The interest in buying foreclosure real estate, especially bank foreclosures, has always been high. People want to buy foreclosures, because this is one of the most profitable investments in real estate one can make. Foreclosure homes are real estate properties securing a loan that has not been paid for. Bank foreclosures are owned by the bank who has made the loan and who tries to sell the property in order to recover their money. Foreclosure investments are considered among the safest, because the prices of foreclosure real estate are usually below the market.
Potential buyers of bank owned foreclosed properties deal directly with the lender when negotiating the price of the home they want to buy. Banks that own foreclosure real estate properties sell them to recover the money they have lent to the original owners. Those interested in investing in bank foreclosures can find offers for foreclosure homes in lists of foreclosed properties made available for anyone who wants to buy foreclosures.
Both real estate investors with a large portfolio and individual first-time buyers are interested in making foreclosure investments, because the properties categorized as foreclosure real estate come with lower prices than average on the real estate market. Getting significant discounts for bank foreclosures means the buyers are sure to make a profit if they sell the properties later on. Foreclosure real estate is also on high demand with first-time buyers who look for the home of their dreams.
Because they can only make a small investment in real estate, bank foreclosures are an ideal option for such buyers. Initial prices for foreclosure homes owned by the lender are usually negotiable, so those who want to buy foreclosures can close even better deals than they expect for the bank foreclosures they are interested in. When banks sell foreclosed properties, they finance a new mortgage for the new owner. With foreclosure investments, there are several contractual provisions that can be negotiated. Clever negotiation on foreclosure real estate can get the potential buyers lower interest rates or a low down payment.
Although the initial prices of certain bank foreclosures may seem higher than you expect, you should bear in mind that you can still save significantly by purchasing such properties. Prices for foreclosure homes are always below the market value of the respective properties, and this is why foreclosure investments cannot fail to bring you good profit. Moreover, the prices of foreclosed properties are negotiable, and lenders can prove fairly flexible when it comes to selling their foreclosure real estate. Being able to negotiate is essential for anyone who wants to buy foreclosures, as they can get better deals than they might expect for bank foreclosures.
By resorting to a listing service, both real estate investors and first-time individual buyers can locate attractive offers for bank foreclosures. Listings of foreclosure real estate include descriptive details about foreclosure homes, such as location, condition and number of bedrooms, and also information about prices and how to contact the banks who own the foreclosed properties. Staying up-to-date with the information included in listings of foreclosure real estate is essential for those who want to make profitable foreclosure investments. For those who want to buy foreclosures, the main advantage of accessing available lists of bank foreclosures is that they are extremely convenient and can help save a lot of time.
Bank foreclosures are definitely one of the best options for those who want to buy a home. The prices on the real estate market may scare potential buyers away, and this is why foreclosure real estate is a good investment. The prices for foreclosure homes are always below the market, and this makes them very attractive for both real estate investing companies and individual buyers. Foreclosed properties owned by banks are among the safest foreclosure investments. The whole process of locating and closing a deal for such foreclosure real estate is not complicated at all, as many people who have decided to buy foreclosures can testify.
Locating the best offers of bank foreclosures can result in closing a very good deal for any potential buyer. Foreclosure real estate is always available at bargain prices. Moreover, your ability to negotiate with owners of foreclosure homes can bring you even lower prices. This is why you should always be on the lookout for attractive foreclosed properties. Once you have decided to buy foreclosures, you should subscribe to a specialized listing service. Up-to-date lists of foreclosure real estate will certainly help you locate the best bank foreclosures and make very profitable foreclosure investments.
A short sale is an “arrangement” between the current owner of a home and the bank that lent them the money to buy their home to accept an offer for less than the total amount owed to pay off the home. The “deficiency” is the difference between the amount owed and what the bank collects at the short sale. Although, the “arrangement” can take many different forms, there is no other definition of a short sale.
I say this because many realtors and some investors simply throw the term around as if it meant “a sale under market value.” No. A bank owned (foreclosed) house is not a short sale. A seller deciding to lower their price and take less profit is not a short sale. An old lady that owns her home free and clear, selling a $150k home for $75k, IS NOT A SHORT SALE. For it to be a Short Sale, someone must be getting “shorted.” Either the seller, or the bank. I will explain how both of those happen in more detail presently.
