Can investors help stop foreclosure in Seattle? There are many real estate agents and investors offering to help
stop foreclosure in Washington State. Have you been approached by an investor claiming that they can help you
stop foreclosure?
The general concept is that the investor will help you stop foreclosure
by purchasing your house. This usually involves you owing more than
your house is worth, which is the situation I’ll be addressing here.
The investor will make an offer to purchase your house, then negotiate
with your lender(s) to get them to approve a discounted payoff on your
mortgage(s). This is known as a “short sale”. When the bank approves,
you get to sell the house, get out from under the debt, stop foreclosure, and save your credit. Sounds pretty simple, right? Not necessarily.
First, I’ll clarify that investors are an important part of our real
estate market. I’m an investor myself, as well as a real estate
agent. Most investors I know are honest people trying to make a
reasonable living. However, it’s important to realize when an investor
is your best option and when it is not.
When selling to an investor to stop foreclosure may be worth considering:
- The foreclosure auction is just around the corner:
If the foreclosure auction is less than two or three weeks away and you
don’t already have a retail buyer in place, an investor may provide the
best option (and possibly the only option) to stop foreclosure by getting the auction postponed while the bank evaluates their short sale offer.
- Your house is a fixer: If your house needs a
significant amount of repairs, a retail buyer may not be able to secure
conventional financing, and a cash buyer may be required. Investors
need to make a profit, and purchasing a fixer at a discount and fixing
it up can be a good way for an experienced investor to make a profit.
When a house needs a lot of repairs, the bank will often times accept a
larger discount in a short sale situation.
When selling to an investor to stop foreclosure may not be a good option:
- Your house is in good condition: If your house is
in reasonably good condition or only needs some minor cosmetic
upgrades, the bank may not be able to justify accepting a large
discount that an investor would typically require. The bank will
attempt to mitigate their losses, so they may feel that the house could
be sold to a retail buyer, thus reducing their loss on the loan.
- You haven’t received a foreclosure notice or the foreclosure auction is more than 60 days away:
If there is enough time to find a retail buyer, the bank may not be
willing to accept a heavily discounted offer from an investor. The
bank may believe that less of a discount would be required if the
property is listed for sale and sold to a retail buyer.
- Your loan is an FHA or VA loan: HUD is now using
a minimum threshold net receipt to lender percentage of the market
value as a basis for short sale approval on FHA and VA loans. For
example, they may accept a different minimum percentage of market value
depending on whether your home has been listed for sale less than 30
days, 30-60 days, or over 60 days. If the short sale proposal does not
achieve the minimum threshold, it will not be approved. If your home
hasn’t not been listed for sale and an investor offers to purchase it,
HUD may calculate the minimum amount that can be accepted based on a
time-on-market of less than 30 days, causing the bank to require a
higher net payoff.
Also, many investors offering to help stop foreclosure
are wholesalers. They don’t actually purchase the property
themselves. They “flip” the contract to another investor for a fee
(usually several thousand dollars). This means that they need to
negotiate a discounted payoff with your bank that’s low enough for them
to make their profit as well as the investor they’re flipping the
property to. The success rate of short sales in this situation is
fairly low, except when the house is in very bad condition.
If an investor claims to be a cash buyer, ask them for proof of
funds. If they’re negotiating a short sale on your home, they will
typically need to provide proof of funds to the bank to get the short
sale approved. If they really are cash buyers, they shouldn’t have a
problem providing proof that they can actually purchase your home. If
they don’t want to show you their bank account balance, sometimes
seeing proof of other recent cash property purchases they’ve made can
be sufficient.
While the information here may apply in most situations where an investor is offering to help
stop foreclosure,
it’s difficult to condense all possible scenarios into a single blog
post and address every exception. I encourage you to seek legal
counsel from an attorney if you have any legal questions. Also, I
would be happy to share my experience if you
contact me.