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.
Showing posts with label how to do short sales. Show all posts
Showing posts with label how to do short sales. Show all posts
Monday, September 10, 2012
Monday, August 20, 2012
Five Mistakes To Avoid When Making A Short Sale
The first mistake investors make when approaching a short sale is so prevalent that it deserves its own separate article.
What is this mistaken belief?
Bogus Belief #1: Short sales are quick and easy.
This belief is bogus because banks have a tedious process they have to go through in order to agree to a short sale. They also have to explain the huge loss on the deal to their shareholders, and they have a lot less interest in seeing the deal move quickly than either you or your seller. Short sales thus take an unusually long period of time to complete.
To avoid making the mistake of believing that short sales are quick and easy, you need to understand the process and plan your timetable accordingly.
Once you have the property under contract and go to the lender to negotiate a short payoff, a number of things have to happen. First, the lender will order an appraisal or Broker’s Price Opinion (BPO). The BPO is an informal appraisal done by a local real estate agent to give the lender some idea of what the actual value of the property is right now.
The lender will also ask for a hardship letter from the seller in addition to financial information (bank statements, tax returns and more) to prove to them that the seller really can’t pay. This step alone can take four to six weeks, and only after this step is completed will the lender start the process of negotiating with you.
Every offer and counteroffer has to be ground through the gears of the lender’s particular approval process. This means that every time you want to counter price or terms you can expect to wait a much longer period of time than if you were dealing only with a seller to get an answer.
And the secret reason short sales take an unusually long period of time to complete: loss mitigation officers are notorious for not returning calls or waiting for YOU to call THEM, even when they have the information you’ve been waiting for.
So even though you might only spend 10 hours of actual time on the deal, it can easily be two to three months before you’re able to get an acceptance of a deal with the bank. That’s why you should never put a firm closing date into a purchase contract where you’re going to be negotiating a short sale. Instead, write that you will close “30 days after acceptance of purchase price by lender.” Otherwise, your contract will expire a long time before the deal is finished.
But a second bogus belief also deserves its own separate article to explain.
Bogus Belief #2: Banks Lose Money on Short Sales.
In reality, banks lose MORE money by NOT letting investors buy the property before the foreclosure sale.
For example, the typical property that I buy needs an average of $15,000 of work to be worth its after-repaired value of about $100,000. Often, this property will be subject to a mortgage of $95,000, and the seller is usually two to three months behind in payments by the time he calls me. I will offer somewhere in the vicinity of $50,000 for this property, which means that the bank will “lose” $45,000 by taking my offer.
But if the bank decides to reject my offer and take the property to foreclosure, the bank then pays an attorney to file the paperwork, make the court appearances, search the title, notify the other lien holders of the foreclosure, go BACK to court when the borrower declares bankruptcy at the last minute, etc. Total legal fees: $5,000+.
In the meantime, the bank has $95,000 loaned out that’s NOT earning any interest, and according to federal regulations, has to keep 1-8 times the amount of the defaulted loan on deposit instead of loaning it out. Since the average foreclosure in my area takes about 9 months to complete, this means that for 9 months, the bank is losing 6% interest on over HALF A MILLION DOLLARS in depositor’s money. Total lost interest at 6%: $22,275.
When the bank buys back the property at the auction-which they will, since they’ll bid $95,000 on a house with an as-is value of $60,000-$70,000-they’ ll list it with a real estate agent for sale. When it DOES sell three months later for $70,000, they’ll pay the agent’s commission of 6%, all back taxes, plus the usual seller costs.
Three more months of lost interest: $7,000.
Agent’s commission on $70,000 sale: $4,200.
Transfer taxes, deed preparation, prorated property taxes etc: $1,500.
Total sale price: $70,000.
Total expenses: $39,975.
Net to bank: $30,025.
Selling to me for $50,000 and saving a year of hassle: priceless.
Bogus Belief #3: Seller bankruptcy stops foreclosure.
Many sellers seem to believe that if they declare bankruptcy, the lender can’t foreclose, allowing them to stay in the property forever without paying.
As the investor, this bogus belief makes trying to convince the seller to cooperate in a short sale difficult. Why would they want to sell if they think they can live free forever?
So it’s your job to be aware of this myth and inform the seller that bankruptcy actually DELAYS the sale for a number of months but does not stop foreclosure. This is therefore a critical fact to remember when talking to sellers in pre-foreclosure.
Bogus Belief #4: If the foreclosure auction is less than 6 weeks away, it’s too late to negotiate a short sale.