Free Foreclosure List
Another important definition of a short sale is how it differs from foreclosure. In foreclosure, the homeowner falls way behind on their payments and the bank repossesses the house and sells it. In almost all cases, THE BANK PURSUES THE HOMEOWNER FOR THE DEFICIENCY!!! No one seems to know or believe this, but just ask someone who has gone through foreclosure, they will tell you the only way out of this was to file bankruptcy.
How It Can Happen – The Arrangement
Most short sales arise when a seller owes more on their house than they can sell it for (upside down). The owner of the home then attempts to make an arrangement with their lender to sell the house for less than is owed.
The term “arrangement” was used in the definition and is intentionally broad because the arrangement depends on the bank that holds the loan. Though there are general practices, every bank does it differently. This article will give you the most common arrangements, but if you take part in a short sale, it’s crucial you assume nothing until you have the bank’s policies in writing.
There are some overriding principles:
1. There is no such thing as a free lunch. This is not some dream come true alternative to foreclosure where the money you owe magically disappears. The deficiency will be accounted for. The deficiency can be 100% loaned to the seller in the form of a promissory note, which they then must repay. If any portion of the deficiency is “written off” meaning that the bank eats it, you can be sure that they will report it as 1099 income to the seller or even as a judgment which will show on your credit for 10 years (not 7 years, 10 years).
2. It is a cumbersome process. If you are entering into a short sale as a buyer or seller, don’t expect it to go as quickly as any other sale. There’s a lot of “back and forth”.
3. The employees of the lender that are negotiating the sale ARE NOT there for the benefit of the seller. Their only goal is to collect as much money possible for the lender and they will use whatever means necessary. You can be sure they will misrepresent their own policies and flat out LIE to the seller in order to intimidate and scare them into paying more money. If you think I’m exaggerating, the joke will be on you.
For instance, I was once told by a lender negotiating a short sale that, as a policy, they don’t “write off” any of the deficiency and that the seller would have to have a promissory note for $40,000. This lender also told the seller that their hands were tied and this decision came directly from the investor who provides the money for the lender. The lender also said there is absolutely no negotiation on the amount owed, either pay the deficiency, or they will foreclose. The lender made the promissory note very manageable (20 years 0%) so that the seller would be more enticed to just roll over.
But the seller called the lenders bluff. The seller then provided a letter from an attorney stating they would qualify for a bankruptcy, thus rendering the lender incapable of collecting anything. That same day, the lender called the seller saying they would reduce the promissory note and write off $30,000 of the debt! It would have to be reported as 1099 income, but it would not have to be paid. Amazing change of policy! Then the seller saw what was happening and just said, “no thanks, we don’t want to owe you anything, we’ll just go ahead with the bankruptcy.” Two days later the seller received a written offer that the lender would completely forgive the debt and simply report it as 1099 income! Wow!
The moral of the story is that the lenders will LIE to obtain their money. Many of the managers of the collections departments are paid on COMMISSION on how much they collect. Just imagine if that seller had rolled over on the first offer! That employee would have been responsible for keeping $40,000 of his company’s money with one five minute phone call!
One other important thing to remember is that if the lender gets the property back (i.e. short sale doesn’t go through), they have to put it up for auction. This creates the risk that additional money will be lost if the house doesn’t sell for what it’s worth. In the case of the example, the short sale offer was for $550,000, and the amount owed was $590,000. The seller faxed in evidence to the lender that most similar houses in the area were now selling for $480,000. So this enabled the seller to make the argument that it was a much more prudent risk to write off $40,000 instead of running the risk of losing $110,000. This enabled the seller’s representative to intimidate the employee of the lender asking him “did he really want to be responsible for losing his company $110k, when he had the option, right now, to settle for 40k?”
If it seems like I know a lot about “this example” it would be because I was the mortgage broker for the people making the offer and seller of the property happened to be my wife.
The Details of the Arrangement
Different banks have different policies. The best case scenario is to get a bank that actually “writes off” the deficiency. All that happens here is that the seller has some minor derogatory credit reporting, but doesn’t actually owe the bank any more money. This credit reporting can consist of anything from “creditor settled for less than the amount due” all the way to “foreclosed.” As the example noted, many banks will do a promissory note for the deficiency.
Some banks are stupid enough to require that the deficiency be paid at closing. Think about it. This does no good because it’s the same thing as the seller selling their house without doing a short sale and simply bringing cash to the table. If a bank tells as seller they need to bring cash to the table in a short sale, they are either idiotic, or more likely LYING.
