Foreclosure Presale

[Katheryn]

I have read the Stopping Foreclosures with a Foreclosure Presale, and I am not sure that I understand how this works.
This is how I interpret it. I would like some help understand this.

E. G The house is worth $100,000 and the amount owed is the same.
It meets the criteria of 70% of amount owed for appraised value. Now if sales the sales price is 95% of appraised value -- is that the "asking price", surely not the contract price for the investor as there is no profit that way.

So, do you call the PMI company and tell them it's going to be foreclosed and ask them to subsidize the sale. Say you offer $65,0000, how much would they subsidize?

Typically, what are the policy limits?

You say, the borrower must make full or partial payments during the marketing period. Well, they don't have the money, so how does the investor cover that without being exposed. It says it's part of the purchase agreement, but then the lender wouldn't actually get the money until the sale and the overdue balance would grow.

Why then would the lender ever agree to a short sale?

I need a bit more information as this sounds like a great idea.

[Just Information]

First of all fellow investors Katheryn is talking about the following:

Stopping Foreclosures With A Foreclosure Presale

This strategy will help your customer to pay off their loan and avoid damage to their credit rating.

You customer may qualify if:

Owner-occupant (rental or vacancy considered by lender on a case by case basis)
At least two months delinquent at time of closing
Arms Length Transaction


This is an expression used to describe a transaction between persons in which each acts in their own self-interest. Unrelated persons usually deal with each other at arm's length, although this might not be the case if, for example, one is under the influence or control of the other.







Doesn’t have resources to bring current
Foreclosure is inevitable


The "as is" appraised value is at least 70% of the amount owed and the sales price is 95% of the appraised value


The loan is at least 2 months delinquent prior to the pre- foreclosure sale closing date


Your customer is able to sell their home within 3 to 5 months (depending on what the lender agrees to).
A presale is regular cash out sale - Not much creative but can provide a delay that you will need as an investor to conclude the transaction.

If PMI (Private Mortgage Insurance) is involved a company may subsidize the sale even if the property has negative equity. The PMI Company will pay off part of the loan as long as the amount to be paid stays within the policy limits.

As part of this agreement, the property owner agrees to sell the property to pay off the rest of the loan. Normally the investor will have to make this attractive to the PMI Company by placing a large deposit towards the purchase of the property.

If the lender sees that the borrower has equity and is making serious efforts to market, the property the lender will generally delay foreclosure for a reasonable time to allow the property to sell.

The lender will probably require the borrower to make full or partial payments during the marketing period to keep the overdue balance from growing.

You as an investor can front all the cost as part of your purchase agreement.

[Just Information]

Now before I answer this, let's see if any of my fellow investors can share on this technique of foreclosure stopping.

Now think out of the box - How creative can you be?

[Dan Auito]

Folks I can't let you hang on this one so I'm giving you a link to be able to research this answer and bring it back to meet the challenge, if you haven't met the Jeff Kaller gang, then here they are!
http://www.mrpreforeclosure.com/forum/forum_topics.asp?FID=2
Don't forget to come back now ya hear :SM096:

Alrighty then, how about a few more to get things moving: :SM113:

Foreclosure bulletin board: http://www.foreclosureforum.com/mb/index.html
Another board for you: http://www.therealestatelibrary.com...d/wwwboard.html
Foreclosure glossary: http://www.foreclosureforum.com/glossary.html
www.foreclosurelms.com. They are teamed up with www.homeownersaa.org also.
Florida foreclosure lists: http://www.foreclosuresdaily.com
Final links set: http://www.therealestatelibrary.com/rer.html

[Katheryn]

Well, it has been several days and no one has responded to my question about the pre-foreclosure sale. Does this mean no one knows?

