Monday, September 17, 2012

Real Estate Foreclosure: The Big Picture

For those who are unsure by the notion of investing or obtaining foreclosures for profit or simply to have a roof over your head, well don't be. Here's why.

You can easily break down the process of foreclosures into three primary stages. Ready?

The first stage is pre-foreclosure the second stage is foreclosure auction and the third and final stage is bank owned foreclosures or real estate owned properties as they're interchangeably called.

Traditionally speaking as you move along the timeline of the foreclosure process your potential for profit will decrease the later you get to the foreclosure a property. In other words there is probably much greater profit potential if you are able to identify a property right before it enters into the initial stages of foreclosure in a market that you are familiar with as opposed to calling up the bank for real estate owned properties.

Now let me shed light on one thing, this doesn't mean that one way of doing things is better than another. It's actually a bit more complicated than that. It depends on what you're looking for when all is said and done. If you're planning on making a full-time living eventually from real estate investment then you'll definitely want to learn in baby steps how to get the most out of your time and efforts.

With that said for those who are eager enough to do this full time you will want to learn how to find pre-foreclosures because they generally offer you the maximum leverage and profitability relative to the most deep marked down properties available via bank owned properties

However if you are simply looking for a deep discount at home without wanting to start an entire business involving marketing, distribution, and promoting yourself while driving around neighborhoods every day looking up MLS listings conducting market research and paying all all the costs overlays involved in running a business, then it is unquestionably advisable if you are looking to simply purchase a more inexpensive home to come to call up the bank for a foreclosure property.

Monday, September 10, 2012

The Most Critical Aspect Of The Short Sale

Good news. As a real estate investor, you’ve found a home in pre-foreclosure. You know the owner has missed three mortgage payments, and he now owes the bank more than he can sell his home for.

With the bank poised to begin the foreclosure process, you’re ready to step in and begin negotiating a short sale. You’re ready to convince the bank to take less on the property than is owed in order to save the homeowner’s credit, save the bank time and money in lawyer’s fees and court costs and buy yourself a property at a great price.

But before you can begin the negotiation process with the bank, you must first take the most crucial step in the short sale process. Unless you do this, any fee you negotiate with the bank is irrelevant. Do you know what I’m talking about? If not, you better keep reading.

The one step you never want to overlook is getting the property under contract with the seller.

You could do everything else right. You could determine that the house is worth the remainder of the mortgage: $85,000. Only it needs $15,000 in repairs to get it’s real value to $85,000. And you have estimates from reputable contractors to prove that the purchase price of $50,000 is indeed the as is value. (Don’t forget to leave room for your profit!)

You have done your homework so well that the bank wants to take the $50,000 and avoid the year and a half foreclosure process and expense. Now this property is on the verge of becoming yours at an amazing price.

If, however, the owner hasn’t signed a contract giving you permission to negotiate the short sale with the bank, you have no authority whatsoever. Although the owner is not current on his payments, he is still the owner of the property. As the owner, he has to authorize you to make the sale.

So how do you get the owner to sign a contract?

Simply approach him with the same numbers you would take to the bank. Show him how selling the property for less than its worth will benefit him. Show him how it will keep a foreclosure off his credit report as well as prevent him from owing back payments, legal fees, interest and penalties.

When he agrees to your deal, get him to sign a contract authorizing you to buy the property by way of a short sale. Then–and only then–do you approach the bank with your negotiation tactics.

Keep in mind that vacant houses in pre-foreclosure are tougher to deal with. Because you have to track down the owner. He may be living with a sister, a friend, a parent or any number of other options that are not easy to track.

Just remember that taking the time and making the effort to get a signed contract are well worth it. For that contract with the owner is the most critical aspect of a short sale.

Monday, September 03, 2012

Negotiating A Short Sale – The High Road To Huge Foreclosure Profits

Buying foreclosures can be extremely profitable for real estate investors. However, most of these homeowners are mortgaged to the hilt. They have no equity, and big loan payments. In fact, many actually owe more than the property is worth!

Most investors will walk away from these deals because they see no obvious profit. However, you can “create” your own equity by negotiating a “Short Sale” with the bank or lender.

What is a Short Sale?

The concept behind the short sale is simple: your goal as a real estate investor is to convince the bank to sell for less that is owed as payment in full. Of course, this concept is easy - buy the foreclosure from the bank at a big discount, sell the real estate, and make money!

How to Negotiate the Short Sale with the Mortgage Holder

Once you have your secured a contract with the homeowner and have your paperwork in order, you'll be ready to deal with the loss mitigation department of the bank. Short Sales success relies on dealing with the loss mitigation department at the bank. Although most lenders look at short sales as a necessary evil within the lending industry, that doesn't mean that the bank will just roll over and do your bidding.