In cases where the money is “written off” it’s important to understand that the lenders will never actually “write something off.” In most states (I don’t know the law in every state), the lender has the ability to show any deficiency as 1099 income for the seller. All this really means is that the seller has to pay taxes on that income. Depending on one’s situation, it could mean that people that are dependent on some form of aid because of “low income” will have some explaining to do come tax time.
Another way that the deficiency can be written off is in the form of a judgment. This will often occur in conjunction with the 1099 reporting. It might say something on the seller’s credit report such as “judgment filed against John Doe in the amount of $xx,xxx by ABC lender.” This will appear in the “public record” section of the seller’s credit report for 10 years (7 years is only for late payments, 10 years for public record info, don’t argue, trust me). It can either show up as satisfied or unsatisfied. Satisfied is obviously better because it means that the worst thing that can happen is that the lender will report 1099 income.
Unsatisfied could be a problem, because it means that a court has found in favor of the lender to collect the deficiency from you. Now they still might simply do the 1099 thing, or they might try to collect it from you. They can keep trying to collect it from you until they get it. They can garnish your wages. Your only hope then is that you qualify for a chapter 7 bankruptcy.
This brings up an important note. NEVER EVER ASSUME THAT A DEBT THAT YOU OWE A LENDER IS GONE UNLESS YOU HAVE THE DETAILS OF THE RELEASE OF THAT DEBT IN WRITING. For instance, someone who had done a short sale had a first and a second loan. The bank agreed to the short sale, which ended up being enough to pay off the first loan, but not the second. The seller had assumed that because the bank agreed to the short sale that they wouldn’t have to worry about the deficiency from the second mortgage. Now they are surprised that they are being pursued for the deficiency. REMEMBER, the lender(s) will always want ALL their money accounted for somehow. NEVER assume something is written off unless you have a formal, signed, written, unconditional release of lien and/or judgment from the lender specifically stating that no further action to collect this debt will be taken.
How did we get to this place in the first point?
A short sale can come about for many different reasons. In my wife’s case, she was the owner of the house and had been making payments. We bought an investment property and put it solely in her name to protect our family in the event that the market took a turn for the worse. It did. We owed 590k, but the best offer we had after 6 months was 550k. The short sale prevented her from having to file bankruptcy, and there was no derogatory credit reporting because there were no late payments made.
Despite popular belief, YOU DO NOT HAVE TO BE BEHIND ON YOUR MORTGAGE TO REQUEST A SHORT SALE. You just have to demonstrate that your house can’t be sold for what you owe.
In other cases, short sales happen when a seller can’t afford to make their payments and is nearing foreclosure or bankruptcy. It makes life much more complicated if you are living in the house in question. The bank’s ability to scare you is much greater in that case. In this case, a short sale is only slightly better than the alternatives. You will still lose your house, and your credit is still destroyed just because you’ve made 4-5 late payments on your mortgage.
Despite popular belief, A BANKTUPCY, FORECLOSURE, OR REPOSSESSION DO NOT HURT YOUR CREDIT AS MUCH AS THE MULTITUDE OF LATE PAYMENTS THAT OFTEN LEAD UP TO THEM!!!!! I just cannot stress this enough. People think that a bankruptcy damages their credit beyond repair in and of its own accord. I’ve had many clients file bankruptcy with 750 scores and no late payments only to have their score drop to 680. It’s the clients with 20+ late payments that are having their credit hurt.
A final note on how the short sale can come about… Most banks will not agree to a short sale in writing until you have a formal offer. You can simply call your bank and ask them if you could do a short sale at a certain price and they might say “sure, no problem, we’d be happy to facilitate that offer.” BEWARE. That doesn’t mean a thing. Before your short sale is APPROVED, you’ll have to submit an application, hardship letter, financial statements, tax returns, pay stubs, the purchase agreement from the buyer, a HUD statement from the pending transaction, payoff letters from all lenders involved, and several other things depending on the lender.
Once this huge packet of information is submitted to the lender, you will most likely hear back in 1-4 weeks on the TERMS of their “approval.” Be warned their approval will most likely be thinly disguised attempt to collect their debt and will almost never be the “write off” you were hoping for.
