short sales

[OKRICHLAND]

Hello everyone,
OKRICHLAND here.
Hope all investments are going well.
I've been hearing quite a bit about short sales lately.
Could some of the seasoned investors please explain
just what a short sale is and how it works, in laymen's terms?
Thanks.

[REIaddicted]

I can bet that john will be here and post on the subject !
But in the mean time. Here is the just of it:

The art of convencing the morgage holder to reduce the amount of their morgage my pointing out the " best reasons for reducing".

The reasons: For all the forclosures the bank is penalized $ wise. They are then hamported by the amount they can lend because they have a certain $ amount tied up.

If you put together a short sale packet, mentioning and showing
A: bad neighborhood
B: comps
C: owner wants to file BK

The bank is then motivated to do a short sale. This is just a very, very basic understanding as I see it. I know there are others that have a more complete answer. But you get the just :SM062:

[Dan Auito]

Dave, Randy Lee at www.purpose.4t.com has nailed down the short sale to a tee! Of all the courses on this, Randy gives you everything you need to go out and do it.

Make an investment in your real estate library and go ahead and pick his Short sales course up. If you don't like it I'LL refund your money. It's a good weapon to have in your buying techniques arsenal.

*You find a house headed towards foreclosure
*Get the owners to give you an authorization letter to speak to the bank and get financial details, Arrears, penalties, loan amounts remaining, etc
* Evaluate repairs needed and what the sellers need to walk away(if anything)
*You formulate an offer to the bank telling them that it will take six months to evict and process the foreclosure, the owners have said they won't be making anymore payments because of whatever (They'll already be behind)
*The bank will also have to make repairs (you present a very detailed list)
* They will have to pay a real estate commission and have this non performing loan on the books for the next 9 months or you the white knight can save the day by offering to buy it and obtain new financing to get it off their books.

Justify why it makes sense and they may except your low ball offer.

As I mentioned Randy gives you 75 pages of direct hard hitting how to in his course and he's doing great at it, believe it! Hail to Randy on this one :praise:

[realestate]

When the bank agrees to take LESS than what is owed on a property, it is called a "short sale."

[Just Information]

The seller’s mortgage lender will be considering many factors in deciding whether to approve a short sale, including:

Whether the seller deserves of a break, due to financial hardship caused by unforeseen circumstances such as layoffs, divorce or illness.
Whether it would be cheaper to simply repossess the house, make any necessary repairs and sell it through a real estate agent.
How many other properties the mortgage lender currently has in default.
Whether there are co-signors who can be held responsible for the balance owed on the mortgage
Your chances of success with the seller’s mortgage lender improve if your communication with them is organized and complete. Your first contact with the seller’s mortgage lender’s "loss mitigation department" is crucial in making a good impression.

You’ll want to send them what’s called a "Release" or "Authorization to Release Information" already signed by the seller, which allows the mortgage lender to talk with you about the seller’s mortgage.

In your first talk with the mortgage lender’s loss mitigator, you’ll want to find out:

Whether they think a short sale might be a possibility
What information they’ll need to complete the process
Loss mitigators sometimes receive bonuses based on how many defaulted loans they can clear up, so they’re more likely to pay attention to your sale if you can show them you’re taking care of as many details and objections as possible.

It will be necessary to be specific about the seller’s financial difficulties with what’s called a "hardship letter." The mortgage lender may also require paystubs, copies of medical bills, checking account statements and other appropriate evidence from the seller. The seller’s mortgage lender will look at the seller’s credit reports to verify the seller’s financial predicament. This will all take extra time.

The mortgage lender will order what’s called a "broker’s price opinion," which gives the mortgage lender some idea of what the property is actually worth in the current market. A broker’s price opinion will be based on:

the value of comparable properties in the same neighborhood
the general condition of the neighborhood
the condition of the specific property in relation to neighboring houses
If the person who is inspecting the property needs to look at the interior of the house, you’ll want to be sure someone is there to let him or her in. You may also want to provide the inspector with copies of low comparable houses in the neighborhood, and high estimates on any needed repairs

The lower the broker’s price opinion, the more likely the mortgage lender will approve a short sale.

