Newsletters

By:  Speare Valasakos

With the cooling of the real estate market, the meltdown of sub-prime loans and over $1 Trillion worth of loans scheduled to reset in 2007, the number of homeowners that find themselves in foreclosure has skyrocketed. 

As real estate professionals we are seeing more and more people in foreclosure that are upside down in their properties.  They owe more on their loans than the property is worth. Unfortunately, many agents today do not know how to help these people.  Some may have heard about a short sale but don't have the expertise to successfully complete one.  Most agents struggle with short sales because they have not learned how to effectively manage the process.

In our advanced Pre-Foreclosure/Short Sale Certification training, we instruct our students to break down the short sale process into three steps.  By breaking the process down it helps the student focus on the important elements for completing each step.  Once each step is mastered, the short sales process becomes systematic and easier for the student to successfully complete a short sale.

The 3 Steps to Short Sale Success Are:

Step One - Qualify the Property:  The first thing to do when assessing a potential short sale is to take a detailed look at the property.  You must reconstruct the chain of title.  List all loans/liens in order or priority (1st, 2nd, 3rd, etc.), then determine the rights of each position.  Are the loans recourse or non-recourse?  If any loan/lien is in foreclosure, you must create a separate foreclosure timeline for each one.  While these terms may be unfamiliar to some, the key to becoming a short sale expert is learning and understanding the rights of each lien position.  Once you have a snapshot of the property's title you can lay out your game plan on how to attack the short sale.  Having this knowledge will give you an edge in successfully completing a short sale as well as becoming a power negotiator when discounting liens.

Step Two - Qualify the Homeowner:  Many agents' short sales fall apart because they do not have the cooperation of the homeowner or they try to put the short sale package together at the last minute.  It is important before you take a listing to educate the seller that you need their cooperation in order for the lender to approve the short sale.  They must understand that they will have to provide you with current financial information necessary to complete the lender's workout package.  You want to gather this information early in the process so there are no surprises in the end.  Some lenders will allow you to submit this information before you get a buyer's offer; others will only look at it with the offer.  Either way this saves you valuable time in getting your short sale package submitted and approved.

In addition, you need to determine:  (1) does the owner have a hardship that will qualify for the short sale; (2) does the owner have any assets; and (3) will hardship or assets be a factor in negotiating the short sale?  Many agents mistakenly believe that an owner needs to have no assets to qualify for a short sale.  In California, we have been successful in closing short sales with clients that have assets.

If the lender's loan is non-recourse, which means the lender cannot legally pursue the owner for any deficiency amount, we gently remind the lender that the owner is not liable for any loan shortage and it is in the lender's best interest to accept the short sale.  The seller's assets are not a factor if the loan is non-recourse.

If the loan is recourse, which means the owner is personally liable for the loan shortage, we remind the lender that to pursue the owner, it would have to file a court action which is time consuming and expensive.  In our negotiations we may agree to have the owner execute a separate promissory note for a portion of the shortage, but it is usually for less than 50% of the unpaid balance of the loan.

Step Three - Qualify the Buyer:  Many short sale transactions fail because the buyer's offers are not properly structured or packaged for the lenders to accept the offer.  Educating the buyer or the buyer's agent on how to submit the offer to increase the chances that the lender will accept the short sale, saves valuable time and effort, and streamlines the approval process.  Here are some of the things to remember with offers:

Verification of Funds and Loan Pre-Qualification.  You will greatly increase the lender's comfort level with the offer by showing that you have a buyer that can perform on the contract.  You want to include with the offer and in your short sale package a Verification of the Funds needed from the buyer to close the sale. This includes the down payment and any additional cash required at closing including closing costs.  Usually a copy of a bank statement or other documentation showing that they have the money to close should be sufficient.  You also want to include a Loan Pre-Qualification or Approval letter showing the buyer's ability to obtain the loan necessary to close the sale.

Clean Offers.  Remember that the lender is taking a loss in approving the short sale.  To improve the odds of the lender's approval, the offer needs to be clean without excessive contingencies and concessions.  For instance, an offer can be contingent on buyer's loan approval and obtaining clear title, but an offer contingent upon the sale of buyer's property is a red flag to the lender. With concessions, requiring the lender to pay a small amount of the buyer's closing costs would be reasonable, but large repair requests or extras such as a home warranty would most likely be rejected by the lender.

