How to Work in Foreclosures and Short Sales
Find out what it takes to succeed when working with distressed sellers in a foreclosure or short sale situation.
The trend of mortgage foreclosures began about 6 years ago, when zero-interest loans and other enticements were pulling previously unqualified individuals and families into homeownership.
Eventually, most homeowners facing foreclosure resign themselves to the fact that they're going to have to sell their home, and at that point I list their property for sale. We discuss options, such as a short sale, or lenders willing to take less than the balance owed on their homes. I explain that even the most complicated problems can be solved through solid negotiations and perseverance.
Listen Up: Many times, sellers don't even know they're in a short sale situation. Other times, they just don't know what to do. One way to fail quickly is by turning on your hard-sell tactics and dictating to your customers, particularly if you're working with sellers.
Understand that most of these people are in financial distress and possibly dealing with a life-changing event such as a death in the family, a divorce or a job loss. They probably want to keep their home, but have no idea how. They are being barraged by phone calls and letters, and are wondering where they will be living a month from now. To handle these tough situations, I first listen to the issues and let the home-owners vent. I never pass judgment. And I don't talk about my services or myself at all; instead I just pay attention and ask follow-up questions when appropriate.
Become Educated: What the average real estate professional lacks in this market sector is knowledge about how foreclosures work and their role in helping owners or buyers get the best possible solution. You should attend classes, find mentors and read up on the process online and in trade journals. Short sales require a high level of knowledge about the inner workings of these deals. The more you know, the easier it will be to see these transactions through.
Form bonds with mortgage brokers, bankers, lawyers and other real estate professionals, all of whom will refer business your way if they know that you can help their customers navigate the foreclosure waters. And once you've helped someone out of that situation, expect to see a constant referral source of business both from the seller (who will eventually buy another home and look to you for help with that acquisition) and from his or her family and friends.
Gary Ross is the Managing Director of Florida Luxury Home Liquidators in Stuart, FL. A Real Estate Investor since 1987, he expects to close 75 transactions this year, at least 50 of which will be foreclosures or short sales. Gary is also affiliated with Florida Luxury Homes Inc., a firm that negotiates debt and coaches sales associates, brokers and buyers/investors on how to work in those markets.
4 KEYS TO LOSS MITIGATION
The BPO Appointment (EVERY THING HINGES ON THE BPO)
The loss mitigator needs to know that you are the contact for the BPO agent, and that you have access and can get into the property quickly.
Interior vs. Exterior BPOs! Dealing with the Appraiser
If the file is complete, there is a good chance that an order for an interior BPO will happen quickly. BPO,s do not reflect the seller's situation. If the property is occupied, inform the seller and confirm that you have access.
Lender Characteristics!
Keep an eye out for loans with the following companies: ASC, CIT Group, Option 1 and OCWEN. HSBC will file deficiency judgments. Countrywide takes almost 30 days just to set up a file in their system. When you call the loss mitigator to discuss your short sale offer make sure to ask "Who owns the loan?" Below is a list of reasons why:
FDMC will not allow the buyer of a short sale property to be anyone but an individual. The buyer on the P&S agreement and HUD 1 cannot be Inc., LLC, LLP, ect...
For VA, FNMA, CONVENTIONAL, FHA SHORT SALES: Buyer can be any entity, company, person or trust, occasionally the bank may require written proof of company or trust but it's rare Below are the percentages of the BPO that banks must NET under these loan types as a minimum. The bank negotiator will try to negotiate the buyer to increase their offer, but you need to hold firm at these net numbers.
VA 88% / FHA 82% / Freddie Mac and Fannie Mae 92% / Conventional average is 85%
FHA loans require two additional forms to be completed by the seller. The two forms are the "Application to Participate" and the "Counseling Certificate." These documents must be signed and dated by the seller.
Final Short Sale Approval!
Once a BPO has been completed it will take anywhere from 2 -7 days for the BPO/appraised value to get back to the lender. Many lenders have an internal appraisal review department. These departments are set up to re-evaluate the completed BPO. The internal department may double and triple-check It is important to check with the loss mitigator every 2-3 days. Be "pleasantly persistent." If they do not answer - which is often the case - leave a message.
Keeping it all together!
.As you negotiate more deals you realized that each deal had several of the exact same characteristics with just a few minor adjustments. The name of the seller and the bank might have been different but the process on each deal is the same. You may need help!
Gary Ross