What about you, John, since you wrote that scenario, could you respond? :confused:

[mstuartii]

OKay, I will take a stab at your questions :

***So, do you call the PMI company and tell them it's going to be foreclosed and ask them to subsidize the sale. Say you offer $65,0000, how much would they subsidize? Typically, what are the policy limits?***
PMI is Private Mortgage Insurance. It is there because the lender has determined the borrower is high risk. It would seem to me that since the only way to avoid paying PMI (before 80/20 loans) was to put 20% down, then the PMI should cover 20% of the loan. AND it should cover the first 20% of the loan since that what it was designed to insure!! PMI was the replacemant for EQUITY !!! <this is just a guess on my part>

**You say, the borrower must make full or partial payments during the marketing period. Well, they don't have the money, so how does the investor cover that without being exposed. It says it's part of the purchase agreement, but then the lender wouldn't actually get the money until the sale and the overdue balance would grow.Why then would the lender ever agree to a short sale?** The lender would agree because time is money. AND SOMETHING IS BETTER THAN NOTHING RIGHT NOW!!! The lender knows that if the seller vacates and the house is empty for 2 months before the foreclosure is finalized and then the bank dinks around with it for another 2 months cleaning it up and getting a realtor, then too much time has passed.It has cost them money !! AND why not take a promise to pay deffered payments from the proceeds of the sale? the seller will be more motivated to sell it at a higher price that includes those promised payments...besides, it's the investor selling it, they know that ...it is the cost of buying the time to find another buyer that the investor is paying for ....It is simply put, a deffered payment tacked onto the back end of the short sale agreement.

This is just my 2cents on the subject and I could be totally of base, If I am...someone please point it out to me !
Michelle in Fort Worth, TX

[SynProp]

Guys,

This is my second attempt to respond... if it fails again, then, so be it.

First, I want all of you to take that article "Stop Foreclosure by a Foreclosure Presale" and shread it, burn is, and spread it's ashes over the Pacific. I read that article, and I am not Mr. Know-It-All, but that even confused me. Maybe the author was trying to stuff too much information in too small of a package, and things got lost.

I guess what are you attempting to seek out? Want to learn about doing preforeclosures? I strongly suggest getting Jeff Kaller's CDs, or attend one of his seminars... (I don't get any kick-backs, nor am employed to promote his stuff,) it is just a lot easier to discuss things, when a general understanding is present. Trying to explain it, without the basics known is very hard. It'd be like trying to explain flight, if you never saw a bird.

I haven't found a book, or other seminar series that covers the details like Jeff's, nor gives you a good basis to deal with Loss Mitigators. A must in preforeclosures.

I'd love to help, where I can... But I will not attempt to get everyone up to speed. Why reinvent the wheel, when there is a media available to learn from? So, if you have comments or questions, please let me know.

Well, that is my two-cents.

Michael Suess
Michael@Synergy-Properties.com
www.Synergy-Properties.com

[Dan Auito]

Thank you Michael for laying it out in plain english, I too thought the question had a little confusion attached, your advice is valid. Michael I too have had a well written post or two go poof and you just have to hate when that happens. The best way to prevent lock up is to write your response in a word program, spell check it while your there then copy and paste it. I always save them or minimize them temporarily while I load the post.

Thanks for coming over! Dan :SM128:

[SynProp]

Guys,

Here is a just a touch, that scratches the preforeclosure iceberg... Maybe to put enough curiosity to look into the subject more... Maybe not even that.

Don't even concern yourself about if the homeowner has PMI... If they do great, if the don't great. It really doesn't impact you or your transaction in the LEAST bit. PMI is strictly for the lender, whereas their loan is protected to the a certain degree.

Here is an example of what PMI does. A house is worth $100,000, and the buyer puts down $10,000 (10%.) The lender can elect to have the buyer get PMI (really is up to the lender's disgretion, and their comfort level of the buyer actually covering the loan.) The amount covered will be the difference between the down-payment and 20% of the original loan (or $10,000.) Once the house has 20% in equity, then PMI drops off... (Man, I could really go in deep, but I will refrain.) Now, you have NOTHING to do with PMI, again it is solely for the lender... You don't contact, interact, or ANYTHING with them.

