Posts Tagged ‘short sale investing’
As a short sale investor, you will often deal with landlords are facing foreclosure on rental properties. These short sale deals can be very attractive to traditional short sale negotiators who may have been “locked out” of many deals because of homeowner participation in federal short sale programs. On the other hand, there are some complications that can occur with rental properties that may not be an issue with first or even second homes that are owned and inhabited by the property owner.
One of the biggest issues for landlord-sellers negotiating short sales is that even in states that do not assess an income tax on conventional short sales in which a homeowner transacts a short sale on the home that he or she lives in, the short sale of a rental property often will result in the issuance of a 10-99 that will be viewed by the state as income. There are ways to deal with this and to appeal it, but when dealing with landlords you must remember that these individuals are subject to a different set of tax laws if they are short selling rental properties.
Additionally, landlords may find themselves in a distressed situation thanks to insurance issues. Particularly if they have made a claim recently, the insurance company may have hiked their rates or even canceled their policies. Due to plummeting equity in many properties and a number of natural disasters in recent months, finding new insurance for rental properties has been particularly difficult.
While this may not impact your end buyer, it can impact you or another investor who is purchasing the property to hold or season. Make sure that the property is insured and insurable by you even if you do not plan to hold onto it.
As the rules and regulations on short sales change nearly day-to-day, investors much keep abreast of the changes. Only in this manner can you truly help distressed property owners who need a short sale in order to salvage their investments and exit a property.
PS if you haven’t checked out my Free Short Sale Course you are really missing outwww.FreeShortSaleCourse.com
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When you’re trying to close a sale, your actual starting point is that first meeting with a client. In the short sale business, that first conversation is your key to helping a homeowner who is in default on their mortgage.
If you’re going to be in sales, the first rule is to find out specifically what their issues and concerns really are before you try to sell them anything. When you understand their situation, you’re in a better position to help everyone get what they want. Every experienced salesperson does that.
A short sale investor’s clients are people in financial trouble who need to sell their homes. Their issue is pretty simple, right? They are in default on their mortgage payments, and the lender wants either the home or the money. When you look a little deeper, that doesn’t really tell you what their needs are. Different people are worried about different aspects of losing their home. Facts are important, but a short sale investor who wants their trust and their business will find out what they’re really worried about before moving on with the conversation.
Once you get to the emotional root of the problem, you can focus on creating the solution that will help them the most. As you’re listening to them talk about their problem, you need to be looking for that win-win somewhere in that awful situation. There is usually a win-win there for both you and the homeowner. Your job is to find it, and then help them see it.
You’ve been listening to them for a while, and you now know their story. (If you’re smart, you’ve been letting them do most of the talking.) When they’re done – and only when they’re done – you need to talk about how working with you is the right solution to their problem. That’s where the Positive Results Conversation comes in.
The Positive Results Conversation gives you the chance to repeat their concerns back to them and explain what you can do to help them with each one. This is also the time to explain foreclosure options and how each option may affect their future.
Once you have gone over the options, the next step is to educate the homeowner about the short sale process. As short sale negotiators, we know that a short sale is the option that best minimizes the damage to the homeowner’s financial life, but most people don’t quite understand how everything works – and some people are very suspicious of things they don’t understand. That’s why we also talk about setting expectations.
There is no substitute for realistic expectations when it comes to getting involved in someone else’s financial business. An informed client who makes informed decisions is so much more likely to be a satisfied client. When you manage their expectations, you increase your chances of seeing the Positive Results Conversation work. When you don’t talk about what can and can’t happen, you risk putting yourself in the position of having to explain some unfortunate events later.
Finally, don’t try to wrap up the conversation before they hear everything, even if the seller asks you to. There is a reason that each one of your talking points is in your presentation, and you will do the homeowner a great disservice by leaving out part of it. You need to make the entire presentation for them to give your offer and your solution the full value it deserves. Without that, it will be much easier for the homeowner to cancel the deal for minor reasons or a slightly better offer coming along from the bank or one of your competitors.
Bring your own personality to the table, but stick to the script and keep the conversation under 90 minutes. By the end of your presentation, the homeowner should be able to see some positive results already: there is a knowledgeable professional in front of them who is willing and able to help, and there is a solution to their problem besides running away from it and watching what’s left of their credit rating go down in flames.
