Short Sales Foreclosures Re Os Instructor Power Point V3
1. REVISED EDITION
Breakthrough to Mastery
An Agent’s Guide to
Short Sales, Foreclosures, and
REOs
Master the Market of the
Moment
2. 2An Agent’s Guide to Short Sales, Foreclosures, and REOs
Main Ideas
1. Perspective
2. The Foreclosure Process
3. Short Sales
4. Foreclosures
5. Real Estate Owned Properties (REOs)
6. The Bottom Line
3. 3An Agent’s Guide to Short Sales, Foreclosures, and REOs
Perspective
Opportunity Exists
Dropping home prices can lead to defaults
and foreclosures
Foreclosure creates needs
» Homeowners
» Investors
» Financial institutions
» REO listing agents
Look to your local market
Pages 7-8
4. 4An Agent’s Guide to Short Sales, Foreclosures, and REOs
Perspective (continued)
Are You Able, Ready, and Willing?
“These skills can be mastered—
but they will take time.”
Dave Jenks
Keller Williams Realty International
Page 10
5. 5An Agent’s Guide to Short Sales, Foreclosures, and REOs
Perspective (continued)
Short Sales, Foreclosures, and REOs
Require
» Leveraging systems, tools, and people
» Time
» Acceptance of risk
Page 10
6. 6An Agent’s Guide to Short Sales, Foreclosures, and REOs
The Foreclosure Process
Three Phases of Foreclosure Process and
Three Areas of Business Opportunity
Preforeclosure Short Sales
Public Auction Foreclosures
Postforeclosure REOs
Page 11
7. 7An Agent’s Guide to Short Sales, Foreclosures, and REOs
The Foreclosure Process (continued)
Phase 1:
Preforeclosure
Short Sales
Phase 2:
Public Auction
Foreclosures
Phase 3:
Postforeclosure
REOs
1. Homeowner
misses loan
payment.
30 60 90 120
150
180
210
240
270
300
330
360
390 days
2. Late
charges
begin
accruing.
4. Notice of
Intent to
Foreclose
publicized.
5. Auction
6. Redemption
Period
7. REO3. Lender
sends
Notice of
Default.
0
Pages 12-13
8. 8An Agent’s Guide to Short Sales, Foreclosures, and REOs
Defining the Three Areas
1. Short sale
2. Foreclosure
3. REO
The Foreclosure Process (continued)
Page 14
9. 9An Agent’s Guide to Short Sales, Foreclosures, and REOs
The Foreclosure Process (continued)
Why Do Properties Go into Foreclosure?
1. Subprime loan
2. Unable to refinance
3. Zero-down loan
4. Loss of income
5. Unexpected events
6. Market shifts
Pages 15-16
10. 10An Agent’s Guide to Short Sales, Foreclosures, and REOs
The Foreclosure Process (continued)
Potential Challenges and Rewards
How can you set yourself apart
from the myriad of ads and calls
proposing questionable
schemes?
What challenges and rewards
do you foresee?
Page 16
11. 11An Agent’s Guide to Short Sales, Foreclosures, and REOs
The Foreclosure Process (continued)
Other Options
1. Forbearance
2. Mortgage modification
3. Refinance with an FHA-backed loan
Advise the homeowner to contact their
lender immediately.
Page 17
12. 12An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales
The Win-Win
Six Key Sources
Qualifying Short Sale Candidates
Additional Considerations
Eight Steps to a Short Sale
After the Short Sale
Are You Able, Ready, and Willing?
Page 18
13. 13An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
The Win-Win
Truth
A short sale can be a win-win for the agent,
the homeowner facing foreclosure,
and the lender.
Pages 19-20
14. 14An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Six Key Sources
1. Your Solutions-Based Unique Selling
Proposition (USP)
2. Notice of Default Lists
3. FSBOs
4. Listing Appointments
5. Lenders
6. Public Notices of Auction
Pages 21-23
15. 15An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Qualifying Short Sale Candidates
1. Market pricing must be less than the loan
amount.
2. The homeowner must be financially
insolvent.
3. The homeowner must demonstrate a
hardship.