Now to try to explain how to find a good prospective house... A GENERAL rule, which I think that report was trying to communicate is finding a house with LOTS of equity... Or with the potential of creating enough equity to make you interested in working the deal. (There are SEVERAL was to create equity in a house, but I will leave that up to your creativity [Jeff's material gives you some suggestions that really open up your mind.])

Several lenders will accept 80% - 85% of the "as-is" value (Broker's Price Opinion [BPO]) of the house, when discounting the note (short selling.) (I started to give examples, but it really was confusing [the same stuffing a lot of material into a small package scenario,] so I removed them.) But, as you can see...that is WHY PMI only covers 20% of the value of the house... The lenders can usually recover 80% out of the house (and usually the annual appreciation of the house ensures plenty of coverage.)

I could go on for DAYS, but like I said, Jeff's material is good learning material, that you can listen to day after day, until it sinks in.

It is NOT that it is hard material, it is VERY easy (at least for me it is... now,) but it is a new way of looking at things. Once you get it, you slap your head, and say "Of course! Why didn't I think of that??"

Made you want to look into preforeclosures some more?? :SM007:

Again, I am willing to answer some questions, as long as it appears that you have some grasp of the general knowledge... Sorry, can't teach the basics... Why should I, when Jeff Kaller already does. Learn from one of the masters with 7+ years of experience and millions of dollars in transactions.

Michael Suess
Synergy Properties, LLC
Michael@Synergy-Properties.com
www.Synergy-Properties.com

[Dan Auito]

Thanks again Michael, I agree 99% with you, that's pretty good! If you could go ahead and give some direct links to Jeffs materials and tell folks what they need to get started that would make it easy for people to hop on over and break out the old credit card. A jump start shall we say in finding and getting the right stuff! :punk:

[SynProp]

Guys,

Per request here is Jeff Kaller's web site, that you will be able to find his training material on... http://www.mrpreforeclosure.com

Also, looking on US Land Co's web site, there is an event where Jeff Kaller, Donald Trump, Ron LeGrand and Frank McKinney will be speaking. For those who are interested: http://www.uslandco.com/products/authors/kaller.aspx

Hope that helps, on your quest into the realm of preforeclosures.

Michael Suess
Synergy Properties, LLC
Michael@Synergy-Properties.com
www.Synergy-Properties.com

[Katheryn]

Just to clarify. I do have more than just a basic understanding of the process, short sales and pmi. Perhaps my questions were poorly written.
I was trying to determine how the use of the pmi is being used to encourage/subsidize the lender to agree to a short sale. I still have that same question.
My other question was "why would the lender agree to a short sale if the pmi covers their loss". I have never been sure of the amount that the pmi covers. Do we know for a fact that it only covers the 20%?
Any clarification from anyone would be helpful. :SM120:

[Just Information]

I enjoyed watching this thread - seeing the difference of opinions, but what has been most interesting to see the post that discounts this strategy of stopping foreclosure simply because we do not understand it! Funny how the human mind works.

Reminds me of a story about a great investor - He was seeking out one of the best parcels of land know to man, but he was an out of the box thinker - many made fun of him - many discredited him - many just thought he was insane - but he carried on with his dream - got the financing for his project - His name was Christopher Columbus and hopefully you know the rest of the story.

I have used all kinds of strategies for stopping foreclosure such as:


Straight Sales
Sales by means of assumption
Foreclosure presales
DVA compromise sales agreements
Short payoff's
Deed's in Lieu
Forbearances
Modifications
Assignments
Hard Bargaining
Injunctions
Bankruptcies
FHA workouts
Special Relief's
Military Indulgence
And the list goes on.
Just because it is something you have not done does not imply it does not work!

So fellow investors - read the article in a mind set to learn - think about it in a manner that will help you help another!

Years ago I attended what is called the Los Angeles Gift Show - At this event you will find the latest merchandise for the retail market and I passed on an opportunity to buy in on a new product it was a vending machine that one would place as gas stations where people would pay for air - Well at that time I was thinking in the box, why would any one pay for air when they can get it for free - Know look at what I passed up!