If you’re an investor, by now, I hope I’ve scared you off. Short sales are not some magic way for you to find properties under market value. They are a tool for sellers that owe too much on their homes to sell them at market value. What you are looking for (or should be if you’re not) are sellers that owe far far less on their homes than what they’re worth. Sellers who don’t care how much they earn because they’re either desperate or have so many houses they don’t care.
Still if you see a house you want, there is one way that a short sale could come into play. Say there’s a distressed property that you’d pay 100k for that you know would be worth 180k if it was fixed up a bit. The seller doesn’t have the money to do it and the house is either vacant or they want out of their situation. In this case, if the seller happens to owe 130k (around there), and you will only pay 100k, AND the seller hasn’t had any viable offers because of the level of distress on the property, then a short might be just what the doctor ordered.
Don’t be unethical and take advantage of people. You’re only going for short sales if the person WANTS to sell their house and no one else but you will buy it because you’re not afraid to rehab a house that’s smells bad and is falling apart.
Again, a short sale is not a magic cure. It’s also not some mystical solution that only an elite few know about. If you’re curious about selling your house as a short sale, you should contact your lender and get information in writing. It’s usually not easy, and hardly ever will truly “win.” But in some cases, it can leave you much better off than the alternative of foreclosure and bankruptcy. If you’re an investor, there are much better ways to obtain undervalued homes.
Is it true that housing has hit a bottom? Many analysts believe that bottom is in, and real estate markets cannot fall any further. The market outlook is positive with the forecast for a strong buyers market ahead. However, the reality is that the present scenario is not that good or bad for anyone. Commercial property foreclosure wave has ensured that with correct decisions everyone stands to gain at some point of time in the future.
Economists still believe that there are certain commercial property foreclosure waves possible in the distant future, which will hurt housing markets in the not so distant future. The fear is that borrowers associated with investing at this moment of time might default on their bills creating a similar kind of situation in the future. People cannot predict the exact time for the tsunami related to real estate but it is believed that the future tsunami related to commercial property foreclosure will be much smaller than the previous one.
This is in fact great news for those planning to invest in commercial real estate markets. If you analyze data for the last few months, it can be easily seen that subprime crash is over. However, what does this coming commercial property foreclosure wave look like? This is because the markets have already hit the bottom. Then what are the possibilities of the wave hitting so quickly.
Perhaps the only way to understand this issue is that the first commercial foreclosure wave has receded largely. That means it is creating or paving the path for the next commercial property foreclosure wave to hit the market. High employment rate is one of the reasons for having belief in the coming commercial property foreclosure wave. The number of homes listed for foreclosure might just be the tip of the iceberg. In fact, the situation might have dug deep in the country. There is a possibility that homeowners might put their homes in the market in the coming months.
If you are looking for some good options to make extra money then you should always think about flipping bank owned properties especially the bank owned property foreclosure. The advantage in going for bank owned property foreclosure is that the risk that you have is much lower. There is no need of paying some initial huge investments. You could always get them at dearer price. The property could well be used for your living purposes too.
Living time period
The regulations regarding this issue varies might vary from state to state and province to province. Some regulations might ask you to use the foreclosure for twelve months. In some cases you will be given a time period of just six or seven months. The advantage is that this bank owned property foreclosures are much cheaper when compared with the market values.
The first and foremost thing that you need you do is always to have in good touch with the bank proceedings. The bank owned property foreclosure sale takes place always in a shorter time period notice. It’s always a good idea to tap the bank. Another important thing is to get to know the bank’s procedures in selling the foreclosures. Always one should take note of the bank dealings. The bank expects e ready cash for the foreclosures that are sold.
So it’s a good idea to arrange for money well in advance. It’s pretty easy to understand the bank businesses. Their aim is getting the mortgage money and ours is profit. The basic idea behind purchasing bank owned property foreclosure is to first buy them for cheaper cost, then spend a couple of month and sell it when it’s market rate shoots up markedly. The good thing about this deal is that you can have luxury of the foreclosure and also enjoy profit through its sale.
Once you are done with the whole procedure repeat it again and again. No one will get bored in this procedure because all you get at the end is the profit. It would be hard to believe if you come to know about some people buy a bank owned property foreclosure, live in that for some six months, sell it and again look for another bank property. Some even have this as their main business. All they get is good profit.
If it’s your house that is going to be sold by bank then you might take all the necessary steps to prevent it. Seriously revise your financial status and let them know. You could give a few extra dollars to the bank each week. You must well inform them about your financial position. Taking this measure could possibly stop the bank from selling your property in the name of bank owned property foreclosure.
