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As a Realtor Investor You should be able justify the B.P.O. value at a price that allows a profit margin of about 10%. This means about 6% for listing and selling agent, 3% closing costs and a remaining 10% margin. You offer the lender a fair liquidation www.Mckissock.com price that normally nets them more than if they repossessed it. If the lender has sent an agent to create the B.P.O., and its value is consistent with what the sold, listed and current listing comparables are, and the property is pristine inside and out, this is a problem. www.McKissock.com 1-800-328-2008 As a Realtor Investor The argument over value becomes a challenge when you can’t create a justification package to show the lender. The justification package contains: Your own B.P.O. Comps www.Mckissock.com Photos Repairs Environmental Issues www.McKissock.com 1-800-328-2008 Although the Broker’s Price Opinion is the constant that the lender uses to make liquidation decisions, it is their delegated authority controlled by loan product that drives the final short sale acceptance when working on a deal. It’s your job as a Realtor Investor to substantiate a conservative value, www.Mckissock.com You would never fabricate or make things up to affect the value; you do market research and provide an extensive list of variables that ultimately will cause the bank mitigator to accept your offer instead of repossessingand placing the house for sale as an REO. www.McKissock.com 1-800-328-2008 It is more difficult to find an adequate institution to finance with buyers on low end properties. There is also an term called “chain of title”, which comes about when you arrange to resell your property to your end buyer. www.Mckissock.com The lender financing your buyers new loan will look at the title report to determine if the property has changed hands in the last 24 months. They look for “broken title.” Lets look at a potential solution on the next slide…. www.McKissock.com 1-800-328-2008 This is an sometimes an easy fix, and you need to understand that when some lenders finance a buyer, the lender wants to see 90 day seasoning. This means the title of the property must have been in the name of the selling entity for 90 days. If you do have a property that you want to resell, and a lender is providing www.Mckissock.com their buyer’s new loan you could possible need to “season” or record the deed in your company name for a minimum of 90 days. GOOD NEWS! If you are reselling a low-end property, that investor may have a funding source that doesn’t require chain of title. www.McKissock.com 1-800-328-2008 Brokers Price Opinion (B.P.O.) truly controls the deal. Once the value is established by a third party appraiser or realtor, liquidation decisions are made based www.Mckissock.com on the mitigator’s delegated authority depending on the loan product. www.McKissock.com 1-800-328-2008 How much of a discount the loan product allows for closing cost? The percentage they will accept as discount. FHA is delegated at 86% in the first 30 days of marketing www.Mckissock.com 84% 30-60 days and finally 82% of the B.P.O. VA is 89%. Most nonconforming loan products 8590%. Their counter is based on the value. www.McKissock.com 1-800-328-2008 If the perceived value/ BPO is too high, they will have a high counter offer. Possible reason for high counter offer: Value is too high: Repudiate the B.P.O. or the skill of the agent who did it. www.Mckissock.com Faulty Loss Mitigation Process: Take the file to management. Perhaps you are dealing with an odd personality or an inexperienced loss mitigator. Debtor has made a promise to repay: or has agreed to work out plan. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Many Realtors© and Investors will discuss a deed in lieu of foreclosure. A www.Mckissock.com deed in lieu of foreclosure is when the debtor agrees to sign the title, grant deed etc. back to the lender. They will get a better rating on their credit report than a foreclosure. www.McKissock.com 1-800-328-2008 STEP 1: Here are the questions you should ask when you call the customer service department: “Have you received the Authorization to Release Information?” Ask them about the loan. “Is this, Freddie Mac, Fannie www.Mckissock.com Mae?” “Is this FHA,Is this VA? ?” “Is this a second mortgage?” “Is this a HELOC loan, some kind of a home equity line of credit?” Different loan products have different requirements during the short sale. Have you filed foreclosure on this loan yet?” If it’s not in foreclosure and it is still with customer service they can’t make decisions. At this point it is the wrong person. www.McKissock.com 1-800-328-2008 STEP 1: Here are the questions you should ask when you call the customer service department: “Is it your foreclosure or another bank’s foreclosure?” They could be a loan servicing company that’s managing this loan, they are bound by the delegated authority of the loan product. www.Mckissock.com When is the foreclosure sale date? Know in advance how much time there is to work an a short sale. What is the principal balance? To calculate payoff. www.McKissock.com 1-800-328-2008 STEP 1: Here are the questions you should ask when you call the customer service department: “What do you see as reinstatement balance? The amount of money needed to bring the loan current. “What is the value?” www.Mckissock.com If an interior or exterior B.P.O. exists, they should tell you what the perceived value is. Is that based on a drive-by or an interior B.P.O.? 