The seller’s mortgage lender will want to have an advance look at what’s called the " Settlement Statement" or "Settlement/Disbursement Estimate." The mortgage lender will be carefully reviewing:

Commissions going to real estate brokers
Where your financing is coming from (Cash? A loan?)
Payments to cover outstanding liens and taxes
Approximate date of the closing
Any cash to the seller (a definite no-no)
Any other expenses which may raise a red flag
While buying a home on a short sale can be frustrating and time consuming, your hard work can pay off in a home that’s worth considerably more than you paid for it.

When you get ready to start communicating with the person at the lender's "loss mitigation" department, you must fax them a completed and signed "Authorization to Release". Always call the person who is handling the account with three main objectives in mind:

First, to confirm they got the authorization.
Second, to find out how receptive the lender might be to a short sale.
Third, to find out what items of short sale process will need to be submitted before they can render a decision.
Make your preliminary call productive. The reason is to test flexibility.

"I am the buyer and am going to need a bit of discount to pay the account off."


If it is a major discount, I will to tell them this up front.

"I'll need a substantial discount on this mortgage to pay it off; do you see this in the realm of possibility?"

If the lender responds:


…"It depends on the BPO…."

You know there is a chance.

On a Second Mortgage:

A normal strategy would be to say to the lender: "We normally generate about 10% to 15% of the balance, does this seem possible?"

Do not contact the lender a second time until you have faxed them your written "offer" and the components of the "short sale" package.

Many times, you will discover first Mortgage Lenders require more components in a short sale package than a second mortgage holder. Understand this-The reasoning behind a bank collecting this package is to determine answers to the following three concerns from the lender's perspective.

Lender Concern number one: Does the homeowner truly deserve a short sale?

Is it in the bank's best interest to take a short sale or repossess the house and sell through a realtor?

Are there any hidden factors, which might affect our ability to recoup a loss assuming a lender must repossess?

Example of a Bad Deal!

Negotiated a $20,000 discount on a first mortgage.

The Lender had verbally approved the original loan balance of $148,000 to a discount of $128,000!

Market Value $200,000.

Lender pulled seller's credit and found a $75,000 auto loan being financed and it was current!

Don't expect a lender to accept a discount just because it sounds good to you. If the lender thinks they will get a higher payoff by taking back the house, the lender will turn you down.

Remember, on a second mortgage offering 10% of the mortgage, balance is not unreasonable.

If the second mortgage is instigating the foreclosure, the 10% offer might have to be substantially increased.

REPAIRS! This is an extremely powerful negotiating tool in a case where the lender is to receive discount offer. Get at least two construction or remodeling contractors to give you written estimates. Make sure these estimates aren't coming from the cheapest guys in town. The repairs estimates are one of the best negotiating tools one can use along with influencing the BPO

"Short Sale Offer Letter" - make sure this is coming from you as the buyer; By the way, this is important: I submit my position as the buyer. NOT AN INVESTOR!

A good "short sale' offer letter" should:

1. Provide your contact info.
2. State your position in the transaction.
3. Clarify your intentions.
4. State your offer amount.
5. Give good solid reasons for why the short sale should be approved (Repairs, bankruptcy issues, seller is crazy, etc…).
6. Give a closing date when the lender will be paid.
7. State what action you want the loss mitigation to do. Order the BPO, give you their counter offer, and fax you a list of what the need to see before reviewing a short sale).
8. Give an alternate way for this person to contact you other than your telephone number!

The "Broker's Price Opinion" (BPO).

The B.P.O. is the single most important part of the short sale process.

Too many investors have put lenders to work ordering BPO's only to never complete the short sale package. However, if the investor will order the BPO you save the lender time and you can"influence" the BPO by asking for the lower end of the market.

The lender will hire an appraiser or realtor to go to the house and determine the value of that property. Make sure you are the contact person who meets them at the house and lets them. More importantly, make sure you have with you some low comparables ("comps"). It's your job to influence the lender's value to the lowest comparables possible.