To understand the foreclosure process one must know what it is first. So what is the definition of foreclosure? Simply put, the foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”.
Within the United States and many other countries, several types of foreclosure exist. Two of them – namely, by judicial sale and by power of sale – are widely used, but other modes of foreclosure are also possible in a few states. The process of foreclosure can be rapid or lengthy and varies from state to state. Other options such as refinancing, alternate financing, temporary arrangements with the lender, or even bankruptcy may present homeowners with ways to avoid foreclosure.
The number of households in foreclosure increased 79 percent in 2007, and that number is increasing for 2008! So how does the foreclosure process end? Well it can end in one of four ways:
1.The borrower/owner reinstates the loan by paying off the default amount during the grace period.
2.The borrower/owner sells the property to a third party during the pre-foreclosure period The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction.
Remember that understanding foreclosures is the first step for homeowners to stop foreclosure. As long as real estate prices, which are pretty much dictated by real estate buyers, continue to decline, there will be increased numbers of defaults and foreclosures.
Few choose to go into foreclosure voluntarily. It’s often an unpredictable result from one of the following: Laid-off, fired or quit job. Inability to continue working due to medical conditions. Excessive debt and mounting bill obligations. Squabbles with co-owner, divorce or job transfer to another state.
So how do you avoid foreclosure?
The best way to avoid foreclosure is to prevent the filing of a Notice of Default. That is why it is better for you to call your lender before falling behind on your payments, because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have been commenced. You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure.
No one expects to lose their house to foreclosure, but by understanding the foreclosure process and what may lead up to it, you can be in a better position to recognize and address potential problems that may impact your ability to make every mortgage payment on time.
Learn to recognize the warning signs of foreclosure. Know what early steps you can take to avoid foreclosure. If you are in the midst of a foreclosure, know the dos and don’ts. Know where to get help in dealing with issues that could lead to foreclosure. The time to develop a backup plan is not when things have gotten so bad that you are facing foreclosure, but when things are going well and you can prepare for the unexpected “what if’s” that happen in life.
Nearly four out of ten sub prime ARM loans are a month or more late, or in foreclosure. And sub prime ARMs account for 39% of the loans that fell into foreclosure during the quarter. Prime fixed-rate loans, which are considered very low risk, have also seen sharp increases in their delinquency and foreclosure rates, although they are performing far better than the riskier loans on the market.
There are 431,000 prime loans in foreclosure. This marks the sixth straight quarter in which a record percentage of loans went into foreclosure. Nearly half of the homes in foreclosure are concentrated in six states. Those four states have nearly 400,000 homes in foreclosure, or a third of the nationwide total. Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The rate of homes going into foreclosure in Ohio and Michigan was narrowly lower than it was in the fourth quarter, and 18 other states also saw a decline in that rate.
Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if at all possible.
A real estate short sale occurs when a property owner sells their property for less than the mortgage amount owed to their lender(s). On the surface, this may seem like only the borrower benefits from such a transaction. However, that couldn’t be further from the truth. Note: See our “Are You a Short Sale Candidate” to find out if you or someone you know are short sale candidates. For discussion purposes we are going to assume a homeowner is a short sale candidate.
For the homeowner, a short sale makes it possible to sell their home for less than the total amount owed. The sale of the property releases the homeowner from their debts and obligations without having to file bankruptcy or endure foreclosure. The homeowner is able to save their credit, regain their dignity and their peace of mind. Lastly, the homeowner will be closer to rediscovering the American dream of homeownership because they are able to amicably resolve their lender(s)’ concerns.
For the lender(s), a short sale can be less costly than foreclosure and can provide an acceptable hedge against future price declines within the market. Also, for lenders that have become insolvent and need to liquidate assets, a short sale is a way to quickly raise capital when compared to the foreclosure option – a process that could take a year or more to accomplish. Lastly, for lender(s), a short sale means a guaranteed loss now as opposed to an uncertain loss in the future. This may be in many instantances a much larger loss.
For the investor buyer, a short sale offers them the opportunity to “Buy a property for as much as 40% or more below market value.” This discount means that they are able to make substantial profits.
For the home buyer, a short sale offers them the opportunity to buy a more affordable home. For some, this is the only way to experience the American dream and obtain homeownership, as the lower price relates to a lower and more affordable monthly mortgage payment.
