seem intuitive that you should be able to negotiate with a bank in advance of a property going into forclosure to save the bank and yourself as a buyer money, it's not always that simple. A large share of the "owners" of mortgages are individuals and institutions who have invested in mortgage backed securities. These securities may be held by a mutual fund and technically, thousands of people may be the "owner" of the mortgage. Banks often fill the role as "servicers" of loans, collecting the payments and making the disbursements as needed. It's not uncommon for the bank who is doing the servicing to be doing this for a third party owner, and the loan is not in this bank's own investment portfolio. So the problem is that there may be no one to negotiate a short sale with in many cases. The servicer does not have the authority to alter the terms of the loan in most cases so everyone is stuck with what the terms are in the mortgage contract. As a result, short sales are very difficult in practice to accomplish. However, in this case, if the seller has equity in excess of the mortgage, you may be able to buy the property from the current owner for the mortgage value. If you can find out who actually owns this mortgage, you may be able to negotaite a short sale in lieu of a foreclosure. Best wishes.

Tue Apr 29 2008, 09:12

One problem dealing with short sales is when you have a 2nd trust loan holder . They rarely will agree to cooperate. We did have a successful short sale in our office where the lender took $475,000 on a $725,000 first and the second took $11,000 on a $125,000 loan...it just all depends

Tue Apr 22 2008, 20:54

First, I would talk to my mortgage company about lowering my interest rate and re-structuring my loan. If they are not willing to do this, look fo refinance the loan through another mortgage company. If no luck there, look for an investor to buy your home.

Tue Apr 22 2008, 20:49

Thank you to everyone, I've learned a lot through this. 1-2 months is a long time to wait especially when there are so many homes already at the foreclosure point and are good to sell now, just need some work..

Just a general comment........you'd think a bank would see a 'short-sale' as a prime opportunity to dump a bad loan.......they don't have to go through the hassle of foreclosure, possible damage, hiring/paying agents to then market a potentially damaged home for even less money. Is that backwards thinking to anyone else?

Tue Apr 22 2008, 20:43

He can go to the bank and ask them to forgive part of the loan but that is a 1-2 month process AFTER he has an offer and they could still say no. The request for the lender to take less than they are owed is called a short sale. It can happen, but isn't easy or fun to do. Many houses end up going through foreclosure instead.

Tue Apr 22 2008, 20:33

Thanks for that explanation, that is very helpful! So, if this seller cannot get list price and let's assume that is what he owes on the house.......it seems as though the ultimate outcome will be foreclosure? This may be simplifying the situation, but if I were in that position, I'd rather take a loss and figure out how to pay-out that difference (get a personal loan, 2nd on my personal home) vs. going into foreclosure and ruining my credit. Can the seller go to his bank and say that he has an offer but will need to have part of the loan forgiven? Or is the more likely situation that the bank takes over the house and tries to sell it on their own?

Tue Apr 22 2008, 20:29

Lashae,
"clear title" would mean that the bank has released their lien against the property. This happens when the mortgage is paid off. In this case, the seller wouldn't be paying off the mortgage and the bank still has rights to the property. Think of the title just like you would a "pink slip" on a car. If the bank is still owed money, they still hold the "pink slip" and the seller can't give it to you without paying off the loan.

Tue Apr 22 2008, 20:26

Is offering $100k below asking price still getting you a good deal? I have seen homes that could be had for a lot less than list price but are still are not selling....this is a weird market!

Tue Apr 22 2008, 20:20

The owner paid $100K more than he's listing the house for currently. If we hire the title company to handle the paperwork, get an inspection, and buy title insurance.......would we be covering ourselves enough in obtaining "clear title"? Thank you.

Tue Apr 22 2008, 20:19

Why do you think he has so much money in to the house? Many investors put in only 5% -10%. If that's the case, you'd really be negotiating with his lender... and they will not give the house away for a fire-sale but if it is truly worth $80k+ less, maybe they'd take $100k less... but you'll likely wait 1-2 months for a response.

To be honest I don't know if foreclosure law works different with investment property vs. owner occupied but I'd be quite surprised if the foreclosure of his investment property leads to the loss of his current residence... never heard of it happening.

Tue Apr 22 2008, 20:00

Lashae, just remember that you want "clear title" and that means "ALL LIENS" must be removed. If the 100K isn't enough to cover what the seller owes he cannot clear the debt against the property and will either need to ask forgiveness for the debt (short sale) or foreclose. I would suggest you speak with a good real estate attorney/agent or both!

Tue Apr 22 2008, 19:58

To answer your question "do you think offering ~$100K below list price is okay?"... YES. If this investor doesn't owe more than the loan amount and your offer is enough to cover the current mortgage then you might have a deal. If not... then move on and find another. Check out this link to more info on foreclosures.

Tue Apr 22 2008, 19:52