Your Offer Might Be Good - But It Might Not Be Workable

I got a call yesterday from a Buyer whose offer was rejected by the lender or asset manager. She read my post regarding short sales, and she wanted to know why her deal didn’t go through.

Here is my speculation I offered to her:

Short sales are often killed when there is more than one lien holder on the title… as is the case with second mortgages. What happens is that a good, legitimate offer does not allow the second lien holder to get anything out of the deal.

Let’s take a house that was bought a few years ago for $100K with no money down. The first mortgage was for $80K; the second mortgage was for $20K. You want to buy the property for $80K (which is the fair market value) and the first lien holder may accept this offer.

The trouble is that the second lien holder wants something, too. And your offer doesn’t include anything for them.

Are you going to pay more than the property is worth to make the deal work? Of course not! Is the second lien holder going to offer to remove the lien with no compensation? Of course not!

And therein lies the rub.

A few days ago, I was showing my clients a few select properties… and on one of the listings I wrote, "Won’t happen" on the paperwork. My client asked if we could go see it, since the price was so attractive.

I explained that it would be a waste of time, for the reasons above. The sale is conditonal on the bank’s approval - which we’ll never get, because of the second lien holder.

What do you do under these circumstances?

Go find another property. Properties like these will have to go through foreclosure before the sale will make sense. The second lien holder will be wiped off the title - and the first lien holder will eventually put the property on the market.

Short sales can be accomplished - though they can be slow and annoying. Keep in mind that you’ll have far less frustration in the process if you don’t use an inexperienced agent to assist you.