Keeping the Buyer Informed.  Many buyers do not fully understand the process involved in purchasing a short sale property and will walk away from the sale before it is complete.  Educating the buyers upfront and keeping them informed along the way will help keep your transaction together.  Today, loss mitigation departments are light years ahead in reviewing short sale requests than in years past.  If you have assembled your short sale package correctly and followed the steps outlined above, you should be able to get a short sale approved in 30 days or less.  However, in some instances, lenders may still take up to 60 days or longer to approve a short sale.  This is unsettling to many buyers.  Educating them that the short sale process takes time, as well as reminding them of the benefits of foreclosure purchases, such as purchasing a property at below market price, should help alleviate any buyers' fears.

In some states when qualifying the buyer, you need to determine if the buyer is an owner occupant or investor, and if there are any additional forms needed to keep your transaction legal.

In California, there are foreclosure laws that apply to pre-foreclosure purchases (check your own state laws) California Civil Code §1695, known as the "Equity Purchasing Law," applies to any non-owner occupant purchaser of a residential property in foreclosure.  This is not the format to detail the law, but there are very strict guidelines that must be adhered to and special forms that must be used.  

In California because of bonding requirements, an agent cannot represent non-owner occupants.  The California Association of Realtors has created forms where the buyer's agent must terminate his/her agency with the buyer and receive compensation as a referring agent.  As you can image, most agents and investors do not understand these laws and become frustrated.  Again, your job is to educate them upfront to keep your transaction on track.

In my opinion, we have just hit the tip of the iceberg of the increase in foreclosures.  For those of you that decide to specialize in foreclosures, the future looks bright.  You can become expert in short sales transactions in no time by breaking the process down into three manageable steps.  If you would like more information on additional foreclosure training go to www.frontlineseminars.com

Order the freshest leads from any Default Research county for six or more months and receive a free copy of, “The Pre-Foreclosure Real Estate Handbook: Insider Secrets to Locating and Purchasing Pre-Foreclosed Properties in Any Market.

Quality Direct Mail Can Be Your Key Success Factor In Pre Foreclosure Investing

Default Research offers our clients the freshest foreclosure leads in the business and we also want you to know your approach to helping families in foreclosure also needs to be fresh.  The Default Research direct mailing lists are most effective when they are combined with eye-catching materials and winning strategies to help families in distress. 

Easier said then done, right?  No, you can actually make marketing your foreclosure business pretty easy.  Unique postcards that show off your originality are an easy way to grab your customer’s attention.  Postcards also make it easy on the home owner to see your effective solutions without even opening a letter.  Finally, make it easy on your wallet.  Postcards are less expensive to mail and very inexpensive to print.

You also must be right on the money when it comes to persistence.  We recommend a minimum of three to four mailings (use a different postcard each time) followed with a phone call when sending your postcards.  It is important to keep in mind that while you want to get a response from the homeowner, being overly persistent will yield a negative response.

Persistence means mailing up to four postcards and you can get pertinent information by tracking each postcard.  Make sure to include a promotional code on your postcard or letter to track which marketing message is most effective. 

Here are a few more tips to make sure your postcard mails home the message to the family in distress that you are the best person to help them avoid foreclosure!

• Use key words to show your professionalism and knowledge of the foreclosure industry

• Full color postcards are a full proof way to catch the customer’s eye

• A thick glossy coat will make you shine

• Your logo should be on both sides of the postcard

• A toll free number is money in the bank

Those are all of the “do’s” for postcards.  Now here is the No. 1 “don’t” when it comes to postcards: DO NOT USE TEMPLATE POSTCARDS.  These unoriginal postcards will yield little response and might have a negative impact on your company in the long run.

A solid marketing game plan and postcards are positive steps towards success in the foreclosure business.  By integrating the above information into your marketing plan, you can achieve the highest response rates from our pre foreclosure listing data..

"Imagine Being Able to Consistently Get Seller's To Sell At A 20% to 50% Discount!"

There’s no end in sight to the avalanche of foreclosures, which in turn creates a multitude of buying and re-selling opportunities for savvy Default Research investors. Before you can help a family in distress, it is very important to understand what caused these seemingly innocent borrowers to find themselves in such desperate straights.  With this important background knowledge and the freshest foreclosure leads in the business, you will be even more successful when dealing with these mortgage holders and have a better understanding of what led to this nationwide dilemma.