4. The homeowner must be cooperative.
Pages 24-26
16. 16An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Additional Considerations
1. Bankruptcy
2. Private Mortgage Insurance (PMI)
3. Imminent foreclosure date
Page 27
17. 17An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
The Eight Steps to a Short Sale
Step 1 Gather Information
Step 2 Open Communication
Step 3 Develop the Proposal
Step 4 List the Home
Step 5 Obtain an Offer
Step 6 Submit a Proposal
Step 7 Negotiate the Deal
Step 8 Close the Deal
Page 28
18. 18An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
“The selling and communication cycle
in a short sale is long and tenuous. You
cannot wing it. But if you stay with it, if you
nurture this skill set, you can become
an Opportunity Warrior in
a challenging market.”
Dave Jenks
Keller Williams Realty International
Page 28
19. 19An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 1: Gather Information
1. Proof of income and assets
2. Proof of hardship
3. Property information
4. Loan information
Short Sale Checklist–
Information Gathering
Pages 29-31
20. 20An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 2: Open Communication
1. Obtain and submit authorization
2. Initiate communication with lender
a) Short sale application packet
b) Name and direct number of decision maker in
Loss Mitigation Department
c) Information about their policies
3. Systematize communication
Short Sale ContactRecord
Pages 31-33
21. 21An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 3: Develop the Proposal
1. Information from “Step 1: Gather
Information”
2. Business case for accepting a reduced
price
Short Sale Proposal
Packet Checklist
Pages 33-34
22. 22An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 4: List the Home
Develop a pricing strategy
Educate the seller
Considerations
» List home “as is”
» Enter “Short Sale” in the agent remarks on the
MLS (if optional)
» Indicate “variable commission–split with
buyer” on the MLS
Pages 35-36
23. 23An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 5: Obtain an Offer
Determine lender’s requirements
Ask potential buyers for their best offers
Give the lender the best offer
Seller should approve offer
Lender will order a broker’s price option
(BPO)
Educate the buyer
Short Sale DisclosureExample
Pages 36-38
24. 24An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 6: Submit a Proposal
Add the offer to the proposal
» Create a proposal for each loan
Send it by registered mail to all
appropriate contacts
Follow up
Be persistent
Page 38
25. 25An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 7: Negotiate the Deal
Balance negotiations between
lenders if more than one lender
Create systems for communication
Consider leveraging help
» Services are available to negotiate
Short Sale ContactRecord
Pages 39-40
26. 26An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Step 8: Close the Deal
Complete the deal within thirty days of
lender acceptance
Prepare so there are no surprises at the
closing
» Seller cannot bring cash to the closing
» Alert the closing company
Pages 40-41
27. 27An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
After the Short Sale
Ask the seller for a testimonial
Put the seller in your Met Database
Put the seller on a 33 Touch
Page 42
28. 28An Agent’s Guide to Short Sales, Foreclosures, and REOs
Short Sales (continued)
Are You Able, Ready, and Willing?
What systems, tools, and people
can you leverage to master
short sales?
Page 43
29. 29An Agent’s Guide to Short Sales, Foreclosures, and REOs
Foreclosures
Develop a Criteria Filter
Buying at Public Auction
Are You Able, Ready, and Willing?
Page 44
30. 30An Agent’s Guide to Short Sales, Foreclosures, and REOs
Foreclosures (continued)
Develop a Criteria Filter
1. Location
2. Type
3. Economic
4. Condition
5. Construction
6. Features
7. Amenities
Pages 44-45
31. 31An Agent’s Guide to Short Sales, Foreclosures, and REOs
Foreclosures (continued)
Buying at Public Auction
Benefits
» Great deals
» Possibly one lender
Challenges
» Pay at sale or soon afterward
» Sold “as is”
Pages 45-46
32. 32An Agent’s Guide to Short Sales, Foreclosures, and REOs
Foreclosures (continued)
Are You Able, Ready, and Willing?
How can you leverage systems,
tools, and people to increase
your knowledge of foreclosures,
and to solidify your relationships
with investors?
Page 47
33. 33An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs
Breaking into the Business of REOs
Services That Listing Agents Provide in
Working REOs
Leverage Great Administrative Help
Break into the Business of Servicing REO
Buyer Leads
Educate Your Buyers
Are You Able, Ready, and Willing?
Page 48
34. 34An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Breaking into the Business of REOs
1. Apply to a lender or asset management
company
2. Leverage relationships
Pages 49-51
35. 35An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Services That Listing Agents Provide in
Working REOs
1. Put a notice on the front door
2. Negotiate “cash for keys” or CFK
3. Accompany the sheriff on evictions
4. Secure and rekey the property
5. Clean the house
6. Repair the home
7. Pay utility bills
8. Manage the property
Pages 52-53
36. 36An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Services That Listing Agents Provide in
Working REOs
Complete tasks quickly
Watch your accounts receivable
Pages 53-54
37. 37An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Leverage Great Administrative Help
“There is a lot of pressure in REO that you
might not get in the residential side. We have
very demanding clients who are always
threatening to take our business away. But we
love it .… Once you get your name out there,
the business just starts coming.”