Understand the Bank's Perspective

With foreclosures at a 52-year high, the loss mitigation department at the bank is busy, if not highly overworked. Turn this disadvantage into an advantage - sell them the benefits of your short sale.

Short sales contracts help lenders unload unwanted property and spare many expenses associated with the foreclosure process. These expenses include, but are not limited to, court costs, bankruptcies, repairs and marketing. This is in addition to the $300,000 to $800,000 (or more!) normally held in reserve by lenders. Federal regulations require this reserve, which is usually many times over the actual price of the bad debt.

As the investor, keep these benefits at the top of your mind. After all, it's up to you to convince the lender that cutting their losses short is the best option.

It's time to hone your negotiating skills. Here are 3 Steps to help you out.

Step 1: Have Your Paperwork Ready

There is paperwork that all lenders will require in order for you to submit your offer for the short sale. Second, many of the larger institutional lenders have their own short sale package (their own forms to be filled out and signed).

Since many of these forms have to be signed by the homeowner(s), it's best to have them with you when you meet with the homeowner to work out a deal. At a minimum you should have the homeowner fill out and/or sign:

· Authorization to Release Information (homeowner's permission for the bank to speak to you)
· Purchase and Sale Agreement
· Hardship letter (showing why the homeowner can't make the mortgage payments)
· Financial statement (showing the assets, liabilities, incomes & expenses)
· Estimated HUD1 or Net sheet (showing the bank what they will get)

Second, find out if the lender has a package they want completed. You can do this usually by calling the lender and asking them to fax you the package. Get the lender information from the homeowner in a phone call, so you can get the package before you go out to the house.

Step 2: Approaching the Loss Mitigation Department:

One of the first challenges you'll face with the bank is getting your call to the right person. Some banks have systems set up in a way that when you call put in the homeowner's account number, the call transfers to the appropriate department.

If the bank doesn't have a system like this, call around to find the Loss Mitigation Department. Many banks have different names for this department, so you may spend some time getting bounced around. Other names to try out are “foreclosures department”, “short sale” department, or “loan modification” departments.

Make sure you introduce yourself and be nice, polite, and patient when you reach the right person. This is the person that can make or break your deal. It's helpful to have some form of a script in front of you to get the conversation.

When you speak with them, make sure you cover the following:

· Introduce yourself.
· Name the homeowner, the account number, and the fact that you represent them.
· Ask for the fax number.
· Let them know you're faxing over an “authorization to release information” so that the loss mitigator can talk to you.
· Stay on the phone as you fax this information.
· Explain to them that you're interested in a short sale.

Once they have the paperwork in front of them, the negotiations begin.

Step 3: Begin Your Negotiations

Every bank has its own personality and approach when it comes to short sales. Some teach their employees to at least show resistance up front. One reason for this is that many investors call them expressing interest in a short sale, with no clue how to do it! These loss mitigators usually have about 80 to 300 files on their desk. They just don't have the time or desire to teach you! Let them know you don't need them to!

Many new investors have been advised to not reveal that they intend to invest in a property. However, it is better to be upfront and let them know that you are an investor, and you are buying the property.

Being honest and upfront allows both parties know what is required of them, and what needs to be negotiated.

While speaking with a loss mitigator, make sure to emphasize the following points:

1. You're an investor and you know what you're doing. Although you do want to make profit, let them know you're not out to steal the property from them.

2. You understand that they are busy and appreciate the valuable time they are spending to negotiate with you. Find out what will make it easier on them.

3. Remember your selling points. The bank wants to avoid the homeowner filing bankrupty, and the bank needs to unload unwanted property without taking a huge loss. (And yes, while you are in it to make a profit, you're not trying to rip them off! You're just trying to use your expertise to do what you're good at.)

4. A short-sale is a win-win situation for everyone!

Once you have spoken to the loss mitigation department and given them your paperwork, the lender will need information about the property, the borrower and the deal that you are proposing. If the person you are speaking with tries to test your resistance, make sure you answer as many questions as thoroughly as possible to let them know you are a professional. Hang in there, answer and ask as many questions as possible, and they'll be more apt help you out along the way and walk you through what it is that you need to do.

The most important fact that the broker needs to know is: How much is the property worth? Banks usually hire a real estate broker or appraiser to evaluate the property. This is called a broker's price opinion or “BPO”. The BPO is one of the largest hurdles you need to clear when perfecting your short sale negotiations. In the next article, you'll learn the in's and out's of the BPO and how to negotiate the BPO down to create profit for your short sale.

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