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Short Sale Circus

26 Mar

So my blog was deactivated for about a day for linking to an external site. Sorry to anyone who received the error page. Fortunately I’m back up and running.

The short sale for the Vassar property has had a lot of ups and downs in the past two days. At one point we were going to just drop the short sale altogether because the realtor was told the balance was lower than expected. We just confirmed (because it is what I was asserting all along), that the balance is much higher.

Here are the numbers for Vassar:

After Repair Value: $80K
Repairs: $20K
Balance reported by Realtor: $30K
Actual balance: $60K!

The original principal loan amount on this house was for $35K in 1999. The current balance is $60K. Yes, that means that after 12 years of payments, they now owe almost twice the original loan amount! They have faced foreclosure a few times in the past and the accumulation of legal fees, penalties, and back taxes has amounted to about $25K. These are the kind of situations that make people just walk away from their homes – it’s just hopeless and there is little incentive to keep making those payments.

This is why short sales exist. They allow a homeowner to sell their house for less than the full balance. This way, the house can still be sold to a willing buyer and the bank can recoup some of their investment. Even this, however, is deceptive. In reality the bank has already recouped their investment through interest. In this case for example, even if the Vassar homeowners only made 80% of their payments in the past 12 years, the bank would have collected over $40K in interest payments. Anything they recoup from the existing balance now would be gravy.

Problem is that short sales are a pain. The bank wants buyers to jump through all kinds of hoops and they make the process very difficult. You also need cash. This is why it helps to have a private lender on your team. It’s really a win-win situation with a private lender: I get access to quick cash with limited hoops to jump through, and the private lender gets a great return on their money secured by real estate. (More on private lending soon.)

For now, we will proceed with the short sale and see if the bank accepts my offer or counteroffers. I also need to talk to a mortgage broker about a HUD no-seasoning non-cash out refinance program (doesn’t exactly roll off the tongue does it?).

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Posted by on March 26, 2011 in Vassar

 

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