Home Buying in Conway>Question Details

Allan, Home Buyer in Orlando, FL

Is 20-25% under loan amount reasonable for short sale?

Asked by Allan, Orlando, FL Wed Jun 4, 2008

I am a first time homebuyer and I realize I got screwed by being born 10 years too late. Now that the market is backtracking I figure now is my chance to make up a little room. I am interested in a property currently listed at $199k in Conway. The agent indicated that it would be a short sale. I researched it and the owner took out a $206k mortgage in early 07, and since has received a Lis Pendens letter. At $199k, the home is not too far of a stretch for the neighborhood, but I need to know how good of a deal I can get.

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What will the bank take? Here in Florida the rule of thumb is:
For a conventional loan 80%
For FHA 82%
For VA 82.8%
of current market value. There in lies the hard part, determining the current market value. What the seller paid has nothing to do with the equation. The current market value and what it will cost the bank to take the property to foreclosure is all they look at. Upon receiving the first offer it will trigger the bank having a Brokers Price Opinion or Appraisal. The BPO or Appraisal is going to determine if the loss mitigator will consider the offer. The offer is then weighed against what the bank will get if it has to go through the full foreclosure process.
The offer package for the Short Sale must be complete and contain everything required by the Lender. As you will be on the Buying side make sure your Realtor has the expertise necessary to get your offer seen by the loss mitigation department. This could mean assisting the lisiting agent if they lack the expettise necessary. Remember the bank is an entity, they don't know you, all they are looking at is numbers. They do not take offers in the order they come in, they take best Price and Terms period. It may take up to 60 days for the process so other offers may come in. Make sure you have an Approval Letter, not a Pre-qual, make the closing very fast upon acceptance, time is money to the bank. Good Luck
0 votes Thank Flag Link Wed Jun 4, 2008
Hi Allan,

After reviewing some of the other answers I felt I should point out something that is an issue I've dealt with regarding short sales. BANKS DO NOT ACCEPT OFFERS...SELLERS ACCEPT OFFERS.

I've lost count of how many calls I have received from buyers who were extremely aggravated after submitting an offer on a short sale only to find out months later that multiple offers had been sent to the seller's lender and theirs was not accepted. ONLY THE SELLER CAN ACCEPT AN OFFER AND THE SELLER CAN ONLY ACCEPT ONE OFFER. All the lender can do is approve the agreement between their seller and the buyer.

Make sure whoever your realtor may be requests in writing from the seller and their agent that only one offer has been accepted and submitted to the seller's lender. It is also imperative that you submit an offer on only one home that is accepted. I have received calls from buyers who have as many as four accepted/effective contracts, with deposits on each, with the idea they will buy the first one that is approved by the seller's lender and cancel the others. The buyers were not aware they will lose their deposits if they cancel the other contracts for any reason other than the terms stated in the contract, like denial of financing and home inspection failure. An effective contract is a commitment to purchase and sellers have refused to sign cancellations and buyers have lost deposits.

Here's just one example from my experience: I had a short sale listed back in 2009 that went through 5 contracts before finally closing. The buyer with the fourth contract damaged her financing terms by purchasing two condos after my seller accepted her offer and her loan was denied to purchase my listed property. My seller retained the buyer's $1K deposit. Per the contract, the buyer is responsible for managing their finances responsibly in order to fulfill their commitment to buy the property...here is the clause in the contract:

"Buyer will make mortgage loan application for the Financing within____ (if blank, then 5) days after Effective Date and use good faith and diligent effort to obtain a written loan commitment for the Financing ("Loan Commitment") and close this Contract. Buyer shall keep Seller and Broker fully informed about the status of mortgage loan application and Loan Commitment and authorizes Buyer's mortgage broker and Buyer's lender to disclose such status and progress to Seller and Broker."

Feel free to give me a call if I may be of further assistance. :)
0 votes Thank Flag Link Sun Aug 25, 2013
Allan, I generally never respond to blogs but happened to read yours and had to... I would first start off by saying it seems that the old adage might fit you "you have enough information to hurt yourself".