Therefore, in a day or so I will provide more depth to this subject for those who really want to learn like Katheryn!

So my Dear Katheryn because of your perseverance I will give you my book on stopping foreclosures coming out around the end of the month.

Drop me a note around the middle of the month.

[Just Information]

To properly understand this one strategy is under the title of stopping the foreclosure in an effort to allow you more time to work your magic as an investor.

This strategy has many directions one can go with and it is all-subjective to the lender you are dealing with.

The foreclosure process is a stressful and drastic event for most property owners, especially homeowners. Depression and despair are common results of foreclosure.

The more strategies you have available the more people that you can help.

Writer and philosopher Johann Wolfgang von Goethe said, "Kindness is the golden chain by which society is bound together.





You need to act fast as an investor when dealing with people in foreclosure and one of the most difficult areas of this process is getting the property owner to act. The longer they wait to act, the less time you will have. When people face financial distress they feel powerless and confused, many in foreclosure spend too much precious time denying their predicament until the last minute when only the most extreme of remedies remain available.

Keep in mind that you will need to avoid to long of a foreclosure delay as the cost will mount up and may just drive you out of profit range. It is vital that you help your customer to respond to any legal notice or document and assemble a delay strategies(s) immediately. Many property owners facing foreclosure end up declaring bankruptcy as a solution to their foreclosure problem.

Your major strategy as an investor is "buying time".


You as an investors must educate yourself and your customer in whatever direction you will need to take. Your strategy is determined on the time prior to the foreclosure sale.

You should never use any strategy to take advantage of the property owner or the lender your whole plan in using these strategies is to provide more time to give your customer the best service you can.

When I work with a property owner facing foreclosure I normally will avoid customers who have delayed the foreclosure by filing bankruptcy because the cost to bring the loan current normally out weighs any profit potential and the lender's are normally not as flexible.

I also use a rule of thumb if the cost to bring the loan current exceeds 5 to 10% of the market value (depending on equity) I will walk away from the deal.

Let's say we have a house that is in foreclosure and it's market value is $100,000 and the monthly payments are $842.09 this includes PITI (principle, interest, tax and insurance) the homeowner is 4 payments behind with a pay off including all foreclosure cost of say $78,000 this is how I would work the deal.

What we are facing on the deal.


$3.368.36 behind in payments.
$1,800 in foreclosure cost.
$78,000 loan pay off.
Market value of $100,000
Equity value of $22,000
We are 2 days away from foreclosure sale.
We have a motivated seller.
The options are to get a loan for $78,000, buy the house, and tie up $78,000 or to just bring the loan current. We have one big problem we are 2 days away from foreclosure. What do we do?

This is what I would do.

I would first research the title history to make sure I will not have any title problems.

Next, I would get comparables to make sure the market value is correct. And let's say that my market time is 120 days on an average.

I inspect the home and find that I will need to do $2,800 in repairs to make it suitable for the retail market.

My customer needs $1,500 to move.

I agree to help my customer so I agree to purchase the home for $79,500 and give my customer $1,500 as earnest money towards the purchase the home so at closing I will need $78,000 (earnest money is deducted). My contract calls for a 120 day close to allow time to sale the property.

I advise my customer that I need more time than 2 days and we will need to delay so I suggest that a bankruptcy filing will help us to delay and I will do all the paper work for them and pay the filing fee and they agree. They also give me deed to the property.

Therefore, I'm out:


$1,500 to my customer.
$250 filing fee for the bankruptcy petition.
$35 recording the deed.
$2,800 for repairs.
I am out a total of $4,585 for a $100,000 piece of property.

Now I have to sell the property and I want a fast sale so I let it go for $95,000 and it takes 2 months to do so what are my profits?


