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BTW what is a loss mitigation department do in a bank?

burritos says

BTW what is a loss mitigation department do in a bank?

Helps to mitigate the bank's losses.

So, you say that you only want to offer $200k and want them to pay closing costs. Then you say that comps are $210k-$220k. Then you say that the bank doesn't think that it needs to do anything since they're lower than everyone else and they're asking $200k. Next you say that you want to buy the place but want the bank to pay closing costs, after which you say that the realtor doesn't think the bank will accept the offer. You're all over the place on this one, burritos.

Either you've made an offer, or you haven't. Either offer asking + closing costs or don't. Are you seriously basing your sale on the answers on an internet real estate board? I'd dare say most of us wouldn't buy right now if you were to rephrase your question to:

I have an opportunity to buy a short sale for a SF investment property at $200k when the comps are $210-$220k. My realtor doesn't think the bank will pay closing costs if I ask for it. The place needs no work. Does anyone here think that housing is a good investment right now?

My answer: No. Supercalifragilisticexpialidociously, "no."

elliemae says

burritos says

BTW what is a loss mitigation department do in a bank?

Helps to mitigate the bank’s losses.
So, you say that you only want to offer $200k and want them to pay closing costs. Then you say that comps are $210k-$220k. Then you say that the bank doesn’t think that it needs to do anything since they’re lower than everyone else and they’re asking $200k. Next you say that you want to buy the place but want the bank to pay closing costs, after which you say that the realtor doesn’t think the bank will accept the offer. You’re all over the place on this one, burritos.
Either you’ve made an offer, or you haven’t. Either offer asking + closing costs or don’t. Are you seriously basing your sale on the answers on an internet real estate board? I’d dare say most of us wouldn’t buy right now if you were to rephrase your question to:
I have an opportunity to buy a short sale for a SF investment property at $200k when the comps are $210-$220k. My realtor doesn’t think the bank will pay closing costs if I ask for it. The place needs no work. Does anyone here think that housing is a good investment right now?

Sorry if I all over the place. Even though it's my first language, my English isn't the greatest. Also, I'm certainly not an expert RE investor. I'm just trying to describe what's happening.
1. I'm going into the process looking to pick up a relatively new 3bed2ba sfh for 200k or less.
2. Found a potential property. Listing price 200k. Currently best price around the area. Comps are 210-220k.
3. I offer 200k but they pay cc. Offer rejected. They haven't received any other offers.
4. I want this property, but I want to be objective. I debate on whether to pay closing costs. I amend my offer to 206k, but the bank pay closing costs. This was the recommendation on my realtor because she knows I don't want to pay CC. Others on this board have made similar suggestions. Offer pending. Likely to be rejected.
5. I'm trying to get opinions from multiple sources including this board. My superconservative parents say don't buy(then again, they are the only people who don't have apartment rental property compared to my other uncles/aunts), wife says buy and pay closing costs(she feels sorry for the sellers), realtor trying to advise me based on my not wanting to pay cc's.
6. From this board I expect most to say don't buy, some have a history of just hating. Those I ignore. Some have more rational and informative(I'm not a RE expert) interpretations on what to do. Is this my sole source of decision making? No, that'd be foolish. But I did use this board in 2006 to stop myself from buying a property, so in that case, this board helped.

How's about you offer $200k and have the bank discount its fees if you borrow from them? If they'll meet the terms of your mortgage company, you'll save bucks that way. Just write in the desired interest rate, etc on your offer. Maybe they'll go for it that way.

The bank won't want to spend money to sell. But it might discount its fees. Just a thought.