The HUD-1 Settlement Statement (Also Called "Net Sheet").

You must create this Preliminary HUD-1 Settlement Statement. Again, this is only a "preliminary"

HUD-1 and you should write that on the HUD-1 itself.

The HUD-1 Net Sheet shows how the money is to be dispersed at closing. The lender looks for immediately recognizable and usually unacceptable red flags such as: excessive commissions in this transaction, no cash to seller. Acceptable entries in the HUD-1 should indicate:

1. The buyer's name (you or your trustee)
2. Seller's name
3. Property address (you are buying)
4. State a closing date (at least 45 days from acceptance letter)
5. Show sales price (just over lender's payoff
6. Ernest money (always at least $500)
7. Where the funding is from (cash or loan)
8. Taxes being paid (call the tax department)
9. Lender information (how many points)
10. Insurance (approximate)
11. Closing agent's fee
12. Title search
13. Excise tax (call you registrar of deeds to get this)
14. How much your pest control or abatement guy would charge

Hardship Letter:

Tells who and how the seller got into financial trouble and conveys the basic message that the seller can't make payments they now have a great job or just won the lottery. In this step of the short sale process, the "worse" the situation seems for the seller, the "better" it tends to work for you!

Paycheck Stubs:

This is not often required. If you can't get them from the seller, tell the lender they are unemployed and have none!

The Financial Statement (of the borrower/seller):

Get this from the lender. It has to be on their particular form(s) and they will fax it to you, or the lender may require that it be sent directly to the seller.

Bank Statements:

Not often required. Many times, if these are hard to get, I'll tell the lender customer's credit is so poor a bank wouldn't open an account for them.

Broker Listing Agreement:

This is seldom required-- unless you are dealing with Countrywide or Wells Fargo. If it is a requirement, find a way to get around it.

Once your initial call has been made and you feel comfortable you want to proceed, the short sale offer letter and a HUD-1 Net Sheet sent directly to the lender will always get the lender's attention.

You have to understand lenders have "every Tom, Dick, and Harry" calling and leaving stupid messages filling-up their voice mail. Because "loss mitigation" specialists receive bonuses based on the number of defaulted loans they resolve, they know their efforts are more productive when they focus on deals that appear most likely to be resolved through a successful closing.

I always communicate via fax with short to the point notes such as:

Did you get my HUD offer?
Has the BPO come back?
Who has to sign off on this approval?
This is my third communication I will loose the funding on this deal if you don't give me an update!
Are you going to get this approval?
In addition, I find the best time to call loss mitigation specialists, most days, is between 8:00 a.m. and 9:00 a.m. -in the lender's local time zones. Ask them when is the best time to call them; and follow through!

Fax them your offer along with the following:


*Your cover letter explaining why you can’t offer full price.
*The sales contract.
*Justifying comps of the area.
*Pictures, if you have them.
*A net sheet or closing statement.

*A hardship letter from the homeowner that mentions the dreaded word...bankruptcy.

*Estimated list and cost of repairs, using retail repair prices that the normal homeowner would pay for these items.

Example of a deal that I did:



Locate homeowner in default - called from the following advertisement







Foreclosure - Fast Cash - Can Help Now


000-000-000




Contract with homeowner subject to negotiation with lender for a purchase of $49,000

Have homeowner sign authorization to release information

Have homeowner fax a 30-day pay off from First National with company address

Now it’s time to go to work

3 COMPS in Area Show Average Market Value $76,150

Average Sq Ft 1,200 Average Sale Per Sq Ft $63.46

Subject Property Sq Ft 950

$63.46 x 950 = Market Value $60,287

Suggested Retail Value $59,900

Now show Loss vs Profit

Market value $59,900

Loan Payoff $65,000

Repair Cost $ 7,761

Past Due Tax $ 168

Carry Cost $ 2,800

Rltr Commission $ 3,594

Closing Cost $ 899

Lender will loose $20,722 to sell for $59,900

My Cash Offer $47,698

Lender Loan Payoff $65,000

Up front loss ($17,302) save $3,420

Full Return for lender if loan out my offer at the current rate at the time.