99% of the time there is an exterior B.P.O. What’s the Interest rate? If the first mortgage has a low rate you may want to keep the loan in place www.McKissock.com 1-800-328-2008 STEP 1: Here are the questions you should ask when you call the customer service department: “Is it fixed or adjustable?” you may want to keep the loan in place “What is the normal principal and insurance payment www.Mckissock.com amount?” To calculate back payments. Is that based on a drive-by or an interior B.P.O.? 99% of the time there is an exterior B.P.O. When did you last pay the taxes? Best to confirm in case the city could have filed for a tax sale. www.McKissock.com 1-800-328-2008 STEP 1: Here are the questions you should ask when you call the customer service department: What month is the loan currently due for? Confirming the foreclosure status. Is there Private Mortgage Insurance on the loan? www.Mckissock.com Does it show the percentage of the coverage? What other liens do you show on file? If the Lender identifies several liens, they very likely will dis-approve the short sale. Has the debtor filed a bankruptcy? Walk away now. www.McKissock.com 1-800-328-2008 STEP 1: Here are the questions you should ask when you call the customer service department: Are there any others names on the file? ALL parties who have an ownership will need to sign www.Mckissock.com Has the loan ever been modified? This will affect the banks view of a debtor who has been given a second chance via a loan modification. Has the debtor been cooperative? Know who you are dealing with www.McKissock.com 1-800-328-2008 STEP 1: Get ALL Contact Information. Get the name, number, and extension of the loss mitigator who is handling the account. There may not be a demand letter or a foreclosure letter because the debtor may have www.Mckissock.com lost it. A mitigator may be appointed to the file only after it is 90 days in default. Occasionally if there’s an immediate hardship it goes straight from 30 days to the Loss Mit. Department If there is an environmental issue: black mold, buried oil tank, leadbased paint- the file could be put on a fast track as well. www.McKissock.com 1-800-328-2008 1. Cover letter to the Mitigator 2. Authorization to Release 3. HUD 1 (Net Sheet) 4. Purchase & Sale Agreement www.Mckissock.com 5. Listing Agreement 6. Our own B.P.O. or Appraisal 7. Proof of Funds Letter 8. Repairs Estimate 9. Environmental Issues www.McKissock.com 1-800-328-2008 Poll Question 30. 99% of the time there is a _______ BPO A Interior B Exterior www.Mckissock.com C drive by D negative www.McKissock.com 1-800-328-2008 Poll Question 30. 99% of the time there is a _______ BPO A Interior B Exterior www.Mckissock.com C drive by D negative www.McKissock.com 1-800-328-2008 10. Remediation Reports 11. Demolition Report 12. Personal letter from debtor 13. Sex Offenders List www.Mckissock.com 14. Property Photos 15. Local Market Conditions Docs 16. Listing history notes from agents 17. Sold, listed and REO Comps www.McKissock.com 1-800-328-2008 STEP 2: Get the Authorization and fax it. You’ve talked to customer service and would have needed an authorization to do so. You might have to re-fax it directly to the mitigator handling the file. www.Mckissock.com www.McKissock.com 1-800-328-2008 STEP 3: Call the Mitigator’s Direct Line and begin working on rapport with them. You should also find out if the mitigator is new or seasoned. If the B.P.O. has been completed, you to start www.Mckissock.com asking some very serious questions and discuss the B.P.O. if it’s been done. Ask fact-finding questions about the B.P.O.. “Is it interior or exterior?” “Approximate time frame it was done?” It could be a B.P.O. that was done months ago . Another will need to be done. www.McKissock.com 1-800-328-2008 At this point you must order a new interior B.P.O. We want to meet that B.P.O. agent to ensure the value supports the offer we want the bank to accept. Your ability to validate your www.Mckissock.com view of the value of the property to the B.P.O. agent will be the key of your success. In this case the bank accepted the exact B.P.O. value; most lenders will accept a delegated percentage between 60-92% of the B.P.O. www.McKissock.com 1-800-328-2008 Key Documents Used To Verify Value It’s important that you understand not all lenders use a B.P.O. document to determine the default liquidation value. Don’t be confused. This term is actually very simple and based on the loan products. The term appraisal, CMA and B.P.O. are commonly used interchangeably. www.Mckissock.com FHA will require an FHA Appraisal when making liquidation decisions. VA (Veterans Administration) will require a VA appraisal on loans to veterans. A Brokers Price Opinion is usually done by a Real Estate Agent on behalf of their Broker, based on an order by the bank. No lender will ever make a liquidation decision without an opinion of value. www.McKissock.com 1-800-328-2008 Feedback Question 31. A 2nd or rarely a 3rd BPO will need to be requested A TRUE B FALSE www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback Question 31. A 2nd or rarely a 3rd BPO will need to be requested A TRUE B FALSE www.Mckissock.com www.McKissock.com 1-800-328-2008 A,B,C’s TO GET THE APPROPRIATE B.P.O. A. Determine the current status of the B.P.O. B. Become the B.P.O. Agent’s go to person. C. Determine if the debtor should be involved www.Mckissock.com D. Continue communication with the B.P.O. agent after the B.P.O. is done E. Supply supporting documentation to validate a distressed B.P.O. value