Angela Larson
Roseville, Minnesota
Page 55
38. 38An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Break into the Business of Servicing REO
Buyer Leads
REO listing agents focus on REO listings
Get into relationships with REO listing
specialists
Pages 56
39. 39An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Educate Your Buyers
Buyer may have to be patient
Lenders don’t consider emotional letters
Lenders are looking for the cleanest and
easiest deals
Contract requires additional paperwork
Title will be clean
Pages 56-57
40. 40An Agent’s Guide to Short Sales, Foreclosures, and REOs
REOs (continued)
Are You Able, Ready, and Willing?
What systems, tools, and people
can you leverage to master
REOs?
Page 57
41. 41An Agent’s Guide to Short Sales, Foreclosures, and REOs
The Bottom Line
Some markets have a growing need.
You can succeed!
Prequalify yourself first.
» Can you leverage systems, tools, and people?
» Can you devote time to developing these skills?
» Can you accept a level of risk?
Page 58
42. 42An Agent’s Guide to Short Sales, Foreclosures, and REOs
Productivity Boosters
Market With Your USP
Stay in Touch After the Short Sale
Page 59
43. 43An Agent’s Guide to Short Sales, Foreclosures, and REOs
My Action Plan
Don’t put away this guide without
developing a plan to put what you have
learned into action!
Refer to the Action Plan on pages 60-63 of
the guide to assess your strengths and
areas for improvement.
Write down steps you will take to improve
your skills—complete it, share it, and
commit to it!
Pages 60-63
44. 44An Agent’s Guide to Short Sales, Foreclosures, and REOs
Take the other courses in the
Breakthrough to Mastery Guide series!
Gaining Mind over Market
Upshifting Your Lead Generation
Seller Pricing Strategies
Seller Staging Strategies
Lead Capture and Conversion
Internet Lead Capture and
Conversion
Creating Urgency to Buy
Bulletproofing Transactions
Expense Management
Effective People Leverage
Financing Solutions
45. 45An Agent’s Guide to Short Sales, Foreclosures, and REOs
Thanks for being here!
Please complete an
evaluation for
this session.
Notas do Editor
Version: 3
Revision Date: August 2008
Note: For maximum impact all attendees should have their own copy of An Agent’s Guide to Short Sales, Foreclosures, and REOs.
When the housing market shifts to a buyers’ market, home prices will typically drop. If the drop is coupled with imprudent lending, some homeowners may find themselves upside-down, or unable to sell their homes for their loan amounts. This friction between home prices and loan amounts can cause defaults and foreclosures.
Short sales, foreclosures, and real estate owned (REO) properties create needs that are best met by the professional skills of a real estate agent. In these business areas
homeowners need the help of a professional to alleviate their financial crisis;
investors need a professional to help them navigate the choppy waters of auction sales;
financial institutions need a professional to help them quickly improve their books by rapidly selling a well-priced property ; and
REO listing agents need someone to handle their REO buyer leads.
When the number of foreclosures in a market grows, the need in each of these areas grows. Like many aspects of real estate, you must look to your local economy to determine if your market has growing or decreasing needs in these areas.
You can do this. You can learn the ins and outs of short sales, foreclosures, or REOs. And you can use these skills to build a business that has a robust life of its own. But before you commit yourself and your business’s energy, pause for a moment to ask yourself if you’re able, ready, and willing.
Essentially, you’ve got to prequalify yourself. Short sales, foreclosures, and REOs require
leveraging systems, tools, and people;
time; and
an acceptance of risk.
You wouldn’t jump into your car with someone who absolutely did not want to buy a home. It would be a waste of your time—time that can’t be recouped. You prequalify in order to spend your time wisely. You’re doing the same thing when you evaluate whether these areas are a good fit for you and your business.
Foreclosure isn’t an event—it’s a legal process. In FLIP: How to Find, Fix, and Sell Houses for Profit, Rick Villani and Clay Davis write that foreclosure is: “[a] legal process in which a lender takes the title or forces the sale of a property as a result of the borrower’s failure to comply with the terms and conditions of the mortgage.”
There are three distinct phases of the process which align to the three areas of business opportunity.