I used to believe this one myself. But that’s because I was making the mistake I warned you about in Bogus Belief #2. However, once I discovered that banks lose more money by not letting investors buy the property before the foreclosure sale, I realized that some lenders are actually willing to delay the auction in order to complete a short sale.
By attempting to negotiate a short sale even if the foreclosure auction is less than six weeks away, you’re helping the bank save money. And you’re helping the homeowner save his credit.
Bogus Belief #5: The seller can’t get any money if you’re not paying the bank in full.
This is true. Unless you are creative.
It is true that the seller can’t get any money for the sale of the PROPERTY that might appear on the closing statement. And this could be a deal-breaker for the seller who needs that $500 or $1000 in cash to move. Only there is a way to legally circumvent this dilemma.
Simply buy something else from the seller, such as appliances, furniture or any of his personal property you can use. Then put your purchase on a separate bill of sale, NOT on the closing statement.
It’s perfectly legal for the seller to get money, but keep in mind that it is impossible to get the bank to accept a short sale when there’s money for the seller listed on the purchase contract or the closing statement.
Most bankers realize you are probably giving the seller something to get out of the house. They just don’t want or need to know about it.
What is this mistaken belief?
Bogus Belief #1: Short sales are quick and easy.
This belief is bogus because banks have a tedious process they have to go through in order to agree to a short sale. They also have to explain the huge loss on the deal to their shareholders, and they have a lot less interest in seeing the deal move quickly than either you or your seller. Short sales thus take an unusually long period of time to complete.
To avoid making the mistake of believing that short sales are quick and easy, you need to understand the process and plan your timetable accordingly.
Once you have the property under contract and go to the lender to negotiate a short payoff, a number of things have to happen. First, the lender will order an appraisal or Broker’s Price Opinion (BPO). The BPO is an informal appraisal done by a local real estate agent to give the lender some idea of what the actual value of the property is right now.
The lender will also ask for a hardship letter from the seller in addition to financial information (bank statements, tax returns and more) to prove to them that the seller really can’t pay. This step alone can take four to six weeks, and only after this step is completed will the lender start the process of negotiating with you.
Every offer and counteroffer has to be ground through the gears of the lender’s particular approval process. This means that every time you want to counter price or terms you can expect to wait a much longer period of time than if you were dealing only with a seller to get an answer.
And the secret reason short sales take an unusually long period of time to complete: loss mitigation officers are notorious for not returning calls or waiting for YOU to call THEM, even when they have the information you’ve been waiting for.
So even though you might only spend 10 hours of actual time on the deal, it can easily be two to three months before you’re able to get an acceptance of a deal with the bank. That’s why you should never put a firm closing date into a purchase contract where you’re going to be negotiating a short sale. Instead, write that you will close “30 days after acceptance of purchase price by lender.” Otherwise, your contract will expire a long time before the deal is finished.
But a second bogus belief also deserves its own separate article to explain.
Bogus Belief #2: Banks Lose Money on Short Sales.
In reality, banks lose MORE money by NOT letting investors buy the property before the foreclosure sale.
For example, the typical property that I buy needs an average of $15,000 of work to be worth its after-repaired value of about $100,000. Often, this property will be subject to a mortgage of $95,000, and the seller is usually two to three months behind in payments by the time he calls me. I will offer somewhere in the vicinity of $50,000 for this property, which means that the bank will “lose” $45,000 by taking my offer.
But if the bank decides to reject my offer and take the property to foreclosure, the bank then pays an attorney to file the paperwork, make the court appearances, search the title, notify the other lien holders of the foreclosure, go BACK to court when the borrower declares bankruptcy at the last minute, etc. Total legal fees: $5,000+.
In the meantime, the bank has $95,000 loaned out that’s NOT earning any interest, and according to federal regulations, has to keep 1-8 times the amount of the defaulted loan on deposit instead of loaning it out. Since the average foreclosure in my area takes about 9 months to complete, this means that for 9 months, the bank is losing 6% interest on over HALF A MILLION DOLLARS in depositor’s money. Total lost interest at 6%: $22,275.
When the bank buys back the property at the auction-which they will, since they’ll bid $95,000 on a house with an as-is value of $60,000-$70,000-they’ ll list it with a real estate agent for sale. When it DOES sell three months later for $70,000, they’ll pay the agent’s commission of 6%, all back taxes, plus the usual seller costs.
Three more months of lost interest: $7,000.
Agent’s commission on $70,000 sale: $4,200.
Transfer taxes, deed preparation, prorated property taxes etc: $1,500.
Total sale price: $70,000.
Total expenses: $39,975.