But I'd still wait. More foreclosures to come, plenty of time to buy:

http://www.huffingtonpost.com/2010/03/12/foreclosures-new-wave-of-_n_496428.html
http://www.coffeeforclosers.org/2010-option-arm-recasts-portend-new-wave-of-foreclosures/
http://articles.latimes.com/2010/feb/16/business/la-fi-mortgage-mods17-2010feb17

elliemae says

How’s about you offer $200k and have the bank discount its fees if you borrow from them? If they’ll meet the terms of your mortgage company, you’ll save bucks that way. Just write in the desired interest rate, etc on your offer. Maybe they’ll go for it that way.
The bank won’t want to spend money to sell. But it might discount its fees. Just a thought.
But I’d still wait. More foreclosures to come, plenty of time to buy:
http://www.huffingtonpost.com/2010/03/12/foreclosures-new-wave-of-_n_496428.html

http://www.coffeeforclosers.org/2010-option-arm-recasts-portend-new-wave-of-foreclosures/

http://articles.latimes.com/2010/feb/16/business/la-fi-mortgage-mods17-2010feb17

I agree with you that there's plenty of time to buy. The Tsunami Option ARM wave is about to hit our shores. But I'm thinking buy one now, next year, and the following year. Then my 5 property portfolio is complete. Then I can reassess my goals. I know it's going to be cheaper to buy in 5 years, but it's still going to take 30 years to buy, so if the cash flow works as of today and I can get a deal, then I think I'm going to do it. Cause cash in my bank erodes in value as the government continues to print money as a solution to the great recession. And I'm not going to be younger in 5 years.

burritos says

Cause cash in my bank erodes in value as the government continues to print money as a solution to the great recession. And I’m not going to be younger in 5 years.

Does the value of the cash erode as quickly as the housing values are dropping? Just asking.

elliemae says

burritos says

Cause cash in my bank erodes in value as the government continues to print money as a solution to the great recession. And I’m not going to be younger in 5 years.

Does the value of the cash erode as quickly as the housing values are dropping? Just asking.

Good point. Leveraged cash will definitely lose value faster than just money in the bank being eroded by inflation. But if your goal is long term, then it's not as crucial. That's why I DCA stock vs timing the market.

If inflation takes off, rates go up. My cash will get better interest rates. Property values will go down, but the rates to purchase will go up. What will rents do? Inflation generally increases rents. But if property values drop so low, maybe it'll be worth it to buy, keeping the market from totally bottoming out. So will my monthly PITI be more or less? Don't know. There are a lot of reciprocating feedback mechanisms. I think prices will go lower, do I think it'll drop another 50%. I don't think so. I could be wrong. When is it a good time to buy? You can use Patrick's calculator. But I know that in 5 years, I'll be 5 years older and that's 5 year later to start paying on day one on a 30 year mortgage.

How's about saving up, and in five years getting a 15 year mortgage with a bigger down. If prices dip another 25% or so (which I think they will), you'll be able to afford it. Otherwise you'll be upside down. And you can make a larger payment on a 30 yr mortgage at any time, so either way you come out ahead.

If housing drops, rents will follow and you might not be able to rent for what you owe. IMHO Housing might not recover for many years and your money might be better served elsewhere.

elliemae says

How’s about saving up, and in five years getting a 15 year mortgage with a bigger down. If prices dip another 25% or so (which I think they will), you’ll be able to afford it. Otherwise you’ll be upside down. And you can make a larger payment on a 30 yr mortgage at any time, so either way you come out ahead.
If housing drops, rents will follow and you might not be able to rent for what you owe. IMHO Housing might not recover for many years and your money might be better served elsewhere.

Another 25%. That would be great unless I buy today. There's a small part of the back of mind that believes this. But are you certain that all areas in this country are going to drop 25% regardless of how the local economy is doing? Is this the presumption that you're using to manage your portfolio? Liquidating all your stock and RE holding and timing for another 25% downturn? Cause stocks will tank also.

I don't want to put down more money than I have too(only 20% per property to start). I want to use the power of leveraging. So if the property goes down, then yes, the down payment requirements go down, but it'd have to go down more than 25% for a 15 year fix to be lower payment than the current 30 year fix.