Phase 1: Preforeclosure. The time line for foreclosure will vary from state to state and from lender to lender. It typically begins with the homeowner’s first missed payment.
The lender will begin adding late charges and may call or send collection letters 16–30 days after the first missed payment.
Approximately 45–60 days after the missed payment, the lender will notify the homeowner that the loan is in default. Usually, the homeowner will have 30 days to send the missed loan payments plus late fees to avoid foreclosure.
After about 90–105 days, the lender will send the homeowner a Notice of Intent to Foreclose. This notice initiates the legal proceedings of foreclosure and is usually made public.
Phase 2: Public Auction. Depending on the state, the home will be offered at auction after 150–415 days from the first missed payment.
Phase 3: Postforeclosure. Depending on the state again, after the home has been offered at auction, it may go into a redemption period. In the redemption period, the homeowner can buy back their home if they can pay the lender the entire loan plus additional fees that have amassed. Not all states have a redemption period. In states that do have a redemption period, it typically begins 150–415 (or more) days after the homeowner’s first missed payment.
If the home doesn’t sell at auction, it becomes real estate owned (REO) by the lender.
What is a short sale? A short sale is when the homeowner sells their home for less than what is owed on their loan, and the lender accepts that amount as payment in full. The seller escapes foreclosure and its corresponding hit to their credit report. They do sustain a hit on their credit report for any missed mortgage payments and for the short sale. Also, the seller does not make any money from the sale of their home.
What do we mean by foreclosure?Although foreclosure is technically a process, when we talk about foreclosure in this guide, we mean the public auction at which the property is sold to the highest bidder. The lender usually opens the bidding.
What is real estate owned (REO)?If no one else bids on the property at the public auction, the lender takes possession of the home. At that point it is their real estate owned.
There are numerous personal and market events which could produce significant financial challenges for a homeowner, including:
The homeowner may have secured a subprime loan. The initial interest rate on an ARM is set below current rates. At specific time intervals, it resets to match the current interest rate. This affects many, many homeowners.
The homeowner may have secured an ARM with the intention of refinancing, but is unable to. With more rigorous lending criteria, it is more difficult for homeowners with ARMs to refinance their loans into fixed-rate mortgages.
The homeowner may have secured a zero-down loan. A zero-down loan means zero equity at closing. As a result, the homeowner has no equity to fall back on.
The homeowner may have lost a job or divorced a spouse. Meeting a monthly loan payment can very well be dependent on a job’s monthly inflow of cash or on the monthly inflow of cash from two incomes.
A devastating event in the homeowner’s life can have serious financial repercussions, ultimately making monthly loan payments an insurmountable financial issue.
Market shifts with price declines compound all of these issues. If the home is worth less, the homeowner may be unable to sell the home in order to cover the balance of their loan, especially if they have little or no equity.
Ask agents to think about and write answers in their guide. Ask for volunteers to share.
Being acutely financially distressed means enduring acute stress. The homeowner may be avoiding the issue and the lender. If you encounter a homeowner who hasn’t been in communication with their lender, advise them to do so immediately.
Your good advice could lead the homeowner to much needed financial relief and a deep, heartfelt appreciation for your professionalism—which could in turn lead to referrals and future business.
The other options the homeowner might be able to take advantage of include:
Forbearance – the lender could agree to temporarily suspend or reduce payments.
Mortgage modification – the lender could agree to permanently change the terms of the loan to reduce the monthly payments.
Refinance with an FHA-backed loan – In July of 2008, Congress passed a housing bill to help homeowners avoid foreclosure. According to the provisions of the bill, homeowners facing foreclosure who are owner-occupants can refinance their loans into a lower fixed-rate, FHA-backed loan. The original lender agrees to take a loss on the loan and the homeowner agrees to share any future price appreciation with the government. This arrangement costs lenders less than a foreclosure and it saves the homeowner from foreclosure.
In examining short sales, we will look at
How a short sale is a win-win for all parties
The six key sources for finding short sale candidates
How to qualify short sale candidates
Items that you want to look out for when qualifying short sale candidates
The eight steps to completing a short sale
What you should do after the short sale to continue growing your business
How to prequalify yourself for short sales
The Agent: Agents who specialize in short sales can grow their businesses and enjoy the satisfaction of knowing that they have helped people in crisis. If you develop your skills in this niche, you can be a prime person for referrals from other associates. Additionally, if you save a customer from foreclosure, you are very likely going to be their top-of-mind agent for life.