Sale price $95,000
Loan pay off $78,000
Repair cost $2,800
Utilities $200
Closing cost $1,425
Earnest money of $1,500
Bankruptcy filing fee $250
Recording of deed $35
I had to make 2 payments $1,684.18
Cost to market property FSBO $300
Sale price $95,000
Cost $86,194.18
My net profit is $8,805.82 for 60 days this is not the get rich method that is taught throughout the industry but let's say you do one of these every 3 months. That's only 4 deals per year and you make $35,223.28 per year, not a bad income folks.

4 deals per year = $35,223.28 (easily done part time)

Work a little harder and do one every 60 days

6 deals per year = $52,834.92 (work a little harder)

If you work aggressively, you can do one a month.

12 deals per year = $105,669.84 (bust a hump)

Real estate is not get rich overnight, but the smarter you work the more profit you will make.

This just gives you an ideal of what you can do as an investor, I know you say but I don't have $4,585! Then you will simply get the property under contract for $79,500 and assign your rights to the contract to another investor for $500, $1,000, or even $1,500 just to make a fast buck until you have enough funds to do this your self.

Thinking out of the box will bring you success and prosperity.

[Just Information]

Stopping Foreclosures With A Foreclosure Presale

This strategy will help your customer to pay off their loan and avoid damage to their credit rating.

You customer may qualify if:

Owner-occupant (rental or vacancy considered by lender on a case by case basis)
At least two months delinquent at time of closing
Arms Length Transaction


This is an expression used to describe a transaction between persons in which each acts in their own self-interest. Unrelated persons usually deal with each other at arm's length, although this might not be the case if, for example, one is under the influence or control of the other.







Doesn’t have resources to bring current
Foreclosure is inevitable


The "as is" appraised value is at least 70% of the amount owed and the sales price is 95% of the appraised value


The loan is at least 2 months delinquent prior to the pre- foreclosure sale closing date


Your customer is able to sell their home within 3 to 5 months (depending on what the lender agrees to).
A presale is regular cash out sale - Not much creative but can provide a delay that you will need as an investor to conclude the transaction.

If PMI (Private Mortgage Insurance) is involved a company may subsidize the sale even if the property has negative equity. The PMI Company will pay off part of the loan as long as the amount to be paid stays within the policy limits.

As part of this agreement, the property owner agrees to sell the property to pay off the rest of the loan. Normally the investor will have to make this attractive to the PMI Company by placing a large deposit towards the purchase of the property.

If the lender sees that the borrower has equity and is making serious efforts to market, the property the lender will generally delay foreclosure for a reasonable time to allow the property to sell.

The lender will probably require the borrower to make full or partial payments during the marketing period to keep the overdue balance from growing.

You as an investor can front all the cost as part of your purchase agreement.

[Just Information]

Bible, D. S., An Empirical Study of Residential Mortgage Foreclosures with an Emphasis on

Appraised and Assessed Values, Real Estate Appraiser and Analyst, Winter 1988, 54, 30–39.

Claureie, T. M., The Impact of Interstate Foreclosure Cost Difference and the Value of Mortgages

on Default Rates, AREUEA Journal, 1987, 15:3, 152–67.

———, State Foreclosure Laws, Risk Shifting, and the Private Mortgage Insurance Industry,

Journal of Risk and Insurance, 1989, 56: 3, 544–54.

———, A Note on Mortgage Risk: Default v. Loss Rates, AREUEA Journal, 1990, 18:2, 202–7.

——— and T. Herzog, The Effect of State Foreclosure Laws on Loan Losses: Evidence From the

Mortgage Insurance Industry, Journal of Money, Credit & Banking, 1990, 22:2, 221–33.

Clauretie, T. M. and M. Jameson, Interest Rates and the Foreclosure Process, Journal of Risk and

Insurance, December 1990, 57, 701–11.

Green, W. H., Econometric Analysis, New York: Macmillan, second edition 1993.

Epperson, J. F., J. B. Kau, D. C. Kennan, and W. J. Muller, Pricing Default Risk in Residential

Mortgages, AREUEA Journal, 1985, 13:3, 261–72.

Li, Y., Residential House Price Volatility and Index Value, working paper, Fannie Mae, 1995.