E-man says

@ Burritos,
Going back to your point #3 above. You offered $200k, but got rejected from the bank. What was the bank’s reason for the rejection?
Based on my experience, when the bank rejects your offer, they give the listing agent an “approved short-sale” price. What was the approved short-sale price? If you don’t know this, talk to your RE agent. Get this number and we’ll talk.
I personally have had 4 experiences with short-sale.
One offered for $240k, bank countered back at $265k. BPO (Broker Price Opinon or Fair Market Value) = $295k.
One offered for $310k, bank countered back at $326k. BPO = $350k.
One offered for $280k, bank countered back at $290k. BPO = $340k.
One offered for $215k, bank accepted it at this price. BPO = $286k.
Personally, I think you’ve made a mistake for not going with the listng agent. If you went directly with the listing agent, I wouldn’t be surprised you would have gotton the house for $190k with the bank paying for closing cost. One thing to keep in mind that it would cost the bank about $30k to foreclose this property so they would rathar do a short sale. IMO, the listing agent is not aggressive on pushing this deal thru is because he is waiting on getting his own buyer so he can double up on his commission. I learned this from missing out on several deals for not going with the listing agent.
At $210k for a relatively new house and you can rent it out for $1,500/mo., it’s an OK deal. If it’s in a decent location, it’s a great deal. If it’s in Central Valley, it’s not that good of a deal.
Hope that helps.

It's not central valley. It's south puget sound. I think you might be right about going with the listing agent, but I need someone I trust to be up there to represent my interests since I'm in LA(I know that statement isn't going to go over well with the people on this board). Since she's done 2 of my properties in the past with no hitch, we decided to stick with her.

http://seattle.bizjournals.com/seattle/stories/2009/02/23/daily57.html

Well, if the NAR says the area is great, I'd believe it. Proceed cautiously, the bubble popped harder in some areas than in others. But if there is a high population, chances are greater that housing was affected.

elliemae says

http://seattle.bizjournals.com/seattle/stories/2009/02/23/daily57.html
Well, if the NAR says the area is great, I’d believe it. Proceed cautiously, the bubble popped harder in some areas than in others. But if there is a high population, chances are greater that housing was affected.

Seattle is too expensive for me. I'm south puget sound, away from the glitz, away from the hordes of Californian speculators.

http://money.cnn.com/galleries/2010/real_estate/1002/gallery.Housing_recovery_bets/

As a rule, I don't believe the NAR propaganda hype.

If the place needs no work, you haven't hired a good enough inspector. Go find out what needs to be done to the place. At least counter the banks arguments. If the place is already placed under similar comps, then it might be a little harder to negotiate. On the flip side, do banks offer properties at lower than market rates? Couldn't they get in trouble for doing something like that? Obviously it only hurts the bank, but even then, it's hurting someone at the bank, even if it's just the share holders. It seems like banks shouldn't be listing under market values.

Housing isn't likely to drop 25%. The government can't permit that. Too many people will be under water at that point, beyond the speculators and poor decision makers. People who purchased wisely back in 1995 could become under water. That could put the economy into a real pinch if people who felt less wealthy after this bubble went from "wealthy" to less wealthly to negative. While the economics might state that 25% is reasonable, I'm betting the government will do whatever is required to prevent that. Even if it means pushing inflation for 3-5 years to keep prices stagnant. (in effect dropping their home values, but most home owners won't see it that way).

That being said, we're probably looking at slow pricing increases if the economy recovers and/or inflation if it doesn't, which will keep prices roughly the same. Leveraging with a loan doesn't seem to be a bad idea now a days. Of course, it does seem to appear that nothing is going to move much for the next year, so it might be worth waiting to see what will happen.

E-man says

@ burritos,
I totally understand that you’d like to stick with this RE agent. There are quite a few of good RE agents out there. IMO, more bad ones than good ones.
So what was the approved short-sale price? I can’t have any additional input without knowing this number.

Approved SS price is 200k.

ask realtors to take a commission cut... to 2.5% (if it's 3%)~2k...ask sellers to pay 3k, and you pay the other 3k.... If no one wants to work with your deal...then walk. Realtors lose because their "work" is lost, as no sale was made... bank loses because if they let that property sit for another couple months, it could be ~20-30k$ less, and sellers lose because they are still stuck with their underwater house and no offers....