The Homeowner: The seller will be able to walk away from the growing stress of impending foreclosure and a public auction. He won’t have “foreclosure” on his credit report, though he will still take a hit for any missed mortgage payments and possibly for the short sale itself.
The Lender: Lenders see the benefits of a short sale in financial terms. It is expensive for lenders to foreclose on a home. Each foreclosure costs lenders approximately $50,000. These costs include, but are not limited to, legal fees, possible eviction costs, taxes, insurance, maintenance of the home, neighborhood dues, and selling costs. If the lender does foreclose on a home, that property (now an REO) shows up as a liability on their balance sheets. Their business is loaning, not owning.
Important Note: Nearly every customer in preforeclosure or foreclosure is different. Your associates will find customers in a myriad of different situations and lenders will have a myriad of different requirements and standard practices. Communicate this strongly to your associates when you're teaching this course. Teach your associates that they can do their fiduciary duty to their customers by getting as much information as they can up front, and then by being frank and honest throughout the transaction. As with any real estate transaction, associates should never overpromise. A short sale may not be the solution to all of a customer’s financial difficulties, and associates should not present it as such.
Your Solutions-Based Unique Selling Proposition (USP): Build a USP that highlights solutions and professionalism. It’s a unique way of stating the benefits that you bring to your customer. Then highlight your USP in all of your prospecting and marketing.
Notice of Default Lists: These are recorded with the county clerk at the county recorder’s office. You can search these records for free.
FSBOs: FSBOs could be financially distressed homeowners who are trying to remedy the problem by themselves.
Listing Appointments: In your listing appointments, you may find sellers who are in preforeclosure and are potential short sale customers. Dick Dillingham, Dean of KWU faculty, politely asks his appointments, “Are you current on all your mortgage loans?” to open this conversation.
Lenders: Leverage the relationships you have with lenders by asking for referrals when someone is in preforeclosure. Lenders who market with agents can be strong business partners in many ways—this is one of them.
Public Notices of Auction: You can look for Public Notices of Auction at the county recorder’s office as well. Alternately, you can search your local newspapers for this information, or you could look online at www.foreclosure.com. Be aware that your time to work a short sale may be foreshortened if you find a customer through a Public Notice of Auction.
If the market value of the home is more than the loan amount, even if current market value is less than what the homeowner paid, the homeowner will have to list and sell their home in order to pay off the mortgage. Lenders are only interested in working with sellers when it makes business sense for them. They will not be interested in a short sale if they can recoup their loan through a typical sale.
Facing foreclosure does not automatically make someone a good candidate for a short sale. If the homeowner has money or assets elsewhere, the lender will not be interested in negotiating a short sale. A short sale will usually cost the lender less than a foreclosure, but the lender is still losing money.
The homeowner should be able to demonstrate a hardship that made loan payments impossible by being able to compile documentation that proves the hardship. This information will be added to the short sale proposal that will be submitted to the lender. If the homeowner’s loan rate adjusted, you’ll have to obtain copies of the loan statements. If the homeowner encountered medical issues, you’ll want to gather copies of those bills. If a spouse died, you’ll have to request a copy of the death certificate.
The homeowner must be willing to cooperate with the agent, lender, and buyer. The homeowner will have to turn over private documents and be willing to wait for answers from the lender, while making nothing off of the sale.
The following may prevent you from being able to complete a short sale, even if the homeowner meets the other qualification criteria:
Bankruptcy: If the homeowner has filed for bankruptcy, he or she must get approval from the court or trustee before entering into a listing agreement. Additionally, in some states, the homeowner is protected from foreclosure by bankruptcy laws. Keep in mind that bankruptcy is a legal issue. Unless you are also a lawyer, you should not dispense legal advice.
PMI: PMI insures the lender against the homeowner defaulting on their loan. The lender considers short sales only when it makes business sense for them. If their potential loss from a foreclosure exceeds the insured amount, they may be willing to do a short sale. If not, they won’t be.
Foreclosure date is imminent: In some cases, lenders will forestall foreclosure if the short sale process has been initiated. If the public auction date is less than two weeks off, you can contact the lender to explore other options or to initiate the short sale process. However, if the lender will not stop the foreclosure process as a result of your communications, you should keep in mind that you may not have enough time to complete a short sale.
There are eight steps to completing a short sale. We will cover these steps in detail on the following slides.
You can master these steps with systems, leverage, time, and an acceptance of risk. If you do so, you will be the master of any market that has homeowners who need the help of a professional to alleviate their financial crisis.
