More Behind a Failed Flip

By Dave Fratello | February 10th, 2011
Just last week we figured that we had closed the book on 801 11th, the MBB-adjacent Hill Section property that foreclosed last year and finally sold to an owner-user this year. (See "So Much for that Flip.")

Now we can share greater detail from behind the scenes before the home went back to the bank in 2010.

In short, you'll see that some would-be buyers for the property had nailed the market value last year, but the bank screwed up and rejected a short-sale offer that would have avoided foreclosure. D'oh!

Rewind a bit further back to when 801 11th first hit the market as a short sale last April. The home had been on and off the market previously at silly prices – $2.495m and $1.995m – but then it was up at $1.6m as a shortie, with that price being called "approved." (See "Two Hill Returnees.")

Short sales rarely begin with a bank-approved price, but somehow this one did.

801 11th Foreclosed Instead of Going Short
So here's the backstory. Some MBC readers who offered on the property before it hit the market last year have shared some details on their interactions with the bank holding the 1st TD. They had offered much less (good strategy) but got a $1.6m counter from the loss-mitigation department. (Yes, sticklers, we're simplifying the short-sale process for ease of reading.)

Quite unlike MBC, which (in)famously called $1.6m "a veritable steal for a fairly large Hill Section house," the would-be buyers stuck to their guns, and called the market value as being much lower.

Specifically, they went back to the bank offering $1.321m

There was also the matter of a 2nd on the property held by a different bank. Some of that bank's loss would be covered by insurance, but they were holding out for $58k before they'd let a shortie go through.

Looming over the whole process was the risk that the property would proceed to foreclosure. The 2nd would be wiped out and there would be costs for the holder of the 1st to go all the way to the courthouse steps.

Alas, the buyers' counter wasn't accepted, and the property hit the market "approved" at $1.6m. (What you were supposed to do with the 2nd if you offered $1.6m wasn't clear.)

As we all know now, the home did foreclose in July 2010.

And now take note of the dollars involved as this situation resolved itself.

A would-be flipper grabbed the property for $1.320m. Funny, that's a pocketful of change less than the short-sale buyers had offered. The flipper's attempts to get $1.590m or $1.499m failed.

After a few months, a new owner-user bought the home for $1.380m. Funny, there's not much difference between that amount and what the short-sale buyers might have paid for a short 1st TD plus a $58k payoff on the 2nd to seal up the shortie last year.

Had that worked, there would have been no foreclosure, no total wipeout on the 2nd, no extra costs for the holder of the 1st. That, plus the would-be buyers – who had lived in the home for 3 years as tenants – really liked the property and could have continued to call it home for the past 9 months.

There were full cups of incompetence passed around to almost everyone involved. Everyone except the would-be buyers from last year, who saw clearly before anyone else would. They've moved on, while everyone else got egg on their faces.

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