Net to bank: $30,025.
Selling to me for $50,000 and saving a year of hassle: priceless.
Bogus Belief #3: Seller bankruptcy stops foreclosure.
Many sellers seem to believe that if they declare bankruptcy, the lender can’t foreclose, allowing them to stay in the property forever without paying.
As the investor, this bogus belief makes trying to convince the seller to cooperate in a short sale difficult. Why would they want to sell if they think they can live free forever?
So it’s your job to be aware of this myth and inform the seller that bankruptcy actually DELAYS the sale for a number of months but does not stop foreclosure. This is therefore a critical fact to remember when talking to sellers in pre-foreclosure.
Bogus Belief #4: If the foreclosure auction is less than 6 weeks away, it’s too late to negotiate a short sale.
I used to believe this one myself. But that’s because I was making the mistake I warned you about in Bogus Belief #2. However, once I discovered that banks lose more money by not letting investors buy the property before the foreclosure sale, I realized that some lenders are actually willing to delay the auction in order to complete a short sale.
By attempting to negotiate a short sale even if the foreclosure auction is less than six weeks away, you’re helping the bank save money. And you’re helping the homeowner save his credit.
Bogus Belief #5: The seller can’t get any money if you’re not paying the bank in full.
This is true. Unless you are creative.
It is true that the seller can’t get any money for the sale of the PROPERTY that might appear on the closing statement. And this could be a deal-breaker for the seller who needs that $500 or $1000 in cash to move. Only there is a way to legally circumvent this dilemma.
Simply buy something else from the seller, such as appliances, furniture or any of his personal property you can use. Then put your purchase on a separate bill of sale, NOT on the closing statement.
It’s perfectly legal for the seller to get money, but keep in mind that it is impossible to get the bank to accept a short sale when there’s money for the seller listed on the purchase contract or the closing statement.
Most bankers realize you are probably giving the seller something to get out of the house. They just don’t want or need to know about it.
Monday, June 25, 2012
Government Foreclosures Guide
Foreclosure occurs when a homeowner fails to make mortgage payments on his homes. A homeowner is allowed to be late on a few payments, as long as they are paid soon. They have to pay the payments along with the late charges. Foreclosure homes happens when numerous mortgage payments have been missed and the homeowner is unable to rectify the situation with payments. The foreclosure process does not happen overnight. It can take up to three months, but do not be fooled by this lengthy time period. It is important to take action immediately on foreclosure homes. An average of 4% of all homes purchased will be foreclosed upon. Therefore, foreclosure is an issue to many people. Purchasing foreclosure homes may be beneficial to both the buyer and the homeowner if the purchase occurs at the right time.
Government foreclosures occur because owners fail to make mortgage payments on FHA insured loans or VA loans or because they fail to pay taxes or other amounts due to the IRS, USDA, or other government agencies.
You can buy a Government home for you to live in, or simply to rehab and sell for a fast profit. These foreclosures are offered to the general public through real estate agents that specialize in the sales of government homes.
HUD and the Veterans Administration (VA) foreclosure listings dominate the Government foreclosure market. Lending institutions are protected by the insurance provided by Fannie Mae and Freddie Mac on low interest loans offered to those who buy government foreclosures. When homeowners are not able to make their payments the banks refer back to the insurance attached to this mortgage loans. These homes then become government homes. Sometimes properties become government owned when they are seized from criminals.
There are large choices of available government owned listings including single-family homes, condominiums, and town houses, throughout different types of neighborhood all over the country. Prices for these homes may vary from one state to another. Some of these government foreclosure homes are older, but many of these available properties are comparatively new.
Government foreclosures occur because owners fail to make mortgage payments on FHA insured loans or VA loans or because they fail to pay taxes or other amounts due to the IRS, USDA, or other government agencies.
You can buy a Government home for you to live in, or simply to rehab and sell for a fast profit. These foreclosures are offered to the general public through real estate agents that specialize in the sales of government homes.
HUD and the Veterans Administration (VA) foreclosure listings dominate the Government foreclosure market. Lending institutions are protected by the insurance provided by Fannie Mae and Freddie Mac on low interest loans offered to those who buy government foreclosures. When homeowners are not able to make their payments the banks refer back to the insurance attached to this mortgage loans. These homes then become government homes. Sometimes properties become government owned when they are seized from criminals.
There are large choices of available government owned listings including single-family homes, condominiums, and town houses, throughout different types of neighborhood all over the country. Prices for these homes may vary from one state to another. Some of these government foreclosure homes are older, but many of these available properties are comparatively new.
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