In this step, you are compiling documentation that will prove the homeowner’s financial insolvency and that they’ve experienced a hardship. You are compiling the same sort of information needed to complete a loan application, except instead of proving credit worthiness, you are proving financial insolvency.
Refer to “Short Sale Checklist–Information Gathering,” on pages 65-67 of the guide, for a checklist of information to gather from the homeowner.
In order to speak with the lender on the homeowner’s behalf, you’ll have to obtain and submit the homeowner’s written authorization. Oversee this process and make it happen as quickly as possible. Some lenders have forms, but in most cases a short note will suffice. Fax the authorization to the lender as quickly as possible.
Then call the lender and ask for:
Short sale application packet. Not all lenders have one, but many will.
The name and direct number for a decision maker in the Loss Mitigation Department. This information is important. When you are negotiating, you will want to speak to the person who can make decisions regarding the short sale. If the loan is with a servicing company, they will not be able to negotiate with you. You can ask them who actually owns the loan to begin finding the decision maker in the Loss Mitigation Department.
Information about their policies. The more information you uncover about the lender’s policies, the more confident you can be that your efforts will result in your being paid. Ask the lender what their response time is on a complete proposal. Ask the lender what they’re looking for in a proposal. Verify that the lender does short sales!
Systematize your communication with the lender. You’re going to want to communicate with them regularly.
Make sure you record information about every communication. You may want to use the “Short Sale Contact Record,” on pages 68-75 of the guide.
In the proposal, you should demonstrate concisely, yet thoroughly, why a short sale is the most financially advantageous conclusion for the lender.
The lender should be able to look at your compiled proposal and see that it is clearly their best option.
You should demonstrate that the homeowner will go into foreclosure if a short sale isn’t completed, and
That it will be difficult to sell the home for full price after foreclosure
The proposal should be well organized and professional. Your investment of time and materials into the proposal will make it stand apart.
See the “Short Sale Proposal Packet Checklist,” on page 76 of the guide, for a list of items to include in the proposal.
Develop a pricing strategy for the home. Initially, list the home at the full market value or just below. The lender will want to see that you tried to get as much out of the property as you could. Develop a systemized plan to aggressively lower the price on the home until you receive offers.
Educate the seller on your strategy, and enter into an agreement on the strategy in advance.
For the sake of clarity, you may want to specify in your listing agreement with the seller that you are going to list the home at a price lower than their estimated payoff.
You may also want to include a sentence that says you will present any offers to the seller before you submit them to the bank.
Considerations:
Lenders are very unlikely to negotiate repairs, and your homeowner may be unable to make them.
If it’s optional in your MLS, enter “Short Sale” in the agent remarks to draw agents who have customers well suited to short sale purchases.
If necessary and appropriate, you may have to be flexible on the commission. You can build good will with the buyer’s agent by splitting the commission fifty-fifty with them.
Lenders often have requirements they will not reveal until there is an offer. If you have a network of investors available, you may turn to them in order to initiate the negotiations.
Be careful! If the lender accepts, the buyer should be ready to follow through.
Don’t send the lender all of your offers. When you know what the requirements are, ask potential buyers for their highest and best offers.
Send the lender the best of the lot.
Any negotiations between the buyer and the seller should occur before you submit the offer to the lender.
The lender will order a BPO. If possible, be present during the BPO.
Educate the buyer on what a short sale entails.
Time for lender to approve (at least 30 days)
Buyer may have to close within 30 days of approval
You may want to develop a disclosure that details the peculiarities of a short sale and then obtain both the buyer’s and seller’s signatures on it. You may want to use the “Short Sale Disclosure Example,” on pages 77-78 of the guide.
Once you have an offer, add it to the proposal packet you created.
Then, send it by registered mail to all of the appropriate contacts. In Step 2, you opened communications and asked for the name of the decision maker in the Loss Mitigation Department. You’ll now send your proposal to that contact. Also, be sure to send your proposal to the officer or collection clerk who was assigned to the case.
Each loan should have its own proposal. Send out additional proposals for secondary loans as applicable.
Follow up on your submission, and confirm with the lender that they have your proposal.
Be persistent! Make sure the people who must make decisions about it are looking at it. Stay on top of communication with the lender.
If you are working with more than one loan, begin negotiating with both the first and the second lenders at the same time. If one of the lenders agrees to your proposal, rush a copy of the acceptance letter over to the other lender right away.
