First Time Short Sale

Hi everyone, I have found a HO that just received his NOD. Before talking to me, his final plan of action was to simply walk away from the house. He has nearly 80 days left until the bank files a Trustee’s sale, plus another 21 days till the auction, so I have some time to work this thing out and get a short sale done.

Here are the basic numbers for your consideration:

FMV – $650k – $700k
Previously listed price (unsold) - $730k – it is no longer listed, but has been listed since May ’07 without any successful offers.

Repairs needed – $55-75k - Have not had contractor run through the house, but he is “missing” a kitchen, (he was in the middle of a remodel before he gave up on the house. Also, “missing” carpeting due to remodel, staircase is missing banisters and railings, all due to remodel) I will realistically have to say he is look at nearly $55k-$75k worth of repairs to bring the house up-to-par with the neighbors

Loan amount - $720k on the first, no second
Monthly payments - $5k/month
Market rent - $3000/month

Back taxes – unknown at this point

This is my plan of action, and I just want to make sure I am proceeding properly, so your feedback would be greatly appreciated.

1) Have HO sign Authorization to Relation Information paperwork so I can talk to bank on his behalf. (I don’t know who the bank is at this point, will provide you more info)
2) Ask bank for Short Sale packet, and ask bank about specific guidelines they have regarding the short sale for their properties.
3) BPO (is this where I ask the bank to do a BPO? Does the bank order it AFTER I submit a SS packet or before I fill out the SS packet?)
4) Tell owner to write hardship note, obtain income documentation (W-2s) as well as bank statements for last 2 months
5) Take pictures of the interior of the house to show repairs needed. Get a contractor to estimate repairs need and compile information within short sale package.
6) Pull comps of neighboring houses within ½ mile radius that were sold within 60 days
7) Compile all this information in a document and in the SS packet. (I don’t know, I am assuming this is what I should do.)
My written offer. I really think that I should offer around $500k for this property. Is that too low?
9) Follow-up follow-up follow-up and wait for approval or counter-offer.
10) Random concerns and questions: What is a HUD-1? I don’t know what this is. Is this a form of some sort? Does it come w the SS packet?

Exit strategy - unknown at this point, but I don't have the financing myself but I can get a cash partner. How will that affect my SS packet/application? My credit is pretty good at 730 FICO, should I include that?

That’s the extent of what I know about short sales at this point, any further advice would be appreciated. This guy has 80 days till the auction date is set, and then 21 days after that, but I want to start working on this ASAP. Any help would be appreciated.

Thanks

Saad

I would say that $500k is too high to start your offers at in this market. I would probably be at about $415k based on the work needed. They don't care about your credit other than they may want to see you get approved with their bank or one they choose. You do need to figure out how to get paid here as that is the only reason to buy. Can you buy and flip "as is" for $500k? If you are going to wholesale it, you may need to get it even cheaper as investors what smokin deals only right now. This is an expensive home to start on if you don't have some good cash reserves backing you up. Is this the typical house in your area or are there cheaper home to try to start on?

He's in southern California...

A HUD-1 is the form you fill out at closing, showing where the money is coming from and where it is going. It has a buyer's side and a seller's side, and shows the sale price, the earnest money, the loan amount, expenses like Realtor commissions and title insurance, loan fees, closing costs, transfer taxes- I could go down the whole list of possible expenses but the HUD-1 is two pages of double column fine print listing them all. Bottom line is it accounts for every penny and shows what you are paying and what the seller (and everyone else) gets.

I would google this document and study it carefully as a basic part of your real estate education. You will have to review it before closing a sale and you want to already know and understand what you are looking at. It is also an early warning of all the possible costs of a transaction- how much more you pay than you offered can be shocking with a non-cash sale...

Chris