If you want to learn more, you can read about the whole Positive Results Conversation in the Short Sale Manifesto, which is a special report that can be found on our website (see the link below). There are a lot of talking points, but go over each one with the homeowner. We have done this for years, with positive results for homeowners and for us. Before you know it, you’ll be collecting all the documentation for the short sale package and moving forward.
Remember that this is a presentation we put together from experience. Everything in our Positive Results Conversation is specifically geared toward short sale success, and it has been proven to work over and over again. How will you really know when you get positive results? In your local market, you will become the one that people think of when they need someone who can solve tricky situations with problem properties. Your neighbors will know you as “the short sale expert”!
Want to know more about helping homeowners in default on their mortgage? Check out the Strategic Real Estate Coach resource page and start using our short sale success strategies!
Every real estate professional who works with homeowners in default needs to know a little about bankruptcy. At the very least, you should know enough to join the conversation because bankruptcy and foreclosure often go together.
This isn’t about helping the homeowner file for bankruptcy. You’re there to help homeowners out of foreclosure, not to help them out of all the financial trouble they have gotten themselves into. Besides, if you did help them file, you’d be engaging in the unauthorized practice of law – unless, of course, you’re an attorney – and that’s definitely not what you want.
This is about knowing how to hold an intelligent conversation about what bankruptcy can and cannot do for a homeowner in default. I’m going to start with a vocabulary lesson. Just by learning a few key terms, you can learn the basics and perhaps help the homeowner learn the right questions to ask their attorney.
Bankruptcy Stay: You’ve heard of a “stay of execution,” right? Same thing, different venue. A bankruptcy stay freezes all legal action by a lender to collect money or assets from a borrower. If a bankruptcy is filed even an hour before the foreclosure auction, they can’t proceed with selling the house at that auction. The stay has already given the homeowner additional time to try another solution.
Relief of Stay: When a stay is ordered by the judge in a bankruptcy court, the lender may file a motion for relief of stay. The lender is basically asking to be allowed to continue to go after the house or the money. The judge has the option to allow their request or deny their motion.
A motion for relief of stay may be justified in one of two ways. First, if the property has negative equity, the homeowner will receive nothing from the sale of the house anyway. Since there will be no proceeds from the sale to distribute among the other creditors, the court may see no point in freezing the foreclosure process. Second, the homeowner may already be in trouble with the court because they can’t keep up with their repayment plan. The court will see no point in giving most homeowners a second chance to save the house if they aren’t cooperating in good faith with the bankruptcy process.
Abandoned Asset: An asset is said to be abandoned after it loses its market value. In bankruptcy court, this includes a house with negative equity because no other creditor besides its lienholder could gain from its sale.
Bankruptcy Discharge: At the end of the Chapter 7 or a Chapter 13 bankruptcy process, the court will declare and record that all of the individual’s debts included in the bankruptcy have been discharged, which simply means that the individual is no longer responsible for them.
Bankruptcy Dismissal: This bankruptcy court order is also given at the end of the proceedings, but unlike a discharge, a dismissal means that the individual does not have his debts discharged. This happens most often with Chapter 13 repayment plans. A judge will dismiss a bankruptcy when people fail to present paperwork or payment when asked by the court. The 2005 bankruptcy laws made it harder for someone to refile bankruptcy after one has been dismissed.
When you work with homeowners who are in default on their mortgage, there’s a good chance you will talk to someone who is considering bankruptcy to end their financial problems. Be prepared. Talk to one of the real estate professionals at Strategic Real Estate Coach about handling that conversation. The more you know about bankruptcy, the more you will be able to help a homeowner think through each of his options.
Educate yourself as much as possible about the concerns a homeowner might have regarding bankruptcy and foreclosure. Make sure the homeowner is aware of one thing, though. A judge’s stay on the foreclosure proceedings is only temporary. The only way to completely avoid foreclosure is to work something out with the bank before the auction.
Need to know more about helping homeowners in default on their mortgage? Visit the Strategic Real Estate Coach website, and check out our free report about becoming a Real Estate Rebel. Challenge yourself to follow our ethical, proven strategies for growing your real estate business beyond your wildest dreams!
