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Learn How to Make Great Wealth in Real Estate Pt3

Sean Walsh

Pre-Foreclosures Phase:
Nowadays when working with an owner in the pre-foreclosure stage, you would negotiate with him or her only if there was equity in the deal. For instance lets say that the home has a fair market price of $200,000 moreover the owner has a primary mortgage of $150,000, that means that they hold $50,000 in equity. Now if you make an offer for, let's say $170,000, the seller has the choice of accepting that bid since they only owe $150,000 which would mean they could walk away with $20,000 cash in their hand. On the other hand, if they owed $150,000 on a primary mortgage of $150,000 there isn't any equity and the seller can't sell the house for less than what is owed. In a few minutes we'll talk about how to manage the meeting with the property holder. On the contrary the question is, what if there isn't any equity in the home? Now it isn't going to do any good to attempt to negotiate with the owner of the home to acquire a low price if there isn't any insentive or equity in the transaction. As a result at this point you would probably walk away thinking that there aren't any strategies for you to engage in. Now this is where the short sale comes into play, into the pre-foreclosure stage. A short sale is a exceptionally attractive means to do property deals among the real estate investors because the opportunity to work by way of the lender to obtain the property for less than what is due. You are going to notice far greater numbers of houses that don't have any equity these day because home values have plumetted. And so this is a win/ win senario for the property holder, the lender and for you. The bank avoids a inferior loan on their books and you have produced an adequate amount of equity on the property to position it back on the market at a reduction, at a value where you can put together a income. Well here's a real life senario of a short sale deal. Let's say Mr. Homeowners property mortgage is two months delinquent and his property is in jepordy of foreclosure. The amount due on the mortgage is $100,000. The house was appraised for $105,000 in addition to other homes in Mr. Homeowners area have been selling for between $90,000 and $120,000. At this point the lender is prepared to reduce that $100,000 payoff so you make a new offer of $50,000 and bargain with the lender until a new payoff amount is in fact accepted. Now if the lender accepts your first offer, then you would have created $55,000 in overall equity based on the assessment of the home. Now once closing costs, lenders fee's and taxes are paid you still have a extremely nice profit.

What's a excellent deal?
As a rule you are going to look for people who are delinquent on their mortgage by at least two months or have a history of making late payments. You desire it be recognized that you concentrate in helping people to stay out of foreclosure plus that you can probably help them in avoiding any more damage to their credit. Now this is the purpose that you would like to drive home. YOU CANNOT!! offer them the sense that you can assist them in keeping their residence or offer them ANY MONEY at closing. Both of these can break the short sale contract and indemnify that you are in no way going to close the deal. The bank will not permit the existing owner to make a profit or refinance the house at a reduction. This is your chance to receive full control of the property or be the owner of it outright. Many homeowners will want something out of the deal. In spite of this, what they are being paid is a new begining in life devoid of an additional blemish on their credit, exclusive of the mental suffering of a foreclosure hanging over their heads and the capacity to purchase another property in a little while. Therefore asking them if they have a better answer to the foreclosure circumstances is not out of line. Every now and then the homeowner can be persistant in wanting a little cash for the house, you see, some people would rather let the property foreclose instead of having anyone else gain from it. Their ego is essentially in control. Consequently I would recommend that if you have that much opposition that you just move on to the next individual. There are a lot more people out there that you can work with. Although that I don't condon this I am conscious that a few investors agree to a small proportion of the proceeds to be given to the owner at some future time after the escrow has closed. Once more I DO NOT condon this or recommend it, as this cash is given to the owner under the table. Also, DO NOT do a short sale unless you can make at least $10,000 or more! That number is still low if you ask some investors. There are some investors that will not do a short sale unless they can make at least $30,000 in profit. Don't do a short sale if you only generate $3,000 to $5,000 the risk is overly great and your margins are too thin. A excellent target for you to shoot for would be to submit one offer to a bank per week, of course that's four a month. Now once you get the hang of it, it's not doubtful that you will pick up one out of four offers that you present. It's not a good idea that you present more than five offers at a time since eventually the paperwork and all of the phone follow up that your going to have to do could be overwhelming. If you have a partner or an assistant you will obviously cope with more, but do the numbers and pace yourself based upon what you feel you can handle.

