Short Sale – Offer 100 Percent Deposit!

Short Sale - Offer 100 Percent Deposit!

A short sale is a sale that occurs when the lender agrees to sell the property for less than the balance owed on the loan.  This occurs when the homeowner can no longer afford the property but the lender acknowledges that selling the property at a slight loss is better than going through the foreclosure process.

A short sale does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, the deficiency.  Being released from the deficiency is a part of the short sale negotiation.  Many lenders will forgive the debt to the borrower but be sure you get this agreement in writing from the lender or they are within their rights to come after you even years after the short sale.

As investors, are you doing short sales? Have you noticed a significant change in how banks respond compared with the way they did several years ago? I’ve talked with a number of people who think TARP really changed the banks’ responses to low offers. Before TARP, they needed the sales. Since receiving their TARP money, they’re less likely to take low offers. Where they used to accept 60% of the value or even lower, they now want 82% to 85% before they’ll negotiate.

One thing to look for when negotiating a short is to find out if the property has mortgage insurance available. If the bank is going to be paid off by the insurance company anyway, they are less likely to take an offer where they lose significant money.

Have you tried submitting higher deposits with your short sale offers? We find better results when we put down 25% to 30% of the amount we’re offering as our earnest money deposit and promise a quick close. With larger amounts down, the bank knows you’re serious and more likely able to be able to buy.

To really negotiate, we make our lowest offers and submit them with an earnest money check of 100% of our offer. Yes, if you want a $200,000 house for $100,000, make your offer and attach a $100,000 check. Not everyone can do this but, if you can, you’ll see the bank negotiating or accepting your offer ahead of higher offers with a small deposit. Banks, like any seller, want to be done and want to know they’re working with an “able” buyer.

If you’re a homeowner, banks are easier to work with. Banks are likely, especially in depressed areas, to negotiate down to 80%-85% of your balance to keep you in the home rather than having it go to foreclosure.

Another investor strategy is, offer to buy the note. This is often an easier negotiation. You own the note and the homeowner owes you. You are then able to negotiate with the homeowner and may be able to work a deal where the lender couldn’t.  Often owners have money to put down toward back monies owed, but less than the bank is willing to accept. It may be a number, however, that you can work with. Or, if there is equity and the owner is able to continue keeping payments current, you acquire an immediate paying tenant who wants to be in the property.

What has been your response on short sale offers with higher deposits, say 25%-30% of the purchase price? Have you ever given your full cash offer as the deposit?  Have you had success with short sales?

This post has No Comments | Would you like to leave a comment?

Leave a Comment

%d bloggers like this: