TABLE
OF CONTENTS
Chapter 1…Author Introduction
Chapter 2…Why this Information is so Important?
Chapter 3…Short Sale Basics
Chapter 4…Who Benefits From A Short Sale?
Chapter 5…Short Sale Myth #1- Short Sales are Complicated
Chapter 6…Short Sale Myth #2 – Short Sales are Time Consuming
Chapter 7…Short Sale Myth #3 – Lenders are Hard to Deal With
Chapter 8…Short Sale Myth #4 – You Need to Know a Lot More
Chapter 9…A Brief Overview of the Short Sale Process
Chapter 10…The Short Sale Success System: Part I – Finding Them
Chapter 11…The Short Sale Success System: Part 2 – Talking to Them
Chapter 12…The Short Sale Success System Part 3 – Meeting Them
Chapter 13…Conditions for Meeting with Folks In Trouble (FITs)
Chapter 14…Dealing with FITs – Examining Their Situation
Chapter 15…Completing the Hardship Letter
TABLE
OF CONTENTS
Chapter 16…Helping Sellers DECIDE to Stay or Vacate
Chapter 17…Options for Sellers that Want to Stay
Chapter 18…Options for Sellers that Want to Vacate
Chapter 19…How to Sell a House that’s Financially Under-Water
Chapter 20…What to do once you GET HIRED!!
Chapter 21…Gathering all that Paperwork – Before Leaving the House
Chapter 22…Critical Components of the Short Sale Packet
Chapter 23…Basic Math and the Magic behind the HUD1
Chapter 24…Making Sure Your Short Sales Get CLOSED
Chapter 25…Dealing with the Lender’s Written Reduced Payoff
Chapter 26…Two Lenders = Three Times the Headache!
Chapter 27…Are You Consider a Third Party Processor?
Chapter 28…How to Close a Short Sale Every Week
Chapter 29…Special Advice for Brokers and Team Leaders
Chapter 30…Conclusion and Additional Resources
Chapter
1
Author
Introduction
My name is Scot Kenkel and I’ve been fascinated with real estate for a very long time. My interest in real estate first started during my college years, at the University of Cincinnati, back in the late 1970’s. It was a Finance College Professor that initially opened my mind to the idea of making money by investing in real estate. I was more than just intrigued by this idea, I was hooked! The concept of owning property that others would pay to live in was captivating. My professor continued to explain to me that I could actually get banks to lend me money to buy a property and that the rental income from this property would be enough to cover the mortgage payments. This sounded far too good to be true, but it wasn't.
I started putting real estate deals together while still enrolled as a fulltime student and as if that was not difficult enough, the average interest rate during this period of time was around 18%. So, this made it quite challenging to find properties that would pay for themselves on a month to month basis. It was then that I learned the ins and outs of creative financing and how to finance purchases without conforming to the traditional demands of conventional lenders. As time progressed and I graduated from college I continued to follow my passion for real estate as a part time venture while working a full time day job as a salesperson trainer for one of America's largest retailers; Sears and Roebuck.
Somewhere along the way, while reflecting on what it was I enjoyed doing and trying to decide which way to take my career, I decided to merge together my passion for real estate with my highly developed training skills. I, then, enrolled myself in the necessary courses to get my real estate license as well as my GRI and CRS designations. Within a year of actually getting my real estate license I began working for Floyd Wickman, owner of a nationally recognized real estate training association. Even though I had already been training salespeople for many years, it was still exciting and rewarding to be able to teach real estate agents the processes they would need to be able to make more money. Fortunately for me, I have been able to deliver these processes to thousands of agents and brokers throughout North America since the early 90's.
The only reason I am telling you any of this is that you know and understand that I have been around the proverbial real estate block a few times; as an agent, an author, a coach, a speaker, an advisor, a consultant, an expert witness, a trainer, and as a mentor. Even after all of these years, I have still yet to see another topic so misunderstood, mishandled, misinterpreted, and mis-regulated as I have seen with SHORT SALES.
My sole purpose in writing this book, whether you are listening to the audio version or reading it, is to: simplify, clarify, demystify, debunk and most of all, just to eliminate the half truths, the white lies, the confusion and chaos surrounding SHORT SALES. If I’m able to do that for you, my listener, my reader; then I believe you will have a favorable outcome when you are working with people in this area of real estate business.
Whether you’re listening to the Audio Podcast or simply reading the actual book; I really do hope that you enjoy this learning journey. Thanks so much for joining me and Happy Learning.
Scot Kenkel, President
Scot@SuccessLearningInstitute.com
Success Learning Institute, LLC
2149
Chamber Center Drive
Fort Mitchell, KY 41017
Office: 1-888-831-5945
http://www.SuccessLearningInstitute.com
Chapter 2
Why this Information is so Important?
Well, let’s face it; things are very different today in the real estate industry than they were five years ago. It was not that long ago that if you had a real estate license, you were going to make an above average income. This would explain the explosive growth of membership in The National Association of Realtors. N.A.R. membership broke the million member marker for the very first time in 2004 and from 2004 to 2006 membership rates jumped an incredible 38%. It’s easy to understand why membership jumped so fast, so rapidly, so explosively when selling a house did not involve half of the work that it does today.
Real estate has always looked like a relatively easy way to make money and while it looked easy to make money in real estate; it became even easier to be able to own real estate. During the rise of N.A.R. memberships home ownership also began increasing due to the how affordable owning a home had become. It got to the point where renting was much more expensive and for most people it was actually easier and cheaper to buy a home rather than to rent one. That is because money was cheap.
Home values continued to soar, and in some years, they would go up as much as 10% per year. In certain areas of the country we saw even greater increase of home value, year over year. Owning a home during years of improved value was like owning an ATM machine of your own; buy a home, sit on it for a year, refinance it, spend the money, and repeat often. And why not? Loans were easy to get, it almost encouraged you to buy more, borrow more, make more and spend more.
Banks had loan programs for everyone. "You want to borrow money, but you do not have any income; that's alright with us, we have a loan for you!” "You want to buy a house, but you have no money for a down payment; that's okay with us, we have a loan for you!” “So, you don’t have a job, you don’t have any credit; No problem! We have just the loan for you."
Loans were available for everyone. In fact, it reached the point where, the idea of saving money up to buy a house like we used to do in the old days just became silly. “Buy now, save later!” that was the motto; but that was then, this is now.
Today, we are just hoping that home values will stop dropping. Unfortunately, as unemployment rates continue to rise, more people lose their jobs, and as they lose their jobs, they lose their income and can no longer afford their homes. This increases the likelihood that people are going to walk away from their homes or, more likely, lose their homes to foreclosure and this is exactly what feeds the continuing loss of home value.
As values have continued to decrease, buyers have not been given an incentive to buy these homes. Who wants to buy a house if next year it is going to be worth much less? Oh, and borrowing has become much more difficult. Nowadays to borrow money; you actually have to have a job, you have to have some money for a down payment, you have to have stable income, and you have to be able to prove it. Not to mention that you also need to have a much higher credit score be qualify for these loans. Taking all these things in account, it creates many more reasons to not own a home because, when values go down, homes no longer look like ATM machines.
In June 2009, the N.A.R. Chief Economist, Lawrence Yun, made the observation that half of all current real estate transactions are involving sellers that are either heading towards foreclosure or are in foreclosure. He also stated that over half of these transactions are what he considers to be distressed sales.
Mr. Yun also went on to say that 25-30% of all homeowners nationwide owe more money on their home than what their home is worth. However, he did point out the good news, that homes are now very affordable. In fact, they are more affordable today than they have ever been in the history of tracking these records.
He
concluded,
as presumed, that foreclosure inventories will continue to rise.
While he estimated that close to 5 million units were going to be
sold in the year 2009; he also repeated the fact that half of those
units are going to be in the category of distressed property sales.
So,
why is all of this important to you? Well, number one, when
half of all the properties being sold, whether you’re working with
a buyer or you’re working with a seller; the rules of selling real
estate have changed dramatically. You might say, “Well, they
really haven’t.” Well they have, because working on either
end of a foreclosure, whether you’re dealing with REO properties or
you’re dealing with the pre-foreclosure, the rules are different
than dealing with the normal or what we used to call the “normal”,
real estate transaction.
Taking into account that half of all the properties, whether you’re working with buyers or sellers; half the properties out there, they are in some state of distress. That’s one reason why this information I’m going to share with you is so important.
The second reason is making money in real estate today requires a whole lot more than luck. Sure, luck enters into it occasionally, but that’s the icing on the cake. Today, to make money in real estate requires skills and the agents that don’t have those skills are going to be forced out of the business. Just look at the statistics at NAR.
Since 2006, there has been a decline of 17.5% of NAR memberships; memberships gone and those numbers are expected to grow. Why? This is why, because those agents have chosen not to adapt to a new way of doing business. They are still trying to do business the old way, not understanding that that only works for half of the market or less.
So, what kind of skills do you need in this new market? Well, you need to know how to take a new listing when values continue to go down. You need to be able to sit down with a homeowner and explain that in a logical manner. You need to be able to deal with the fact that there are a high percentage of homeowners today and tomorrow that owe more money on their home than their home is worth.
What do you do when they owe more than it’s worth, wait for the value to catch up to debt? Certainly not. Also, knowing that the number of people facing foreclosure and being impacted by foreclosure is continuing to rise, whether you get good at dealing with those folks heading into it or you decide to deal with the other end of it, which is dealing with banks and REO properties, you will need the additional skills. Of course, the title of this learning tool is Short Sales and The Short Sale Success Secrets. This tool is really meant to give you the advantage over the competition.
Once you understand that over 50% of all the homes being sold are in some form of distress, it should become plain as day that you have to adapt to this new marketplace. The good news is for those agents who do adapt, knowing that real estate is a cyclical business; there will be another time, not too far off into the future, where real estate will once again be like it was. When that time comes those of you having a license, just having a license, you’ll be able to make some money. Those agents that survive through the tough times will thrive in the easier times.
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Chapter 3
Short Sale Basics
What is a short sale? Why is it called a short sale? Well, it wasn’t too many years ago when the actual term, “short sale” never even crossed the lips of an average real estate agent. In fact, when I first started working with agents in a training environment. In order to share with them what I knew about short sales, I had to refer back to my long term interest in real estate investing. Most agents thought a short sale was just a sale that happened quickly. They had no idea that it had anything to do with helping someone avoid foreclosure.
The relationship between a short sale and a foreclosure scared most agents. They thought they were going to taking advantage of a homeowner and they didn’t want any part of that. The real definition, however of a short sale is when you have a loan that in order to get the property to sell, the loan itself would have to be reduced in principal balance, in order to allow that sale to take place.
I’ll explain it in a couple of different ways. If your sellers have a home that’s going to sell for $200,000 and that’s the most it would sell for, but they have a mortgage that exceeds what it sold for, their choices are somewhat limited. The only option they have is either to sell it or lose it. Since they don’t have the money available to pay the difference owed to the lender; then the only option they have would be to sell it and then hope that the lender would take less than they’re owed. That is referred to as a short payoff.
Now this short payoff notion is something that most real estate agents have never had to deal with. Why would they? You buy a home, you borrow money, and then your home goes up in value. When you sell your home and you pay off the loan, you pay the agent, you pay your closing costs and you move on.
The closest most agents got to anything like a short is when they were shorted because there wasn’t enough money to pay their commission. That is not a necessary evil today. Today, the terminology of a short sale has become widely interpreted and feared because of the confusion.
The necessity of it is simply this. If you owe more money on your home than your home could possibly sell for and you don’t have the resources to borrow additional money to pay off the loan then your options are going to be one of two things. One, let the loan go into default and let it become foreclosed upon, or two, get the property sold and get the lender to take less money than is owed to release the lien.
A short payoff doesn’t mean that the sellers or the borrowers of the money are forgiven. A short payoff just means that the lender sees that there’s more benefit to them, reducing the amount owed on the loan, reducing the lien, and letting the sale take place as a way of avoiding taking the property back as the lender.
So, to recap what is a short sale, it really should be called a short payoff. It’s a sale that is subject to an agreed reduction in the amount owed in order for that property to transfer clear. That means the lien is actually released because the satisfaction of the lien has been met to the lenders negotiated agreement. That short sale then becomes a real estate transaction that ties back to the need to get the lender to agree to a lower payoff amount.
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Chapter
4
Who Benefits From A Short Sale?
Well
the benefits of a short sale would be an indication; first of all,
that sale has actually taken place in lieu of a foreclosure.
So, who benefits from a short sale? First of all, the homeowner
benefits because they are able to avoid going into a foreclosure
situation; which would devastate their ability to enter the housing
market at any point in the near future.
In addition to that, the avoidance of the foreclosure has benefits to the neighboring homes because it helps keep those homes from losing more value. It has benefits to the municipality, the local municipality, because the decrease in value ends up generating lower revenue, tax wise, for city services.
The avoidance of a foreclosure benefits the real estate industry. A foreclosure is really a black eye to the industry; and by not letting a home into foreclosure, there were agents that generated commissions. There were closing companies; title companies, insurance and loan fees, and other miscellaneous things generate revenue. These help all the ancillary components of a transaction.
More to the point of benefit, does the short sale actually have a benefit to the lender, and the answer is, absolutely. The cost of a short sale is much lower to a lender than the cost of a foreclosure and the lenders know that.
There have been numerous studies done by the mortgage bankers association showing lenders the financial benefit of doing a short sale, or what they would refer to as a negotiated workout, as opposed to going through a foreclosure action.
There are other benefits to the lender – when a lender ends up taking a property by virtue of the foreclosure laws they actually end up owning that property. Almost 90% of all auctions are properties being bought back by the lender. It’s less than 10% of them are third parties, investors and other individuals. So, the majority of the properties that go into foreclosure actually end up being owned by the lender.
When the lender takes ownership of a piece of property it has an impact on their ability to lend money because of banking regulations. They have to offset this non-productive, non-income producing asset and they have to set aside other monies. This is money that they cannot lend as leverage based upon the new rules.
Therefore, a lender in addition to not having to own a property, and not have to winterize it, board it up, and get it sold; they come out ahead financially. The owner comes out ahead financially. The neighborhood comes out ahead financially, the industry that we’re in comes out financially, and the city coffers come out ahead.
In conclusion, everybody benefits when a short sale is transacted as opposed to allowing that property to go into foreclosure.
Chapter 5
Short
Sale Myth
#1 –
Short Sales are Complicated
It is true that most agents have a feeling that short sales are complicated, difficult, time consuming and not worth the hassle. One of the more common myths is that because they are complicated; many agents choose not to get involved in them. The truth of it is short sales aren’t really any more complicated, real estate is complicated.
Short sales are just a different way of getting a deal closed. Compare side by side the different stages of a transaction, and compare a normal transaction; that would be the find of deals that used to be more common not too long ago, and compare the stages along the way to a short sale. Here is what you would find – in a normal transaction, there has to be a seller and if you are the agent you didn’t find the seller; the seller found you and at some point you got together and they decided to hire you.
When they decided to hire you there was a lot of paperwork you have to put together and there were disclosures and disclaimers. They had lots of questions, you answered them. There were challenges and obstacles, you overcame them; but at some point you put the property on the market.
Along came the buyer, and when the buyer came along they wanted to buy it. They wanted to put everything in writing because it required a written agreement, and that written agreement at some point it stated all the conditions of sale.
The conditions of sale gave the seller the ability to decide is this the right buyer. The wrong buyers or better buyers come along, and at some point there was a meeting of the minds. You had a buyer and you had a seller, everything’s in writing and there were questions to be answered for the buyer.
There were challenges with the buyer, there were obstacles to overcome. More importantly, there were conditions to the sale. The buyer probably stated that they’re going to have inspections done, they want to have an inspection done of the mechanical features of the house, and they want to have an appraisal done. Actually the lender does in order for them to know whether the property is going to hold its value or not.
The conditions, one by one would be met and eventually once the inspections and the appraisals are set aside, the funding is arranged. Then there has to be a provision for transferring the title and passing clear title to the buyer. It’s normal in a real estate transaction that you have someone that owns the house, the seller; and someone that wants o buy the house, the buyer. In order for them to buy the house, they have to arrange for financing.
The lender isn’t going to lend them money, if they don’t take title. The only way to take title is to have the seller pass the title on. If the seller owes money on the property; then someone is going to have to find out how much money they owe. Typically that is done by your closing attorney or your title person, and then they coordinate the closing so that everything happens at once.
The
buyer signs off on all their paperwork, the money is held in an
escrow arrangement. The seller signs off on all their paperwork. The
money then is transferred to pay off the title, the lender, and any
other liens, and transfer occurs. The end result is now there is a
new owner; that’s the normal sale.
Let’s look at the difference between that and a short sale because in a short sale you have a seller. You have a seller who either contacts you or you contact them. They want to hire someone to get their property sold; so there is paperwork involved, there are disclosures, disclaimers, and questions to be answered. There are challenges and obstacles to overcome; then at some point the property is listed.
Then a buyer comes along and you select the right buyer, everything is in writing. There are lots of answers for questions and challenges to overcome and obstacles to overcome, and there are conditions to the sale. The buyer says I’ll buy it subject to this, this and this, no different than a traditional sale. They have inspections and they have appraisals.
They have conditions and one of the conditions to the sale is of course, that they can transfer clear title. In order to transfer clear title, just like a normal sale someone has to find out how much is owed; but in this case there is more owed than the house sold for.
Now, it doesn’t change the steps, it just really changes one small piece of the transaction. That small piece is instead of just calling them and saying, “How much do we have to send you”; someone has to call them and negotiate how much you’re going to be able to send them in order to let this sale continue.
You
need a payoff amount allows everything to continue and it is arranged
to transfer the title, loans are paid off, and liens are paid off.
New money is originated and everyone is happy and there is a new
owner once title is transferred.
So
when you look at this and you say, “Well what part is different?”
It’s a very small part and that small part is instead of paying
exactly what is owed, which is normal, we are going to have to get a
new amount owed, negotiated with that lender.
All the other steps are the same. You still have the list of property. You still have questions to answer and have to overcome obstacles. You had to get a buyer; it had to be in writing. There are conditions to be met. They had to go and get rid of those conditions one by one: inspection, appraisal, funding. At some point, clear title has to be passed. The only way to get a good pass clear title is to relieve the loans, the liens, and if those aren’t satisfied then there’s no transfer and therefore no sale.
Therefore, the negotiating of an adjusted payoff, to meet the needs of consummating the sale is the requirement. So, as for this common myth, the belief that short sales are more complicated, they are not really more complicated. Real estate is complicated. Short sales just require a little more effort to get the lender to given an adjusted payoff, so that the deal can close and the new owner can take title.
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Chapter 6
Short
Sale Myth #2
–
Short Sales are Time Consuming
This is a myth that most agents believe that short sales take longer than traditional sales. This myth is originated in the belief that, based upon the idea of a different way of doing deals; but short sales, in truth, they just seem to take longer. They don’t really take longer if you look at it the right way.
What is the right way of comparing a traditional sale to a short sale? Well unfortunately, waiting for a deal is like waiting for a red light to turn green. Time seems to take forever when you’re waiting for a red light to turn green. Waiting for a short sale to close has the same effect on most agents, at least.
Compare in your own office, your own history of transactions, and a normal sale. From the day you listed it, until the day it sold; then from the day it sold, until the day it closed. Some of the research that I’ve been lucky to do shows, that in one situation, one broker, on average their normal regular sales from the day they listed it until they had secured a buyer; whether it was a buyer they found or it came from the MLS, on average was taking 144 days.
Now you might say that’s a long time. Well, in most markets that are not very long at all, I’m talking traditional listing, not distressed. 144 days though from the day it was listed until the day it was sold, and then another 26 days from the day it was sold until the day it closed. Now this is what you have to compare a short sale to, you can’t in all fairness compare it to other short sales.
If
you were to compare a short sale doing it the way I’m going to show
you how to do it; in this same brokerage the average days from the
day they listed it until the day it sold was 7. Now remember
that a traditional sale went 144 days until they found a buyer; but a
short sale done correctly from the day it was listed until the day it
was sold, 7.
You might say to yourself, “Well that’s great!” well hold on a second because the problem is the perception of the listing agent. For the buyer’s agent and the buyer, the bad news is from the day it sold until the day it closes is a lot longer than a traditional deal.
You see where you measure those days from the time it sold. The time involve in going through all the steps, getting the information to the lender and getting the lender to get back to you, with an adjusted payoff and then closing it, our statistics show that that timeframe is 121 days.
Remember, in a traditional deal only took 26 days from the time it was sold until the time it closed. So where’s the real problem? The perception, the perception it sold to the day it closes is really waiting for the red light to turn green because most agents, that’s when they get really fired up. We have a seller and we have a buyer. We have a deal that’s closing.
In the world of short sales though, there is one component that we don’t have control over. That is how long it is going to take to get the lender to do whatever they have to do to decide yes or no to adjust their payoff. Sometimes it’s quicker, sometimes it’s not, but it’s almost always longer than a traditional deal.
When you have a traditional buyer, traditional seller, traditional financing; it is by far never going to beat that. It’s always going to take longer during closing. That’s why, many agents believe that short sales take a lot longer, when in fact the truth is, it just seems like they take longer.
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Chapter
7
Short
Sale Myth
#3 –
Lenders are Hard to Deal With
Lenders
are difficult? Want the truth? Of course lenders are
difficult, they’ve got the money, they’ve always had the money,
but you already knew that. Reality is that the lender in a
short sale transaction is the person who’s taking a beating and
they don’t want to do it easily, it is bad posture on their part.
Lenders are difficult, how could you blame them?
Lenders have to set up an entire department to deal with loss mitigation. The whole role of that loss mitigation department is to minimize their losses, well that can’t be fun. As anyone that’s ever lent someone else money, whether me, you, anyone, it doesn’t feel good when the person you lent the money to can’t pay you back, and what are you going to do? Are you going to sue them? Are you going to hurt them? Are you going to break their legs?
The
lenders are very difficult to deal with; the departments that they
set up are staffed by human beings who get paid and have no emotional
attachment to the situation that you’re dealing with. They
sometimes come across as not caring. They come across as being cold
and call us.
I
think that for any agent, that doesn’t understand that what they’re
trying to do and what they’re going to do and what their job is to
do, are all over the map. The lenders, they have the worst of
two evils, lose money going through foreclosure, lose money
negotiating a short sale.
If
you owed me money and you couldn’t pay me money and you came to me
at one point in the future and said, “I’d like to pay the money
but I have no money, but I’ve got this old broken down motorcycle
and if you’ll take the motorcycle and call it even, we’d be
friends again.”
What do you think the chances are that you would take a motorcycle? Pretty unlikely unless you’re a motorcycle enthusiast and that motorcycle happens to be worth as much as they owe you. But outside of that possibility, the reality is every single day lenders have borrowers that aren’t making their payments, and then the borrower says, “Well, maybe if I could sell the property and we could pay part of it off.”
Of course the lender doesn’t live in the community. The lender doesn’t know what the property is really worth. Frankly, the lender looks at everything skeptically because a year ago, two years ago, three years ago; it was worth so much more, and that’s not what it’s worth today. Of course they are going to be skeptical, and they are going to be difficult to work with.
So, the myth is true, lenders are difficult, but here’s a question, why are you working with lenders? I’ve learned this and you will hear me reference it more as you read and listen to the rest of this material that real estate agents fall into one of two categories.
They are either really good with dealing with people, or they’re really good with dealing with paperwork, and hardly ever are they good with both. Well the agents that have the hardest time dealing with lenders are usually the agents that are not good doing paperwork.
There
is a direct correlation there because what I’ve found over the
years in working with the lender is not really about working with the
lender; it’s working with paperwork and working with follow-up, and
sending the same thing over and over again. It takes a degree of
patience and understanding that the individual on the other end of
the phone is a customer service rep.
A customer service rep that is probably overworked, under trained, underappreciated, and they are doing the best they can. They really don’t have any answers more than what they are giving you.
If you tend to be abusive, you yell and you scream, and you get upset and you’re hostile; remember, they didn’t cause the problem and they don’t know how to answer. If you’re an agent who doesn’t understand that and you’re trying to get answers from them. Then they could be your worst nightmare because they have the choice of entering the right information or the wrong information into the computer.
Another
thing, if you’re one of those agents that are really good at
paperwork follow-up, faxes, detail oriented; you find this to become
the case. I also found the contrast with the way agents do business;
they don’t often like giving up part of the responsibility of
getting a deal closed. So, it’s very likely that an agent,
who is not very good with dealing with lenders, continues to deal
with lenders, thereby minimizing the numbers of deals that they’re
able to do.
In the best of both worlds, agents that are good with dealing with folks that are in trouble and need help, and are able to help them by getting the first part of the process done, and then hand that entire responsibility of dealing with he lender to someone else; those are the agents that really prosper in this business of dealing with short sales.
So, yes lenders are difficult to deal with. While they may be difficult to deal with you have to ask yourself that question again, why are you dealing with them.
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Chapter
8
Short
Sale Myth #4
–
You Need to Know a Whole Lot More
Do you have to know a whole lot more in order to do short sales? The truth is you already know what you need to know to do short sales. Here is where most agents are mistaken about a short sale; they look at it and they think it’s different, a lot different, and the only part of a short sale that is different is negotiating with the lender.
Now you might say to yourself, “Well, Scot, I don’t know what that means and I don’t know how to do that. And what if they ask me this and what if they ask me that?” Well, let me just give you a little piece of mind so that you understand. A short sale can’t take place until you’ve listed a property. Do you know how to list a property? And if the answer is, “Well of course I do,” great. Do you know how to list a property in order to get it to sell? Great, you know how to list a property at a price that will get it to sell, so forget how much is owed on it.
If someone said I have a house, I want you to list it and get it sold, and I want you to get it sold at a price that I guess it doesn’t really matter; because I don’t want to do any work to it. I want you to sell it as is, but I want you to get it sold to a qualified buyer. I don’t really care how much you sell it for because frankly other than just giving it away; I’m not going to get any of the money from the sale.
So, do you think you know how to list a property and how to figure out how it’s going to have to be priced to get it to sell, understanding that the buyer is going to have to take it as is? This buyer is going to have to be pretty patient, and they are going to have to be able to prove that they have the money to buy the property. Can you do that? Well, I think most agents can.
Where the agent confusion begins is when they
think that the short sale part of it is different, that you don’
list the property, that you call the lender and ask them will you
accept the short sale? No, that’s not how you do it.
You have to list it first, in order to get it sold.
When we go through the whole process you’ll have a clear understanding of it; but it suffices to say, that the belief that you need to know a whole lot more is a myth. You already know what you have to do to list a property, you know what the forms are and you also know how to take a purchase offer and negotiate it with the owner, who’s the owner, the seller.
If you know how to list a property and you know how to present an offer; the only part you may not know is what it is going to take, what has to be put together, in order to get the lender to allow a short pay off to occur.
We still have to list the house, we still have to get it sold, and then there are just few more steps. That’s the only difference. These basics, the things that you need to know, we’re going to cover in the process; when we go through the short sale process itself.
What I say to agents all across North America is, you already know what it takes, you already leaned how to list a house, and you learned how to negotiate a sale. The parts that you may not know are the little idiosyncrasies that have to do with dealing with the lender, the tax ramifications, the legal issues and the obstacles that get in the way. We’re going to cover all of these things in the future chapters of this book or audio.
So,
the myth, that you have to know a lot more, is not true. You know
almost everything you need to know. Once you’ve done a short
sale the only real difference is negotiating a short payoff. Having
the right mindset for how long it takes and once you’ve got that in
place; then you’ll find that helping people that are facing
foreclosure by listing a property, getting it sold, and getting the
lender to approve the short payoff, becomes more of a traditional way
of doing business.
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Chapter
9
A Brief Overview of the Short Sale Process
Imagine the following scenario; you’re sitting there at home and your phone rings. It’s a couple of past customers of yours, actually friends that go to the same church as you do Hank and his wife Peggy. You had helped them find a larger home a number of years ago. When they call, Hank asked if he can talk to you about their current situation. He said he was curious about what homes in their area are worth in today’s market, and so you set up an appointment.
Casually enough, you do a little bit of research and you head over there to meet with them. When you get over there to sit with them, they welcome you and it’s great to see them and you share some idle chit chat. You get settled at the kitchen table and before you know it they start to tell you about their situation.
You find out that Hank had actually lost his job about six months ago and has yet to find any work, and Peggy has been working part time; but her income doesn’t really cover anything more than maybe the groceries. Hank’s unemployment check is going to run out in just a couple more weeks and frankly they’re a little bit scared.
They kept making their house payments by draining their retirement, their savings, and they are out of money; they really don’t’ know what to do. When they called their lender a few months back, they were still making their payments and at that time they were told to keep making their payments. The lender asked them what they have done to get new work, get another job, and suggested that maybe they qualify for a modification.
Of course, they went through the process of trying to get their payments lowered. It wasn’t until after sending all the paperwork in and talking to the lender a number of times; that they came to the conclusion that every time they called to find out how their modification was going, the lender just made it more painful and wanted them to keep sending money.
Because of their first mortgage, unable to make the payments and their second mortgage; they made another payment but they really couldn’t do it. Most of the money for their second went to pay for their oldest son’s tuition in college. Now they are broke and the whole situation sucks.
The problem that they explained to you is not only that Hank lost his job, tried to find work, and can’t find work; but their credit cards have been unable to be paid, and they are afraid of losing their car. As you sat there are the kitchen table, you are starting to feel that they are hopeless, they feel helpless, and they feel frustrated. They are suffering a lot of deep rooted panic and embarrassment and humiliation.
But you are trained, you are trained as a professional and just like an emergency technician or an emergency room doctor; you don’t become panicked by their panic, you remain calm, you remain cool and collective, and yet you are compassionate. You explain to Hank and Peggy that things are going to be ok. And that you’ve known of a number of people that were in the same situation as them.
You start by saying, “Well let me first sort of explain to you how I work.” You comfort them with your caring demeanor and the fact that you have a process, and it’s obvious based on the way you’re acting that you know what you’re doing.
You explain to them that you understand that the situation, what they have going on, you understand some of it but you probably need to know a little bit more. That in order for you to best help them, they are going to have to give you more details about their finances and their wishes. You need to know where they are with the lenders and creditors, what their accounts look like, and how far behind they are.
Explaining that once you have a good understanding of the whole situation; then you know what you have to work with. Up until this point you really wouldn’t be able to make any recommendations, but if you know what they have got to work with then you could explain all their options.
When you explain the options, even though one might be just as painful as other, at least they’d understand their options. For them to know their options, you can then with their input, make some recommendations. So, they say, “Fine, what do you need to know?” At this point you start asking them some questions. You ask them to get all the letters that they’ve received from other people, from their lender, any legal paperwork, things from the mortgage lender, demand letters, lawyer letters, any of that kind of thing.
Peggy runs off and comes back with a basket filled with all kinds of letters and such. Which apparently they have just been ignoring, figuring that there was nothing they could do about it; so they had stopped bothering to even open them up.
You are slightly amazed, but intrigued and as you start working through it, it looks like they’ve been getting letters. You now see their situation and then you ask about the house. Now, granted you knew about the house because you did a little bit of research; but as you look at the house you’re thinking, “Well, maybe in best condition it would sell for $150,000 to $170,000 in best condition, but it is not in best condition.”
There are a lot of things that probably need to be done to it. It’s obvious that they haven’t been taking care of the yard like they used to, but of course they have no money. When they bought the house, with your help a few years ago, they paid just a little bit less than $200,000. The two mortgages on the property total about that amount today.
Homes in the area haven’t been selling; in fact the few that are on the market right now have been on the market for well over 9 months. Their combined payments on the two mortgages, first and second are roughly $1800.
They both said that was fine when Hank was working. Now that he’s living on unemployment, they do not have anywhere near that kind of money to spend, and unless they win the lottery. They do not see what they can possibly do to either make the payments, or catch up with the past payments, which would take about $6,000.
They say to you that they really like the home, when they found it they thought it was their dream home. It was their forever home. It was home in which they were going to grow old together. Then you ask a couple of really tough questions like you ask, “If you had to leave the home, where would you go?”
And to your own surprise, they told you about how Peggy’s parents had offered them the unlimited use of their cottage up at the lake which is about 20 miles away. That they could live there rent free until they got their finances back in order; and both of them, while they are not sure what to do, they know they have somewhere they could go.
So you go on and you explain some options. Different options might have to do with working out something with the lender. Now, you say if you want to stay in the home you could work something out the where the lender might reduce the payments. They have tried that, they do not want to do that. The lender might reinstate if they can come up with the money; but they do not have any way of coming up with the money.
Even though they told you at first that they wanted to stay in their home, when you took them into the stay or vacate worksheet; the score they got pretty much concluded that they should not stay there for a number of reasons. One, they don’t have the money it’s going to take to fix up the place. Two, for them to stay there, they would be buying their home back at about $50,000 more than it’s currently market valued at. So, they are not that committed to just messing up their finances, and since they have a place to live, they’re alright with that.
You go onto explain to them that even in a good market, if they put it on the market and they were able to spend the money to fix it up, it still would take 6, 7, 8, or 9 months to sell. Even then, they might be lucky to get 95% to 97% of what it’s worth. They could also sell it “as is”, which is really the only option they have since they don’t have the money to fix it up.
They really don’t have the desire to fix it up, they’re detaching from that house. You explain that if sold it as is, their house would only appeal to someone who is either getting a really great bargain at wholesale, or an investor; but they could sell it pretty quick this way.
Then, at that point that Hank says, “But we owed a couple of hundred thousand. If you sold it for that little, well where would we get the difference? Do we need to go borrow the money?” You explain that they could, if they had credit, or they could find someone to pay the difference.
The reality is that if you try to sell it for what you owe, it would never sell. You could try to sell it for the most you can, but you don’t have the money to do the repairs. You said, “So either way we go you are going to sell it for less than you owe.”
If we did sell it, one of the things that we can do is, we can go to the lender and convince them that it’s better for them, the lender, to take a lower amount for what you owe than to try to take the property back. The lender would have to sell it themselves because in the end, whether they foreclose on the house or you sell it before it forecloses, the lender doesn’t want to own the house. They just want they money.
Now if we do the work for them, they are more forgiving. If we sell it and then we go to them and we say, “Look, we’ve sold it,” and we prove it; we may be able to negotiate a lower payoff. And of course, they ask, “Well how hard is that to get the lender to do that?” You say, “It is a lot of work but it starts with us being able to get the property sold and being able to do everything we need. We have to get the lenders to take less, but we have to get it approved. We have to show them what your finances look like, your tax returns, your bank statements, everything and if we prove it, and do what we need to do. Then as much as they are going to get hurt, they are going to take a hit; it is better for them than to go through foreclosure, and it’s much better for you.”
So, even if we do all that though there is no guarantee they will work with us; but it’s a much better end result than to just give up and let it go into foreclosure. Peggy says, “Well what about bankruptcy? A friend of ours said that maybe we should talk to a lawyer and consider bankruptcy.”
And you go on and explain to Peggy and Hank that bankruptcy may solve a problem, but it doesn’t solve all the problems; because even if you go into bankruptcy it doesn’t stop the foreclosure, it just delays it. So what most people don’t understand is by filing bankruptcy, they are only delaying the process of foreclosure.
You should talk to an attorney about that if you are thinking about bankruptcy, but if you did file bankruptcy it only delays foreclosure. After the bankruptcy is over then the property goes back into the process and then it becomes a foreclosure. A foreclosure is really bad, but a foreclosure following a bankruptcy is even worse; so that may not be what you want to do.
After you have gone through all of this, you ask them if they have anymore questions. Usually they say, “We really appreciate you telling us all this stuff, let’s do it! Let’s get going because we don’t know what we have to do; but we like what you have told us. We feel good about how you told us; you’ve been very respectful, very professional.”
Now to the paperwork, we’ve got normal real estate paperwork to put the house on the market. Then you explain again to make sure they understand, that we’re going to be putting them on the market at a price that we want to sell quick.
You explain to them that they need to be patient because our whole objective is to get it sold; so that then we can start working with the bank to lower the payment or lower the amount due. Then we can close the loan and sell it to someone else, but they will have to patient and you will keep them updated, but don’t panic.
Make sure you explain if anything happens. If you get into any legal paperwork, let them know. At this point they have pretty much hired you. You have listed the property, and you did some math and you figured if I listed for right below $120,000, you can get it sold quickly. Before you know it, you put it into the MLS and within a few days you’ve got a number of offers.
You look through the offers and you pick the one that you think is the most likely to close. It just happens to be about $4,000 over list price, $122,000 cash and you make a recommendation to Hank and Peggy that they accept that one.
Of course they are not going to get any of the proceeds; but you’ve listed it, now you’ve sold it. Now you are gathering up all the documents and they’ve gotten their tax returns for you, their pay stubs for you, the financial statement, the hardship letter, everything now is together. Once you have got all of the information, you’ve already put a call into your designated Short Sale Mentor (http://www.ShortSaleMentorClub.com) and you let them know, look I’ve got it sold and I’ve got the paperwork.
Your Short Sale Mentor walks through it all just to make sure the paperwork is right. As soon as the comfort level is there that you’ve got the paperwork, then using some of the tools to separate our pages, you fax everything to us or whoever you’re using for a third party processing party. Within a day or two of getting all the paperwork, they’ve taken all the information and they’ve done a summary review. A one pager that kind of says to the lender here is what we have got. They have got a negotiating HUD1 prepared for each of the different lenders, they have got all the supporting documents separated, and put into a very simple order with a table of contents.
They send it off to the lender, they verify the lender has it and they stay in touch with the lender until the lender moves it to the stage where they do the BPO. When the BPO is completed and finally the lender sends it to the negotiating department; then they’ll get back in touch with whoever your third party processor is and work out the final payoff. If it’s one of our folks, then they’ll go over what amount that is available to pay off the loan; because all of the expenses have to be covered including the secondary mortgage and the commission. Once all those expense are understood, all the fees everything, then they come to a final understanding of how much the lender will get, and in our case, our processing company about 98% of the time we end up at the payoff we started with.
So all of the expenses are covered and once the payoff is given, if there is two loans or there is two payoffs; then they are put together in a very easy to understand, assembled packet for you, the agent. You give it to your title company and now they can then bring together the buyer, the seller, close the deal and everyone gets paid. Once the closing happens, then Peggy and Hank have a chance to move. They get to start over. They won’t have nearly the disaster on their credit report. Their ability to enter the housing market within just a short period is there, it’s been preserved. Their house did not become a vacant eyesore to the neighborhood. It did not become ransacked. It was not destroyed.
They now have someone who took possession of the house, is putting some money into the house, and then putting it back on the open market and finding a retail buyer for it. Therefore, it was good for the neighborhood, it was good for the community, it was good for the city, it was good for the sellers, and it was actually good for the lender.