@E-man

Have you been successful in under bidding on short sales and getting them accepted? I'm just wondering, because many places and realtors seem to just want to avoid them like the plague because they say they never go through. I think redfin states that they won't deal with them at all, due to the low closure rates on them.

Listing at 330, and selling at 275 seems pretty good! The fact that 220 wasn't ignored and 250 would have gotten you the deal is interesting. Are you buying in the bay area?

E-man says

@ burritos,
In hindsight, the way the offer was written up suck. You always make a low-ball offer on short-sale and let the bank counter. Let them tell you how low they would go. Occasionally, you will run into banks that desperate for $$ and you wouldn’t believe in your wildest dream how low they would sell it for.
With that said, the ball is on your court now. From personal experience, the listing agent would not want to go back and re-negotiate with the bank. If you really want this property, I suggest you ask your RE agent to give you back 1 point toward closing cost. Since she knows that you don’t want to pay closing costs, she might agree. $2,000 is $2,000. It’s just business. With that said, I have never asked for a kickback from any RE agent. I just make sure they get me a property at the price I want to pay, which is 70% to 80% fair market value. Would you care paying closing costs if you were able to buy that SFH for $150k to $170k or even $190k? Good luck with your decision.

I lowballed the property prior to this one. It was on the market for for 209k, I offered 200k and they pay closing costs. Not even a counter offer. I guess that made me gun shy on this property. We're kind of eager to get a another rental as opposed to trying to make a killing. We don't want to put in any sweat equity, so we're aiming for newer, cleaner, nicer homes.

Low ball offers were common as the morning sun, i low balled by offering 15% less and was countered by 5% less from asking. Got it at -10%. The asking prices always have some sandbanged amount for 'seller perks'. Learned it from a friend of mine who sold his home (this was many years ago) adding moving expenses and new car at the expense of the buyer. So always low ball!

once again - why not speak with the bank and see if they'll meet the terms of your current mortgage broker and deeply discount their fees? That'll give you a break.

Show no loyalty to your broker if someone else can do the same thing & more.

Sellers realtor got back to us. Looks like they're ok with the new offer, of 206K with bank paying the cc's. However, the bank has to approve it also. They did modify the P&S agreement such that if we did go with the short sale that instead of my being able to walk away, that i could no longer walk away(guess I'd lose earnest money or they could go after us legally if we did walk away from the transaction). My realtor advised against this. She doesn't think the other realtor could do the short sale effectively. She said that the only way I should sign this is if a 3rd party escrow agency(chicago title and their attorneys) managed the short sale and the sale had to be completed within four months. She said that it wouldn't cost me any more and that the fees to pay the title company come out of both realtors' fees. Seems ok to me. I'm not in a hurry.

My realtor says that the sellers are imminently going to sign the purchase and sales agreement. So hopefully the bank will ok the 206k sales price with their paying closing costs.

Just an update. I'm on month 7(?) on this bad boy. According to my realtor bofa is putting all foreclosures and ss's on hold. We're looking at bank owned properties, but many have a clause where the first 2 weeks after being listed, only owner occupied offers will be acknowledged. Weird.

why not drop your agent and just deal with the bank directly? :-)

Hmm...so is the original home listed at $200k still on the market as a ss? B of A was the lender on it?

I'm asking b/c I've also been following a ss in the south puget sound area where B of A continues to sit on it. It is a higher end property and I can't imagine any sane investor would ever have interest...so the situation is different. Yet, it has been on as a ss for 571 days and counting. The "owner" of the property I follow had their bankruptcy Ch7 discharged in 7/09....yet B of A NEVER foreclosed. This home is still sitting out there as a ss listed at the same price as last summer. B of A had some previous offers (not from me) that were pretty close to their listing price and they rejected them.

I can't figure out B of A. Obviously, they need to minimize losses but waiting it out indefinitely as a strategy? When you say you are on month 7....do you mean they are still holding your offer, "considering" it while waiting for something else?