Finding Distressed Howeowners:
We're going to be looking at some low price advertising that will help you uncover pre-foreclosures without any equity. To begin with we'll chat about are signs. A excellent way to promote is 18" X 20" corigated plastic signs, they don't have to be that size, nevertheless it's evidently very difficult to miss a sign like that. Some people simply use vivid yellow or orange color paper with black lettering on it. You want to position these signs wherever there's dirt to put them in or perhaps a pole to suspend them on. It's best to position these signs in neighborhoods of heavy traffic or where people drive at minimal speeds. You will need wooden stakes or else wire stands to make your signs. The signs can be one or two sided, obviously the two sided signs are more pricey but if you set them in the right places they will be doing two times as much work. The signs just need to say something like "we buy houses" or "avoid foreclosure" with a phone number to reach you. Now verify with your local sign shop then check what it would cost for you to do signs maybe in bulk, they frequently would offer you a break. Here are just a few more suggestions of what to put on your signs. $$ SELL YOU HOUSE IN 9 DAY $$ (PHONE ONE NUMBER) posted on a "no parking sign". $$CASH FOR YOUR HOME$$ (PHONE NUMBER) on a pole shaped like a STOP SIGN. Thus you see they don't have to be something that's brilliant. It's really very plainly revealing what your doing.

Let's Talk a Little About Flyers:
Flyers are an extra affective means to advertise. Grocery store parking lots, local mom and pop stores, home and garden stores, or some place else where you can post a flyer or leave a stack for people that come in and out to pick up. Make an effort to create a affiliation with a business owner or perhaps managers and advise them that you will assist local homeowners avoid foreclosure and would like to leave several flyers or business cards. You can even offer them a referral fee if they happen to refer somebody to you. You might assign a reference number for each store as well as put that number at the top of the flyer and give that owner or manager say something like a $100 referal fee for each transaction that you close that is attached to the store number. That's not a bad idea. Furthermore we talked about advertising in the newspaper. Nowadays no doubt you have seen ads in the classifieds as well as your local paper saying something like "we buy houses for cash" or "we buy houses quickly". These can be placed in your daily newspaper or your weekly newspaper like The Nifty Nickle. The daily newspaper can be fairly pricey nevertheless the weekly newspaper seems to be far less expensive. You additionally may see other investors advertising. Plus it's a good suggestion to follow these ads and just notice how long they stay in and find out if that phone number is in other publications. I might even go so far as to propose that you call them up and introduce yourself to them and ask if they pick up lots of answers to their classified ad or if they have extra houses that they can't handle if they would like to call you for them and visa versa. If you get to many properties to handle if they might be interested. Right away this is a appealing ploy as it gives you an opportunity to talk to your opposition plus in a lot of cases you can ask them questions about their business. So it's kind of an appealing little dialogue back and forth.

The Profile Sheet:
Every time you are meeting with a person that is in foreclosure whether they have equity or not you are going to want to go through the same discovery process. Now I advise that you generate your own form so that you are comfortable with the questions. Many pre-printed forms have awkwerd questions that you may desire to change with say words or other questions that you feel more comfortable with. Here are several suggestions of some of the questions that you might pose, simply, name, phone number, address, asking price, contingency plan if it does not sell, what loans are on the property, what's it costing for the taxes or insurance, if they are current or maybe delinquent on their mortgages, the square footage, number of beds, number of baths, and parking spaces. When you are making your own up you don't need to get very elaborate, nevertheless again, perhaps you have questions that you would more readily ask. Now it's a good idea to ask these questions in a everyday manner, not as if you were a drill seargant. So use this form everytime you are going to be talking with them, whether it happens to be talking with them on the phone or meeting with them in person. And let me simply say typically your not going to be going over this whole form on the phone you're going to be making a decision whether it's worth while to go out and see the person and perhaps finish the form when you go out. Currently if the homeowner is facing a possible foreclosure, they will often let you know that they are in arrears on their payment or have received calls or letters from their lender. You let the person recognize that you MAY be able to work out some situation with their lender to postpone or possibly even to prevent the foreclosure. Now if you are talking to them by phone ask to setup an appointment to investigate the property as fast as possible. I typically request to come to see the property on the same day I essentially talk to them. If you don't they might talk to another investor. If you can't get together with them that same day ask them to please not speak with anyone else until you can site down face to face with them. Frequently homeowners will agree to your request and be very open minded when they essentially meet with you.

