To Go ‘Long’ Real Estate, Try Going ‘Short’

She nudged a fall of hair from her eyes, signed and slid the page back.  “Anything else?”

“That’s it,” I said straightening what had become a thicket of paperwork.

“Maybe seven’s our lucky number, eh?” she said with a hopeful smile referring to her 7^th short sale offer.  

“Keep your fingers crossed.” 

My client Amy had a lot going on.  A Pharmaceutical Sales Rep, single mother of four elementary/pre-school kids, her day planner had something every 15 minutes.  Time was precious.  It was also running out.

We had to secure housing soon or she would be obligated to renew the lease on a cramped two bedroom condo she and the kids were piled into so they could be in her preferred school district. 

But it couldn’t be just any house.  

You may have caught a hint of Canada in her accent – Northwestern Minnesota actually near Moorhead.  She grew up on a farm and wanted her kids to experience animals and wide open spaces. 

Whatever we found had to be on at least an acre.  No track.  No HOA.  Mountain views.  2000+ sq ft.  4 bedrooms.  Oh, and under 250k.

We had seen everything new to the market for weeks.  Then, on a lark, I ran a ‘BACK ON MARKET’ search just in case I missed something that had fallen out of escrow.  This beautiful Santa Fe custom 4 bdrm, 2 bath about 2500 sq ft on 1.5 acres, with ‘calendar’ views of iconic Four Peaks popped up at 249,900 in Rio Verde, a rural area just east of N. Scottsdale. 

It seemed too good to be true.   Terrific price and it met all of Amy’s criteria.  One major red flag - it had been on market 400+ days?   With a price like that, there had to be something wrong with the house, right?

I called the listing agent and got the scoop.  The house had fallen out of escrow several times.  The main stumbling block had been the 2^nd lien holder.  They wanted an additional $17,000 to release their lien against the property.

“…And they won’t let the Seller pay it.”

“You got it,” the listing agent said, “That’s been our major hurdle.  And now the trustee date is only two days away.  Not sure we can save it.”

I had done a similar deal and had a good idea of what to do, but it had to make sense.  I knew with only two days until foreclosure the agent would be straight with me.

“What’s the minimum the 1^st will accept?” I asked.

“218,000.”

In a short sale the Seller must show hardship.  If the 1^st lien saw the Seller had additional funds ($17,000 for the 2^nd) they would cannibalize those funds toward the deficiency on their much larger 1^st.   That’s why the seller could not payoff the 2^nd.

So if we offered 218 for the house and Amy could come up with the 17K for the 2^nd, all-in we’d be 237K.  Incredible.  A little more cash out of pocket, yes, but with a FHA 3.5% down loan Amy’s total out of pocket would be just a shade over 10% - definitely within budget and worth doing to secure the big prize.

Under this scenario, the 1^st got their requested payoff.   The 2^nd got settled.  The Seller avoided foreclosure.  And most important for me, Amy got her custom home with views, wide-open spaces and at great price.   Everybody won.

Of the seven offers we submitted, this was the only one that went through.  On the others, we were either out bid (mostly because the homes were over our budget) or in a back-up position that would not have worked.

It takes a little perseverance and patience, but to take advantage of our distressed market, short sales allow you to put numbers on your side by submitting multiple offers with minimal risk.  It’s the law of averages.  If you throw 10 darts, one of them is bound to score, hopefully big.

On a side note – the appraisal, which notoriously tends to ‘gravitate’ toward the sales price, came in at 257K – 20K above Amy’s ‘all-in’ price of 237.   That’s what we like to see.