For the Realtor or consultant, a short sale provides the opportunity to earn a fee or commission for helping a struggling homeowner. In many down markets short sales are the only viable option for continued real estate sales. During difficult economic times and recessions, one or two extra sales per month may be the difference between earning a living or looking for another job. Those extra sales each month can come from negotiating a short sale.
If you are a Property Owner and realize the benefit of negotiating a short sale for your property instead of facing foreclosure or bankruptcy, then we encourage you to Become a Property Owner Member today!
If you are a Realtor and realize the benefit of being able to negotiate short sales, sell discounted properties, and increase your ability to take future listings, then Become a Realtor Member today!
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We offer dozens more free articles on our site as well as the Internet’s first step-by-step, “how to” guide that walks everyday people as well as seasoned professionals through successfully negotiating their very own real estate short sales – and at a price you can afford.
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What does the term foreclosure mean? Foreclosure is actually the legal proceeding in which a lender (or a mortgagee) gets a court order terminating the borrower’s (mortgagor’s) equitable right of property redemption. Usually, the court order is obtained when the mortgagor fails to pay the loan he or she made to the mortgagee. The process of foreclosure is usually done by a bank or a secured creditor repossessing or selling the property after the owner has failed to comply with the mortgage agreement.
Investment property foreclosures, to quite a lot of investors, is a great way to get into the real estate business. Both newbies and seasoned professionals can make a lot of money through buying a foreclosure property. But like other endeavors, you should know some details about foreclosure investment business first before you get started. Your investment will only go a long way if you know how you can make the most money possible on every transaction.
Foreclosure investment isn’t something hard to get into if you know some foreclosure information and if you follow the basic game rules. First, define a foreclosed property. A foreclosed property is a property of a person (usually a former mortgagee) because the past owner did not pay his or her mortgage. This means that the mortgagee will have to sell this foreclosure investment property in order to recover any losses.
Investment property foreclosures can deliver huge profits to some. This is why it is quite attractive. There are three ways to buy foreclosures:
The seller may also be desperate in disposing off his or her property and lies about the real condition of the house and the neighborhood. You will have no warranty of any kind which means you have no idea whether liens or loans are still on the property. Depending on the state, if you find problems after buying a property, you may be able to sue to the former mortgagor who sold you the property and have things fixed with them paying part, if not the whole cost.
I have done many short sale in the past 15 years and have faced rejection from lenders and homeowners 20-30% of the time. Does rejection bother me? Not in the least and I love it, since It provides more information so that I can improve my negotiation skills As with any sales tactic, I am playing a numbers game and there is no game better than the short sale game which can make you wealthy beyond your dreams.
Most agents, investors or even lenders do not know how a short sale works or how to negotiate a short sale successfully There are no seminars, Gurus or get rich quick schemes in the short sale industry and do not let anyone fool you. Short sale transactions are learned with experience and there in no one way of doing it. Each short transaction is a separate animal on its own with separate investors and numbers.
There are very few investors who truly know how to successfully negotiate a short sale. Most investors have the perception that all that is necessary is to submit an offer and wait for the bank to give you an answer. If all goes well the offer will be accepted but in many cases it’s not that simple. That’s why a strategic plan is necessary before you even begin a short sale. You must set up a plan to persuading the lender to agree with your offer.
There are 2 key steps that will ensure success when negotiating a short sale with lenders:
1st. Evaluate all the numbers that the owner give you, such as the total amount of the 1st, 2nd or even 3rd trust deeds and determine if you indeed have a short sale opportunity on your hands. Obviously, if the total balance of all liens is greater that the “as is market value” of the property than you may have a candidate. The next step would be to qualify the homeowner to determine if they are truly in financial hardship and most homeowners are, especially if they are behind on their payments.. Many rookie investors are under the misconception that every homeowner facing foreclosure is a good short sale candidate. Not all deals are good short sale opportunities. You must know the difference between a good and a bad deal.
2nd Don’t take no for an answer. If the lender says no you must ask yourself why? Lenders do not make decisions based on emotion, unlike most homeowners, their only concern is to negotiate and get the highest price on their investment and trust me, they will say no to offers dozens of times. When the end approaches and the property is scheduled to sale at auction, they may very well say yes to your offer. I personally expect to get a no on my first offer and second counteroffer before we get down to the real serious numbers in purchasing any given property.