Meeting with the Homeowner:
As soon as you receive a response from someone in a foreclosure you are going to need to meet with them as soon as feasible. Ask them to have the following information available. First is the foreclosure letter from the bank or the attorney's office, their payment book for the mortgage and insurance policy, the information on any liens or judgments on the home, their most recent paystubs, their bank and retirement statements, along with W-2 forms. Before you go to the meeting you want to find out what loans and liens are against the property and we do that by going to the county recorders office. You do this to protect yourself because the owner is not always apparent on what they owe. When you are inside it's not so much what you say, it's just LISTENING TO THEM. At this point you might need to start off by asking them "what lead them to getting behind on their payments" and this will get them talking. People are looking for someone to talk to, to relate their story to, and possibly a shoulder to lean on. Now after getting this information, TELL THEM what you can accomplish for them. You need to say something similar to "our solution is to save their credit and have them cooperate with you to get the bank to release them from the property". So you say "we will negotiate with the bank to release them from the property, their credit will not be damaged to the point that they can't obtain a home to live in and make a fresh start" and you'll say something like "we will buy the house in as-is condition for a fair price". Try talking to them like a brother or a relative faced with the same problem. Before you depart your office make sure that you have every part of the necessary paperwork that you are going to need. First of all you need an Authorization to Release form, which provides you with the power to speak with the lender about the account. Second, a Quick Claim Deed, and third, a Purchase Contract. Consequently make certain that you have these with you before you leave. If the homeowners eager to get all the paperwork out of the way, then pull these documents out. Don't push, however attempt to take advantage of the occasion while you are there if feasible to get around having to make an additional trip to meet up with the homeowner. Upon entering the house take a tour of the property paying particular attention to the state of the residence. Look for anything that requires repair as well as carpet and paint. Thorughly examine the walls and ceiling for water damage, ask the homeowner if they are conscious of any additional or essential repairs? The more repairs necessary the better allowing for a bigger discount. Also notice any improvements that the homeowner might have completed. Here's a short sale tip, your going to need to take pictures of all the areas that require work to remit to the lender so that you can have them see the work that's needed. Be of assistance to convince them that the home is not worth what the borrower owes. Feel out the circumstances as best as possible. After you have inspected the whole residence, inside and out, sit down with the homeowner and let them understand that the whole progression could take up to 90 days, but you will perform your due diligence to make sure that the process moves along as fast as possible. Get the Authorization to Release form signed and notify the homeowner that you will submit the Authorization form to the lender and request a short sale package. Communicate openly with the homeowner, advise them of the next step and that you will be in contact shortly after your have received the requirments for the short sale package. After you leave the homeowners residence without delay fax the signed Authorization to Release form to their lender. It will take at least 24 to 48 hours for them to get your request into the system. After you have been authorized to speak with the loss midigation department, that also could be called the collection department or loss revenue or even the foreclosure department. Have them fax you a short sale package. If they want to know who you are simply tell them that you are the borrowers advisor, it should not go much further than that. Once you receive the short sale package start preparing the necessary items for submission. If you have given the homeowner the appropriate documentation needed. Next are the required items for a short sale package for the borrower and the investor for most short sale dealings.

The Borrowers Responsiblity:
This is the homeowners, first of all they have to create whats called a hardship letter this explains the actions that lead to the homeowners economic hardship. It's recommended that it be hand written as opposed to a type written letter. You don't need the letter to be too formal, what you write down shows that it comes from the heart. In some cases this may be hard for the homeowner to do so you might operate as a scribe writting this information down and putting it together for them. Next, paystubs, usually two of the most recent will do. Rarely the lender will ask for more. You want bank statements or any brokerage statements, again, the most recent bank, retirement or brokerage statements. They usually will ask for the borrowers saving and checking statements in addition to tax returns, meaning the most recent W-2 form is needed. So those are all the things that the borrower has to put together.