Losing your house is an unbelievably stressful experience. The money won’t cover the bills, the creditors won’t stop calling, the family won’t stop arguing about who’s to blame, and you have enough to worry about without having to arrange for somewhere else to live. You wish you could snap your fingers and make it all go away.
Maybe you already have an idea of what might happen in foreclosure, especially if you know someone who has already been there. Most people don’t realize they have more options than to stay or leave. Moving away might be a temporary solution, but there’s more to it than just giving the house back to the bank. How will the foreclosure affect your credit? Will you even be able to buy a car after this is over?
No matter whether you’re the homeowner or someone who works with homeowners in foreclosure, you should be aware of all the options in this situation. If you’re the homeowner, it is best to understand everything you can about the foreclosure process. If you’re someone who works with homeowners, it’s your job to help that homeowner understand their options during this difficult time. It helps if everyone has a realistic view of what could happen and why.
Let’s look at the deed-in-lieu option and loan modifications first.
When homeowners agree to a deed-in-lieu, they voluntarily give up their home. The bank is spared the time and cost of going through with the foreclosure, but the homeowner’s credit is damaged just the same.
Loan modifications can be a viable alternative to foreclosure, especially since the government’s Home Affordable Modification Program (HAMP) made more loan modifications possible. However, very few of all attempted mortgage loan modifications ever succeed. Only 4 percent of those loans ever become permanent; in California, that means 5,600 out of the 140,000 trial loans initiated in one recent three-month period have actually been modified. Records show that 450,000 notices of default were mailed out to Californians in 2009 alone. Not many of those will actually be helped by loan modifications.
There are four more successful options.
1) Live in the house until eviction, and let the bankruptcy system hold off the foreclosure until the auction date. It won’t make the foreclosure go away, but it will help the homeowner save money temporarily.
2) The real estate agent can list the property for the amount due on the mortgage and try to convince the buyer that the house is worth it before the foreclosure auction date arrives. Since most buyers wouldn’t fall for that, the homeowner may choose to revert to the first option.
3) List the house as a short sale, find a buyer, and make the buyer wait out the short sale process in order to buy the house at a discount. Many real estate agents recommend this solution because it sounds like the easiest thing to do while still earning their commission, but it’s a little more complicated than that.
The agent can run into a roadblock when the buyer says they need a home right away. Most short sales can’t be completed in less than 60 days.
If the real estate agent or the seller isn’t familiar with negotiating a short sale, other problems can arise during the negotiation process. Banks have entire loss mitigation departments staffed with people who are trained in collecting mortgage debt, and they have no problem taking advantage of homeowners who don’t understand the system.
For instance, sometimes promissory notes and deficiency judgments can be avoided after a short sale. Did you know that? It can be worth a great deal to a homeowner when you not only learn how the system works, but also how to work the system.
4) The fourth option is to put the home up for sale with a real estate agent who is willing to work with an investor as the buyer. A well-educated investor would use the right contracts and the lender’s forms to obtain approval for a short sale while still guaranteeing the real estate agent’s commission. The investor would then own the house to keep, rent, or sell, and the homeowners could move on with their lives.
There are many reasons why a homeowner in default would be better off letting an experienced short sale investor handle their negotiations. One reason has to do with the broker price opinion, or BPO. A professional short sale negotiator will know how to use the BPO to the homeowner’s advantage.
The four main options for homeowners in default should be made evident to everyone involved. They can stay in the home and use the bankruptcy process, they can sell the home for what they owe the bank, they can ask a potential buyer to wait out the short sale negotiation process, or they can outsource the negotiations to a short sale investor who will buy the house from them.
If you need to learn more about how foreclosures and short sales work, Strategic Real Estate Coach is here for you. Our Silver Membership is absolutely free, and gives you all the networking and downloadable reports you need to get up to speed!
Attorney Jeff Watson has some great commentary on the legal side of real estate investing. You can find that and more on his blog. Just visit topshortsalelawyer.com.
Give people the best and most up-to-date information possible. Help people understand what they’re up against, and what could happen with each choice. When homeowners make an informed decision about their future, they have a chance to stop feeling beaten down and walk away feeling relieved.
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