Here is an deal which I recently purchased that I would like to share with you, the property was located in Los Angeles:
I got a call from an owner in distress on one of my advertisements. This owner was behind 3 months and a notice of default had already been filed. He had a 1st loan amount of $585,000 and 2nd loan amount of $95,000 the property was worth $620,000 in it’s as is condition. I immediately had him sign an “authorization to release” and contacted the 1st lender within 2 days and asked them to send a short sale package, which they did.
Long story short, my initial offer for the 1st and 2nd combined since one lender held both was $480,000. They send out their broker for a BPO or “brokers price opinion” which came in at $600,000 they countered me $580,000 back and forth some more and the final purchase price was negotiated to $495,000. I sold the property within 30 days for $605,000 netting $580,000 after commissions and closing costs. Net profit from this one deal was $70,000. Not bad for 3 months work.
This would have never happened if I accepted no from the bank. I must have received a “no” several times from the loss mitigator but I knew that if I was persistent and aggressively polite they would reconsider. Remember, the next time you are putting together a short sale offer, be prepared and take control of the deal. Never take NO for an answer. Be proactive not reactive. Don’t just submit offers without having a game plan. Do yourself a favor and take advantage of the opportunity to make lots of money in an industry where great deals are hard to come by.
For more info visit www.RealEstateInvestorsLife.com
After the Foreclosure Hearing in which the Clerk of Superior Court approves the sale of the property being foreclosed, the Trustee will hold a Foreclosure Sale at the county courthouse in which the property is located. At the Foreclosure Sale the Trustee invites offers to buy the property from those in attendance and then accepts the highest bid. The highest bidder is bound by his offer the moment it is accepted.
After the Foreclosure Sale, there is a 10 day upset bid period in which another bidder may submit an upset bid that is higher than the reported sale price. An upset bid must be at least 5% and a minimum of $750.00 higher than the previously reported sale price. When an upset bid is made, the upset bid period starts over again for an additional 10 days. This process continues until 10 days elapse without an upset bid, at which point the last bid on the property is accepted and the foreclosure can be completed.
If you are a homeowner going through the foreclosure process, you have the right to stop the foreclosure and save your home up to and until the upset bid period expires by either paying the lender the money owed or working out an alternative to foreclosure with the lender.
Prior to founding Zellers Rudd PLLC, Dan Zellers and Scott Rudd worked together in the real estate finance group of some of the top international law firms in the nation. They represented large national banks and servicers in multi-million dollar commercial property transactions as well as multi-billion dollar commercial loan securitizations.
These transactions included the negotiation of large servicing contracts as well as conducting large commercial loan transactions, loan assumptions, defeasances, parcel releases, and other consent matters on large commercial properties located all across the nation. In addition, their work prior to that has afforded them extensive experience in all aspects of residential real estate and residential real estate transactions including loan closings, foreclosure, landlord-tenant law, work with homeowners’ associations, default judgments and private transactions.
Although the process of foreclosure varies from one state to another, there is still that common ground. Any homeowner can get affected by property foreclosure and it’s serious enough for people to dread it. Just as it is a loss for homeowner, the same thing goes for lenders. The following processes reflect why some properties are foreclosed. The main cause of property foreclosure is failure to settle loan payments. Though banks will not foreclose a property following one missed payment, homeowners are required to settle their dues within a specified grace period.
If the homeowner fails to settle the second payment, then they are contacted. If the borrower can settle two missed payments as agreed with the bank then everything’s settled. However, failure to do so triggers the foreclosure. The procedures usually begin after missing the third payment. The mortgage holder will be asked to consent to a power of sale or judicial sale. A judicial sale allows a lender to file a case with the judicial court.
The court in turn will send a letter to the borrower demanding settlement of dues. Homeowners are usually given 30 days to answer the letter and settle the payment dues. If the homeowner cannot pay the settlement, property foreclosure takes place. The lender puts the property up for sale in an auction. Judicial sale is a more popular option then power of sale.
There are only a handful of people who choose to go with a power of sale more likely because it is done without the court system. In power of sale, lenders requests homeowners to settle the payment within a span of time. Failure to pay the dues will give the lender authority to transfer the deed of trust to another trustee. The property is then sold in an action. These important details should help owners know when they are at risk for foreclosure and what they can do.