I am a real estate investor myself and look literally at thousands of properties every week throughout Florida. The only way to answer your question is to know what the FMV (Fair Market Value) is for that home, that area, that neighborhood, that sq ft, for that year of home, etc. I would say Ms. Lynn from Coral Springs had the best advice. You need an expert to answer some questions for you on today's value for that home.

I appreciate that you did a public search for information on the Lis Pendens and it is good to know how to do that but that is just a tiny piece of information and is basically useless for someone who is not an investor.

As a real estate investor the more I know the better offer I can make. You should know what the SALES trends are for that neighborhood over the last 3, 6, and 12 months You should know how many homes are for sale in that neighborhood (careful Realtors generally use only their bible, MLS and Tulia doesn't necessarily have the most updated info..)

We purchase many properties in Central Florida but not familiar with the Conway market. We work with many Realtors and have come to know some of the best. If you want free advice get an Expert Realtor they will save you 10’s of thousands on your purchase.

Good Luck

Tim tntcommerce@yahoo.com
0 votes Thank Flag Link Wed Jun 4, 2008
How good of a Deal?,Depends on a couple of things,
1. are there any other offers. ( 1st to the gate usually wins)
2. How much are YOU willing to pay.
Not very insightful but the sooner an offer is tendered the better in a short sale. The loss/mit dept is not likely to review a dozen offers. usually the listing agent sends in the 1st offer and if its good enough for the bank, well you get the picture.
0 votes Thank Flag Link Wed Jun 4, 2008
20 to 25 % is reasonable in any market and most Lenders have loss mitigation teams in place for this very reason. You may go even higher, as much as 35 to 45% under loan amount given the time of year and market. Short sale is an abreviated term related to the bank being "shorted on their loan agreement". The question always comes down to how much of the short end of the stick are they (the banks) willing to take?
0 votes Thank Flag Link Wed Jun 4, 2008

I would recommend that you contact a Realtor well versed in Short Sales who can assist you in knowing what to offer. You will want to make an offer based on the fair market value for the home and not its mortgage balance. Too many will get caught up in the mortgage balance but the Seller's Lender will be more interested in what the fair market value is for the home and will accept or negotiate your offer based on that. The mortgage balance will be secondary as to how much of a loss they will be accepting thus how far from the FMR that they will be willing to go.

You mentioned that you think the $199K is too high for the neighborhood and your Realtor would look at comparable home sales to guide you in making an offer if the List price is too high. But to simply make an offer based on a percentage from the loan amount wouldn't be recommended. Contact a qualified Realtor in your area. Best of luck to you.
0 votes Thank Flag Link Wed Jun 4, 2008
First, are you sure there is only one mortgage on the property? If there is a second mortgage, especially if owned by another lender, the chances of successfully purchasing a short sale at any price drops significantly.

As far as how much under loan amount you can purchase a property for...the loan amount has no bearing on the short sale decision. The lenders will order appriasals or BPO's to determine what the market value of the home may be. They then decide whether they will recover more money by foreclosing on the property and selling it themselves (expensive and time consuming process) or if allowing the short sale will net a higher $ amount for them.
There is no formula for what they will accept under market value and it differs from bank to bank and from loss mitigation manager to loss mitigation manager within the bank. To add to that the chances of even being able to purchase a short sale at full appraised price aren't that great, as the banks are so backed up with the things that it can take them 3-6 months to approve or dissapprove the sale. By that time most buyers have walked, or the foreclosure department has already gone through with the foreclosure sale.

If your looking for a great deal, I'd suggest looking at properties the banks already own. Unless you are willing to wait a long time, and can deal with the dissappointment of not getting the property after such a wait, don't mess with short sales. I'd say 1 out of 4 short sales actually go through, and if the listing agent knows what they are doing, maybe 1 out of every 2 or 3 go through. I'm not saying don't consider them altogether, just know what your getting into before considering them.
Web Reference: http://www.gregtraub.com
0 votes Thank Flag Link Wed Jun 4, 2008
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