Don’t call the lender and then wait for a return call. Create a system for when to call, and always record a note about your call, its topic, and the outcome. You may want to use the “Short Sale Contact Record,” on pages 68-75 of the guide.
Negotiating a short sale can be a time-consuming process. In order to maintain focus on their businesses, some top agents leverage help in the negotiations:
Services are available to help negotiate short sales. They either take a percentage of the commission or they are paid by the lender.
Some agents say that their markets don’t justify the systems necessary to work short sales, and they refer short sales to agents who specialize in them.
Typically, the deal must close within thirty days of the lender’s acceptance. As such, the buyer has to be ready with cash or funding.
Remember that the seller most likely is not in a position to bring cash to the closing. If you had the seller and buyer sign a short sale disclosure, everybody should understand that the seller is not going to be able to pay any of the buyer’s closing costs.
The information you gathered in Step 1 should help you to ensure there are no additional liens on the house.
As a courtesy, alert the closing company that this deal is a short sale, and offer to answer any questions they have. Some closing companies may be unfamiliar with short sales.
Referrals from your seller are a tremendous opportunity after the short sale. You’ve just saved your seller from foreclosure. You’ve probably just made a fan for life.
After you complete the short sale
ask the seller for a testimonial and add that testimonial to all of your short sale materials, including your website;
put the seller in your Met Database; and
put the seller on a 33 Touch marketing campaign that emphasizes your professionalism and problem-solving abilities.
After a couple of years, your seller may be ready to buy again. And when they are, who are they going to think of first? Even if they aren’t ready to buy soon, if they hear someone mention a need for a real estate agent, who are they going to think of? They’re going to think of you, the person who worked wonders for them!
Ask agents to think about and write answers in their guide. Ask for volunteers to share.
In this section, we will look at
Developing a criteria for working with investors
The benefits and challenges to purchasing a property at public auction
How you can prequalify yourself for working foreclosures
Astute agents who work with investors are able to find opportunity in foreclosures. If you work with your investor customers to sharply define what their criteria is for a property, you can pass foreclosed properties through that criteria filter to separate the potentially good deals from the flat-out risks. In The Millionaire Real Estate Investor, Gary Keller lists seven categories to help investors and the agents who work with investors refine their criteria. These categories are
Location. Location could be as specific as the side of a particular street.
Type. What type of property does the investor desire? Single-family home, multi-family property, ranch, land, or other?
Economic. Specify the investor’s price range, necessary discount, expected cash flow, and desired appreciation.
Condition. What condition should the property be in? Some investors are only interested in properties that need no repairs. Others are comfortable with demolition.
Construction. What should the type or state of the roof be? How about the walls, foundation, etc.?
Features. What should the basics look like? For example, how many bedrooms and baths should the property have?
Amenities. What extras, like a security system, a fireplace, a pool, or energy-efficient features, is the investor especially interested in?
Once you have a criteria filter, you can watch for homes that meet your investor’s criteria in public notices of auction at the county recorder’s office, in your local newspapers, or on an online service like www.foreclosure.com.
Benefits
You can find great properties at great deals.
You may find that you like the certainty of working with the one lender in a public auction. If a property has multiple liens on it, they will all be wiped out when the first mortgage lender holds a foreclosure sale. However, if the first lender is not the one foreclosing on the property, for example, a third lien holder could foreclose on the property, the other liens will not be wiped out.
Challenges
Most public auctions require that you pay for the property with a cashier’s check at the time of the sale or soon afterward.
Second, at a public auction, the house is sold “as is.” You may not have an opportunity to properly inspect the home before purchase.
Successfully working foreclosures requires focusing your business activities on investor relationships and the foreclosure market. What first steps could you take today to solidify your relationships with investor customers and to increase your knowledge of foreclosed properties? How can you leverage systems, tools, and people to make this happen?
Ask agents to think about this question and to write their answers in their guide. Ask for volunteers to share.
If a property is not sold at public auction, the lender takes possession of it. At this point it becomes the lender’s REO and a liability on their balance sheets. They need a trusted, competent professional to quickly sell that property for the highest dollar possible. The lender may outsource their REOs to an asset management company. If so, the asset management company then needs the services of that trusted, competent agent. REOs can be a steady stream of business for agents who have demonstrated mastery in this area.
In this section we will look at
How to begin working with REOs
The services that listing agents working in REOs provide
What kind of administrative help you will need
How do you get into the business of picking up REO buyer leads
What you will have to tell buyers
How to prequalify yourself for working REOs
Breaking into the business of REOs requires leveraging systems, tools, and people. It also requires persistence and patience. There are two primary method of breaking into this business:
Method 1: Apply to a Lender or Asset Management Company
Sometimes this takes the form of an online registration form. Other times, the company will send you an application packet to complete.
