Commercial Short Sales (Discounted Payoffs)
If you own investment property today it may be underwater. To keep the property, you may be seeking to renegotiate the terms of your loan. If the negotiations for the loan modification of your investment property (forbearance agreement, AB restructure, etc.) have failed, you may be considering letting the lender foreclose and take the property back.
We propose a different solution: A short sale.
What is a short sale?
A short sale means you are selling your property for less than the balance of the loan. The sale is pre-negotiated with your lender, who agrees to a discounted payoff in order to sell the property. The lender approves a discounted payoff while you still own the property on the basis that it will be sold and they will recover a portion of the note balance. The lender’s approval is required because it is their contract being shorted. The difference between the amount recovered through the sale and the balance of the note is called the deficiency.
What happens to the difference between the sales price and the balance of what I owe them?
The lender can either:
a.) Forgive the difference;
b.) At close of escrow, require a cash contribution or an unsecured note; and/or
c.) Retain the right to pursue for a deficiency balance.
What does the short sale process look like? Diagram.
Why would my lender do this?
a.) You are in default of the note because of a documented hardship.
b.) Full recovery of the note before maturity is unlikely.
c.) Banks usually make more money on short sales than they do foreclosures.
Who negotiates the short sale?
Your real estate agent or an attorney.
a.) When hiring a real estate agent to negotiate the short sale, the negotiations will usually be confined to the business side of the lender’s company. Having an attorney negotiate a short sale has a chilling affect on negotiations of this kind.
b.) Attorneys (or “Advocates”) will usually require a retainer upfront to negotiate a short sale; a real estate agent is paid upon the successful completion of the short sale.
What if I don’t like the terms of the bank’s written approval?
a.) You can decline to accept it.
b.) Have the terms renegotiated.
Why do I need Focus Commercial Group?
a.) To find a ready, willing, and qualified buyer.
b.) To process and negotiate the short sale with the business side of the bank.
c.) To prepare an attractive short sale package for the lender using calculators that mimic the ones they use.
d.) To protect your interests and focus on closing the deal.
How long does it take to process a short sale?
About six months.
Who else is involved? What other fees can I expect to pay?
1. Attorney fees;
2. The cost of a certified appraisal;
3. A real estate commission;
4. Consultation with your CPA/accountant. We strongly advise you consult an attorney and your CPA for legal and tax implications of a short sale. Ask your CPA about doing a 1031 exchange on your cancellation of debt.
If you would like to discuss the possibility of doing a short sale on your Las Vegas investment property, please contact us for a private consultation.