The Investor's Responsibility:
That's you, first of all you have to have a pre-approval letter, that's a letter from your lender saying that you have been pre-approved for the short sale amount, second, a Quick Claim Deed, your going to want this signed by the seller showing that they gave you the house. You don't want to record it, big thing DON'T record it. The third thing is your offer to purchase. This form is signed by you and the homeowner for the new proposed discounted mortgage. Now I suggest that you start off by discounting the property anywhere from 30% to 60% of the original listed price depending on the condition. Also the amount that is typically accepted as a discount payoff will depend upon the kind of loan and the motivation of that particular lender as well as comparables. Simply send comparables that can substantiate the amount of the new payoff. So if your offering $60,000 for a home it doesn't make sense to send in comparable that are $90,000 to $100,000. This might need a little tad of digging to be able to do this moreover this is where the maintenance come into play. As soon as you have this data accomplished you are now ready to make your offer to the homeowners lender. Make certain that you develop a sense for how each mortgage company does business, since some lenders are easier to work with than others. You are going to find that several are extra responsive and accessible than others. Several are sensible and a few are impolite, some will fax you a package right away and some won't. If you are persistant and inventive the lenders are extra likely to work with you, so have a plan to succeed. At all times have numerous backup plans and be familiar with how you are going to carry out each one of those plans, this will come naturally as you do more of these transactions.

The Brokers Price Opinion:
Now the Brokers Price Opinion or BPO, is no more than an estimation by a licensed real estate agent and they are usually the younger agents who are hired by the lender. These are commonly less experienced realtors for the reason that they don't shell out a whole lot for these BPO's. The realtor runs comparables in the neighborhood and inspects the condition of the home. They give an "as-is" value for the property and submit the report to the lender. These figures will help the lender to establish how much they will agree to as a reduced payoff. The person handling the BPO might even inquire if you are the point of contact to allow admittance to the residence. With any luck this is the case, you definitly need to be the point of contact. As soon as you meet the realtor be prepared to justify why the house is not worth what is owed on it. You might even contemplate bringing your own comparables and any other proof that states your case. Ask them to tell you what the as is value will be. You may or may not get this information but if you do this you will acquire the control that you need to compose a solid offer. The BPO works in the lenders best interest therefore be equipped for some opposition when asking for this information. Most importantly make certain that you ask because you haven't got a whole lot to loose here.

After The Paperwork has been Submitted:
Once the paperwork has been submitted to the lender it's a waiting game. You may attempt to call them up two or three days after the proposal just to see if the lender requires anything. As you can see the homeowner must prove that they are impoverished enough to qualify for a short sale. If they have sufficient assets in the bank account or brokerage account to make up the short fall the lender will pursue those assets in correcting the problem. The other obstacle is to justify the lower bid that you have submitted for the house. The standing rule of thumb is to offer 50 cents on the dollar for short sale houses. Rarely will that offer be accepted unless you can demonstrate there is a tremendous amount of repairs needed on the property. This is where you need to bring all your guns out and document why you offered what you submitted with comparables that confirm your offer along with estimates for repairs in addition to of course the labor. Take pictures that bring to light the worst of the house then keep your fingers crossed, you never know what the lender is going to do. If the lender has detained the house for an extended period of time, you might just have your lower offer accepted! Now in some regions realtors in fact handle these short sales. This means all they have to do is email you the short sales that are listed in the MLS. Realtors have to go through the same regimen that we a moment ago mentioned above, however, they do most of the work for you. The realtors are paid by the lender as a result it doesn't impack your purchase price very much if any at all.

Assignment:
The assignments for the first week are to identify which phase of the foreclosure market you desire to work. Make a decision how your going to in reality find these foreclosures and identify at least two exit strategies. Well we've come to the end of this section and you will love the next piece of this article. The next portion is going to be on REO's, that's the Real Estate Owned, How to work the REO's. Please visit my website at for all the courses on Real Estate investment. The great thing about it is it's FREE!

To your success!!

Sean Walsh

Source: Articles Universe: http://articlesuniverse.com

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