Based on your application and possibly an interview process, the company may give you an opportunity to complete a broker’s price opinion (BPO). There can be a degree of luck involved in obtaining this opportunity. If they are pleased with your work, and if you stay in regular contact with them, they may send you additional BPOs. Eventually, they may give you the opportunity to work an REO.
Method 2: Leverage Relationships
Seek a mentor who is already successful in REOs.
Network at conferences.
Ask asset managers at companies you have done business with for their business—repeatedly.
Working REOs entails offering many services beyond the pricing, listing, marketing, and selling of the property. You may also be asked to complete the following tasks or to hire vendors to complete the following tasks:
Put a notice on the front door that the home is now a lender-owned property. Sometimes the home will be vacant, and sometimes it will still be occupied.
Negotiate “cash for keys” or CFK. If there is someone living in the house, you may negotiate a move-out date with that person in exchange for money.
Evictions. You may accompany the sheriff on evictions.
Secure and rekey the property. You may have to fix any windows and doors that have been broken. In addition, you may have to change the locks on all of the doors.
Clean out the house. People who have been through a foreclosure process may leave their belongings in the home, or they might trash the home when they leave it.
Repair the home. You could be responsible for finding and paying for any repairs that are necessary to sell the home.
Pay any utility bills. You may be responsible for paying up front to keep the gas, water, and electricity on.
Property management. You may have to pay up front for items like lawn care. In addition, you’ll want to keep an eye on the property to make sure that no one breaks in, that no animals die in crawl spaces, etc.
Build a network of trusted vendors that you can tap to complete tasks like rekeying a property quickly and efficiently. Lenders will grade you on how quickly you complete tasks.
The lender will pay you back for the money that you spend on your vendors, but it may not be until thirty, sixty, or ninety days after you’ve spent the money. Set up a separate bank account for these funds and watch your accounts receivable very closely.
In order to effectively handle relationships with multiple lenders, vendor contacts for multiple services, and the billing, account management, and collection involved in working with REOs, you’ll want to leverage a great administrative assistant who can oversee the setup and maintenance of the systems and tools that will make this business venture thrive.
REO listing agents maintain their stream of business by quickly servicing and selling REO listings.
Get into relationships with REO listing specialists. Present yourself as someone whose business priorities dovetail seamlessly with theirs and you may be primed to be the recipient of REO buyer referrals.
Service these leads with a high degree of prompt professionalism, and you may find a steady stream of business as well!
You may have to work with the buyer’s agent to educate the buyer on the peculiarities of an REO sale.
The buyer may have to be patient after submitting their offer. It could take the lender a week and a half to approve the offer.
Lenders don’t consider emotional letters that accompany an offer. They’re looking at the bottom line and how quickly you can settle.
Lenders are looking for the cleanest and easiest deal. The fewer contingencies on the offer, the better so far as they’re concerned.
There will be a lot of additional paperwork with the contract.
Buyers will get a clean title and will be able to purchase title insurance.
Working REOs can be a great opportunity to develop a steady stream of business. To get there, you must demonstrate mastery. To attain mastery, you must leverage systems, tools, and people.
Ask agents to think about this question and to write their answers in their guide. Ask for volunteers to share.
Short sales, foreclosures, and REOs create needs for the skills of a professional real estate agent. These needs are opportunities for you to grow your business while helping people. This opportunity can grow richer if the number of foreclosures in your market is growing.
If you want to do this, you can succeed. You can focus your business in one or more of these areas and become an expert. Before you spend your time and energy—and your business’s time and energy—on the activities that will make you a master in one or more of these areas, pause for a moment. Take a moment to prequalify yourself.
Ask yourself if you are truly able, ready, and willing. Are these areas a good fit for you and your business? Can you
leverage systems, tools, and people;
devote time to developing these skills; and
accept a level of risk?
If your answer is yes, you could very well be the right person in the right place. You may be the master of the market of the moment!
The ProManage/TOP PRODUCER contact management system has many tools to boost your productivity.
For more information visit the ProManage site on the KWU Intranet: Click on the eAgentC tab, and then click on ProManage/TOP PRODUCER.
Direct participants to fill out their Action Plans on pages 60-63 of the guide. Ask them to share their commitments with the class.