Loan out $47,698 at 8 1/4% 30yr and turn to $129,002

Offer accepted - My return

FSBO Price $59,900

Sale Price $58,500

Purchase Price $49,000

Repair Cost $ 1,500

Past Due Tax $ 168

Carry Cost $ 933

Realtor Commission $ 0

Closing Cost $ 735

This was a WIN-WIN for all.

Your keys to getting offers accepted

Research

+

Get under contract

+

Show a loss

+

Justify your short sell offer

+

Show how your offer will profit

= PROFIT

Good luck

[OKRICHLAND]

John, You Are Awesome ! ! ! :rockon: :SM013: (You're One Cool Dude).
I'm not one that likes going to web sites for my info.
Do you have a book that has been published?
Different view points from different investors add to
the knowledge base. :thumbsup:
I have pasted the entire post on a ward document
Titled, "Short Sales (Crash Course)".
I strongly suggest anyone who might be reading Johns post on Short Sales
to do the same.

Thank you John for making it so easy that even I can understand.
I am sure that in the future this will be used as a strong angle in my investment strategies.

[Dan Auito]

Ya I think we'll keep ole John around for a while, he tends to come up with some dandies don't he! :thumbsup: I'll second the motion, nice work John. :SM104:

[Just Information]

Well thanks for all the sunshine guys!

This will get me nailed yet again for self-promoting in the eyes of a few but shoot is that not what real estate investing is all about?

Yes I do have self-published ebooks and coursed on my web site.

I hope all can learn from this to play the game of real estate investing a little better.


John, You Are Awesome ! ! ! :rockon: :SM013: (You're One Cool Dude).
I'm not one that likes going to web sites for my info.
Do you have a book that has been published?
Different view points from different investors add to
the knowledge base. :thumbsup:
I have pasted the entire post on a ward document
Titled, "Short Sales (Crash Course)".
I strongly suggest anyone who might be reading Johns post on Short Sales
to do the same.

Thank you John for making it so easy that even I can understand.
I am sure that in the future this will be used as a strong angle in my investment strategies.

[Dan Auito]

Not a problem John, hey everyone if I haven't told you, you can get a serious education in real estate from John by going to http://jmichaelrei.com and investing in a quality product or two. As always if you are not satified with Johns product I will refund your purchase price 100%. You have absolutely nothing to lose and everything to gain. Go check out what John has to offer, you won't be sorry. Gee maybe I'll ban my own post for such blatant promotion. :SM032:

[Just Information]

Stopping Foreclosures With A Compromise Sale, Shortpayoff or Shortsale

This is the process of marketing and selling a property for less than what is owed with the approval and cooperation of the lender.

Once you are ready, willing and able to buy a property with money this strategy is a power house for getting vary good discounts on over mortgaged properties.

A short sale application is completed, supported by a compelling, short sale proposal, and submitted to the Lenders loss mitigation department.

The Proposal asks the lender(s) to consider and agree that it is in their best financial interest to avoid additional foreclosure and post foreclosure costs by accepting a reduced amount sooner, rather than going through an expensive foreclosure, holding, eviction and resale process.

If they agree to accept the Proposal by authorizing a preforeclosure sale, your just hit a home run.

Most, but not all property owners will qualify for a short sale approval

You have to address the personal issue with the lender, you need to paint the property as hard working honest people but due to circumstances beyond their control, things didn't work out.


By helping your customer in a preforeclosure short sale, you will help them in protecting their future creditworthiness and making a great deal for yourself.

A preforeclosure short sale is a less damaging mark on credit than bankruptcy or a forced, public sale.

It’s true. Many lenders will facilitate the sale of a home facing foreclosure by allowing the mortgage loan to be paid off at a discount from the amount owed.

However, they will only consider doing that if they have begun a foreclosure action against the homeowner.

Why will they take a loss on a loan? Well, there has to be a reason for them to do so.

The number one reason is that they don’t want to own the house. It may be that the homes in the neighborhood have dropped in value, the home has been trashed and they would have to spend money to fix it up, the homeowner has no hope of catching up on his payments, etc.