Phillips, R. A. and E. Rosenblatt, The Timing of Residential Foreclosures, unpublished working

paper, 1995.

Springer, T. and N. G. Waller, Termination of Distressed Residential Mortgage: An Empirical

Analysis, Journal of Real Estate Finance and Economics, 1993, 7:1, 43–54.

JOURNAL OF REAL ESTATE RESEARCH

VOLUME 13, NUMBER 2, 1997

[Just Information]

Pre sale is the sale of a property by the borrower for less than the amount necessary to payoff the loan. Wherein the lender agrees to accept the proceeds of the sale (or some other agreed upon amount) to be applied toward the debt. The Lender will consider a short payoff when the borrower:

• Is experiencing a financial hardship.

• Is actively trying to sell the property or already has a buyer willing to purchase at market value.

• Is not receiving any cash from the transaction.

• Most investors require that the sale price be at least 95% of the fair market value as determined by an appraisal or BPO completed by a disinterested third party within the past 90 days, that supports the price being paid.

• The borrower, based on his or her financial ability, may be asked to make a cash contribution to offset the amount of the debt being forgiven.

• The borrower may incur income tax liability for the amount of the debt, which was forgiven as a result of the sale.

PMI-Assisted Presale is an arrangement in which a private mortgage insurance company pay for part of the loss that occurs when a house with negative equity (one worth less than the balance on the existing mortgage loan) is sold by regular means prior to a foreclosure.

[Just Information]

Lenders do not accept all "work out" proposals such as a pre sale and are not obligated to do so.

HUD for example:





Will allow a homeowner to avoid foreclosure by selling a property for an amount less than the amount necessary to pay off the mortgage loan.


To qualify:




the loan is at least 2 months delinquent;
The homeowner are able to sell the house within 3 to 5 months; and
a new appraisal (that the lender must obtain) shows that the value of the home meets HUD program guidelines.
The PMI Company simply pays off a portion of the loan if the amount doesn't exceed the limit of your customers policy). Sometimes the will pay off the entire mortgage and now they hold the mortgage. They PMI companies have even set easier terms than the old lender and even forgive the arrearage altogether.

We can go 101 directions with this technique but the whole point is to use this technique to stall, delay and or stop the foreclosure proceeding until the investors has enough time to do the deal.

When I use this technique it is to buy time as an investor you can not get the discounts necessary to justify the purchase.

I simply place the property under contract subject to my continuities or should I say my out clauses. As for example subject to partners approval, subject to partners inspection and so on.

This simple strategy gives time - that's all! It's just that simple! The simple part is to buy time, the hard part of this game is the paperwork but with paperwork comes delay!

So, don't be confused by the procedures and the inner workings! Because as an investor you can not profit under this purchase plan, but you can delay and get the time needed to do the deal after you exercise your clauses and cancel the pre sale under it's current terms and continue with a new purchase agreement with your property owner.

[Dan Auito]

As you can see folks John Michael here tells it like it is. To many folks get the proverbial smoke blown where the sun don't shine and their money goes to the seminar promoters bottom line.

Such a delicate situation and every party to the default is weary, tired and suspicious, the money is there but you need to earn it in most cases. Thanks goes to Big John for taking some serious time here to customize one great answer to an often mis-understood proceedure. :praise:

[ChrisGA]

If the house will not qualify for holding the value at the mortgage balance....
A short sale will be needed.

If the house payments are just some behind you can take over the existing financing subject 2. Get the deed and find a buyer for the property then, makeup the back payments.

I personally dont do short sales because I have no interest in them at this point. I refer all of them. I have done them and can do them well. I just dont like the agravation of dealing with the banks, Short sales can take up to 2-3 months. Not always but it is time comsuming.

I have to tell you if you are interested in doing pre foreclosures the best teacher I have found and use today is Ron Legrands techniques. I think he has some of the best courses for that.

I would highly recommend taking the property sub2 and then selling on a Lease option or Owner financing.