Suggestions on a deal......ASAP

[shellwipp]

I have a lead on a possible deal with an extremely motivated seller who is open to offers that is relocating due to medical reasons.  I am brand new at wholesaling so please excuse my ignorance, but I was wondering if I could get some suggestions on how or if this deal can be worked?

After running the numbers on the property according to the standard formula:

ARV Comps:  $146,600  (Based on 4 sold comps in area)
                    -   $40,000 (If ARV is 140,000+ minus 40,000)
                    __________
                      $106,600
                   -    $40,000 Estimated Repair Costs
                    ___________
                         $66,600
                    -      $5,000 My Fee
                    ___________
                         $61,600 Top Offer

My question is this, the seller owes $87,500 on a construction loan on the property because she started the renovation herself, but due to her medical problems and having to move, cannot complete the project and wants out.

Can my offer be less than what is owed on the construction loan or how does that work?

Thanks for any and all help.

Shelley~

                     

[Roger J]

Shelley,

Your offer can be whatever you want it to be.  Whether the seller accepts it or not is another thing.

If you're trying to offer less than what is owed, then you are trying to "shortsale" the property, which may or may not work.  In a shortsale, the lender must be involved with the approval of the offer because they need to decide if they are willing to take less than what is owed on the loan.

A VERY simplified summary of a shortsale.

Hope it helps,

Raj

[shellwipp]

Thanks Raj,

Yes, it does help tremendously.  I need to contact the seller and find out how much of the construction loan has been used so far towards the rehab of the house.  I'm thinking that the least amount that has been used, the better for me and my offer, which would mean the least amount owed towards the property.  If I understand construction loans correctly, they are used as a line of credit and funds are released as needed, often times requiring a receipt of some sort showing what the funds will cover.

I know a very minimal amount about a short sale, but in this case, if the offer was less than what was owed on the loan, does the seller present my offer to the bank or do I need to get a short sale package from the bank?

I really appreciate all your help!

Shelley~

[Roger J]

Shelley,

Sorry for the delay in responding.

From what you've posted, I doubt that it would be worth trying a shortsale because the bank is not in any position to lose money by foreclosing.  Based on your ARV and repair estimate, the lender would still be about $20K or so to the good.

Hope it helps,

Raj