Sometimes the financial climate creates a jump in the number of foreclosures and the lender already has too many homes in his REO inventory.

As these words are being written HUD, who insures many loans through FHA, is urging lenders to try and find a way for defaulting borrowers to keep their homes or at least get out of them with the least amount of financial pain.

Under these circumstances, most lenders will entertain a discount, or short sale or other means of working out the problem.

There will be other periods when there are few foreclosures, there is a robust economy and banks can easily sell any homes they acquire through foreclosure. During those times, you will seldom have a discounted offer accepted.

You must present your payoff offer to the lender in an organized manner.

Prepare a package to send to the lender that will stress the urgent need of a discounted loan payoff to facilitate the sale of the home.

The first item in the package should be a letter of intent.

This letter states the "all inclusive" amount you are offering to payoff the loan.

In the letter, you list everything you are including in the package.

Remember, you asked the loan mitigation representative what information that you should send to them.

The sample letter below lists what some lenders require. Be sure to read the HUD and VA programs on Loan Mitigation in my short sale book.

"My offer is $50,000 cash as payment in full, inclusive of all fees, taxes, etc." In effect, when the lender accepts this offer they are stepping into the shoes of the seller as far as closing costs are concerned.

At the closing, the lender will have to pay any costs customarily paid by the seller.

"Inclusive of all fees" means that any costs the lender must pay to close will come out of the $60,000 you will be depositing into escrow.

You are not agreeing to payoff the loan and additionally pay for the lender’s closing costs.

There may be deals where you would pay those costs if required, but many lenders don’t expect you to do that.

Just make it clear in the letter of intent and in the sales agreement with the homeowner that the dollar amounts to payoff the loan is "all inclusive".

You, of course, will be responsible for any closing costs customarily paid by the buyer.

[Just Information]

Billy Bob Financial

Ms.Susan Smith, Loss Mitigation 4419 Big Time Lender St Success, MO 57806

Concerning: Loan #5678AB98742TX

Dear Ms. Smith:

As I explained in our brief telephone conversation of November 03, I have contracted to buy the home of John and Lisa Wonders.

You hold their mortgage note and a notice of foreclosure have been recorded against there home at 1234 W. 1st Ave., in Whatever, MO 20000.

My offer is $50,000 cash as payment in full, inclusive of all fees, taxes, etc. I am prepared to close in 30 days or less. My offer is contingent upon Billy Bob Financial agreeing to the discounted pay off and that BBF waives any possible deficiency judgment against the borrowers.

Mr. and Mrs. Wonders owe far more than the property is worth in its present condition. Their attorney is advising them to file bankruptcy, but they’ve agreed to allow me to ask you for a loan discount, so that I can buy the home. That would allow them to begin repairing their financial situation and save them from a foreclosure.

The property needs extensive work to bring it up to neighborhood standards. If you will examine the included comparable sales for the area you will see that considering the cost of needed repairs Mr. and Mrs. Wonders owe considerably more than the property is now worth.

The following documents are included in this mailing:

1. A copy of the Purchase Contract/Sales Agreement. 2. HUD-1 (or net sheet)

3. Letter from homeowner.

4. Photographs of the property.

5. Contractor’s estimate of repairs.

6. Comparable sales.

7. Proof of funds letter or post dated check for the full amount subject to.

8. Escrow details.

You are well aware that time is of the essence in this matter. It is my sincere desire that you find my offer acceptable. Your expedited response will allow us to close the sale and pay you the agreed upon amount as soon as possible.

Sincerely,

(Your Signature)

That is a sample letter. There is no required Form, Just be sure it is clear and easy to understand

Now that's all you get - I know marketing yet again - You can get the rest of the story by ording the Ebook!

Posting questions just may get more information HINT - HINT

[OKRICHLAND]

Thanks again John.
Once again I have copied and pasted your
words of wisdom into my growing portfolio of knowledge. :SM135:

[Just Information]

Not a problem!

The more we share the more people that are helped in the process.