Mortgage Fraud and Short Sales...

Asked by Jonathan, 75204 Sun Jan 4, 2009

I have submitted an offer on a short sale property for $252K, which was appraised for ~$315K. However, the seller has an outstanding loan for $450K due to a mortgage fraud scam. My offer was rejected and I can't get any answers as to why. Should I try to submit another offer or try to hold out until it goes into foreclosure? If I should try to submit another offer, how much should it be for. If it goes into foreclosure, how long does it generally take?

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T.E. & Naima…, Agent, Dallas, TX
Sun Jan 4, 2009
Your Realtor, if they're your buyer's agent, should be advising you on what the bank should accept and how much to offer. Generally, listing agents should check with the bank prior to pricing a house to list with the 'short sale' notation, because the bank has the last say of whether they will accept the offer or not. The listing agent typically puts only a small negotiating margin on the list price. If the listing agent did not verify with the loss mitigation department what they would accept, then shame on him.

In the Dallas market we have seen some deep discount sales short of the mortgage balance. Personally I have seen as high as 27% below the balance.

If the mortgage balance is truly $450k, it is unlikely that the bank will accept less than in the range of $315 to $390. The bank's loss of 20% without going through foreclosure is what is motivating them. A bid of $252k plus some costs will put their net down around $240k, for a discount of $210k (or about 45%). This is not a likely successful bid amount, but on the other hand, if their appraiser comes out and values the property at $240k, you will have a good chance of acceptance.

If the appraisal or BPOs indicate a higher market value, you'll need to rethink what you want to offer.
In Texas banks do not make out better foreclosing, normally. The foreclosure cost and holding cost of the asset can easily run $10k. Selling an empty house in distress after holding it at least 3 months is not a formula for maximum value to the bank.
If a $150k-valued house sells for $135 prior to foreclosure, they would much prefer that to taking possession and spending another $10k and waiting 4 months to sell it for $135k.
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Bruce Lynn, Agent, Coppell, TX
Tue Jan 6, 2009

TE has a great answer with lots of details.

With the banks or lenders I have typically worked with in the past, your offer is too agressive. It might be fair market value, but they can rarely take such a hit for so many different reasons. They won't tell you why or sometimes even respond to the offer if it is that low. If it is appraised for $315K, they'll want much closer to the $315K....I'd guess even when it goes to foreclosure they'll want more than $250K, but it depends if there were two loans, what the loans were, what the balances were, what the BPOs are, what the appraisals are, if they owe taxes for 1-2-3 years on $450K, and many many other factors. The numbers seem a little out of whack here, but could be possible. What appraisal have you seen for $315K? Is this the tax appraisal or the appraisal done by the lender? If it is the tax appraisal, this number can be WAY WAY off and is not a good number to use when bidding. I'm not sure if they will give it to you or even provide you with a number, but what is more reliable is an appraisal done by the lien holder's appraiser. Sometimes they'll share this number sometimes they won't.
If it goes to foreclosure it can take anywhere from 30 days to a year to come back on the market. I'd guess they would come back around $315K if that is a bank appraisal number and not the tax number.
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Rebekah Owen,…, Agent, San Jose, CA
Sun Jan 4, 2009
Hi Jonathan,

Your offer is too low. So low, in fact, that they didn't even counter you.

The bank's asset manager is doing his/her job - which is to net the highest return to the bank. In general, your offer needs to be within 5-10% of the appraisal for the bank to consider your offer reasonable.

Once the bank "owns" the property it's 2-6 months before it hits the market. At that point the property is vacant and all liens have been satisfied.

I am not sure what your intentions are - flipping, occupying, renting - but my strategy would be dependent upon what your intended outcome is.

Good Luck to you.


PS Only about 32% of short sales actually complete. The rest go to sale.
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Scott Godzyk, Agent, Manchester, NH
Sun Jan 4, 2009
A bank is not required to accept a short sale, in most cases they make out better foreclosing, the average the bank looks for is to not lose more than 20% on a short sale. Where you offer is way under that it is unlikely a short sale will work for this property. If you wait for foreclosure you will have to due your homework for the auction, if the bank buys it auction then they will assign it to an asset manager or the private mortgage insurance carrier could end up with it and assign it to an asset manager before it is given to a local broker nad appraised, cleaned out and put back on the market. it could be a few months for it to go through the system. It is a tough decision to wait or look elsewhere as well. good luck with your search.
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Dallas Texas, Agent, Dallas, TN
Sun Jan 4, 2009
It can take 2 - 6 months prior posted as a foreclosure in MLS or could be sold prior to public knowledge.

Short sales, foreclosures always has drama what does your buyers agent state? Bank is aware of true value of home try resubmit an offer . Or have listing agent try to provide indication what bank might take.

Contact my office if I can be further assistance there are other homes on market with equity
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