www.McKissock.com 1-800-328-2008 A,B,C’s TO GET THE APPROPRIATE B.P.O. A. Determine the current status of the B.P.O. A in-depth discussion with the Loss Mitigator will tell you if it is - Interior or exterior, Appraisal, Drive by or BPO and How Current www.Mckissock.com B. Become the B.P.O. Agent’s go to person. C. Determine if the debtor should be involved D. Continue communication with the B.P.O. agent after the B.P.O. is done E. Supply supporting documentation to validate a distressed B.P.O. value www.McKissock.com 1-800-328-2008 A,B,C’s TO GET THE APPROPRIATE B.P.O. A. Determine the current status of the B.P.O. B. Become the B.P.O. Agent’s go to person. Make sure the mitigator has your cell phone number because it’s the B.P.O. agent www.Mckissock.com who will call you to set up the inspection. Even if the house is on MLS with a lock box don’t just let the B.P.O. agent go by themselves. Be there to ethically point out C. Determine if the debtor should be involved D. Continue communication with the B.P.O. agent after the B.P.O. is done E. Supply supporting documentation to validate a distressed B.P.O. value www.McKissock.com 1-800-328-2008 A,B,C’s TO GET THE APPROPRIATE B.P.O. A. Determine the current status of the B.P.O. B. Become the B.P.O. Agent’s go to person. C. Determine if the debtor should be involved www.Mckissock.com If you are lucky you can get the mitigator to order a new interior, usually this second B.P.O. Many stories the Owner share can help shed light on the true value of the distressed property. D. Continue communication with the B.P.O. agent after the B.P.O. is done E. Supply supporting documentation to validate a distressed B.P.O. value www.McKissock.com 1-800-328-2008 A,B,C’s TO GET THE APPROPRIATE B.P.O. A. Determine the current status of the B.P.O. B. Become the B.P.O. Agent’s go to person. C. Determine if the debtor should be involved www.Mckissock.com D. Continue communication with the B.P.O. agent after the B.P.O. is done Follow up with bank status, neighborhood changes, other short sales in the neighborhood E. Supply supporting documentation to validate a distressed B.P.O. value www.McKissock.com 1-800-328-2008 A,B,C’s TO GET THE APPROPRIATE B.P.O. A. Determine the current status of the B.P.O. B. Become the B.P.O. Agent’s go to person. C. Determine if the debtor should be involved www.Mckissock.com D. Continue communication with the B.P.O. agent after the B.P.O. is done E. Supply supporting documentation to validate a distressed B.P.O. value All documents that validate your low estimate of the property. Estimated repairs, other short sales coming on the market, environmental issues. www.McKissock.com 1-800-328-2008 Some BPO agents will bring in a high value on a property so that it can soon guarantee the foreclosure! Then his www.Mckissock.com firm could get the listing from the bank once it became an REO. NOTE: Generally speaking this is illegal. www.McKissock.com 1-800-328-2008 Two Strategies to get the lender to accept the lower price When dealing with a beautiful With a property needing property use a concession repairs, we use a condition based system. This system is based system. Our justification based on how the offer, and is built on a distressed, quickthe final net to the lender, sell value because the subject appears on the net sheet. We property is below average. www.Mckissock.com could not justify a low B.P.O. on Include repair estimates and a a gorgeous property because marketability analysis. the comparable values can only be so low. However, we can, and do, reduce the lender’s net by introducing other payables on the Net sheet, such as Realtor Commission. www.McKissock.com 1-800-328-2008 What is the bank’s delegated authority? In other words, what percentage do they normally accept as a discount? Most lenders normally accept about 85% Now to protect your position, you will have the loss mitigator give a very valuable piece of paper called the Acceptance Letter. The letter will reflect that they are willing TO NET $380,000. You will have 30 days to give them a check for $380,000. Wherewww.Mckissock.com are you going to find the money? Do you have to do the demo work, repairs and take on all the projected work? NO! The hardest work is over. You had the property on MLS all along you just want to ensure what ever opportunity you offer will give you enough profit to want to participate. As discussed you want a minimum of 10% of whatever the sale price your buyer is willing to pay. You have spent serious time on this transaction. www.McKissock.com 1-800-328-2008 Feedback Question 32. Many times the ______ involved will help BPO determine value. A Neighbors B Owner www.Mckissock.com C Police D Relatives www.McKissock.com 1-800-328-2008 Feedback Question 32. Many times the ______ involved will help BPO determine value. A Neighbors B Owner www.Mckissock.com C Police D Relatives www.McKissock.com 1-800-328-2008 CHAPTER 7 TO www.Mckissock.com Investors Only www.McKissock.com 1-800-328-2008 As a Realtor Investor A Realtor Investors number 1 priority should be and usually is: www.Mckissock.com negotiate the short sale, immediately resell the property www.McKissock.com 1-800-328-2008 As a Realtor Investor As previously said- You must time the 2nd closing of your sale (to the new buyer) to take place before the final date the bank gives you or the www.Mckissock.com auction date. They are very seldom open to extensions for closing. They made their decision based on the data you gave them for an immediate close. www.McKissock.com 1-800-328-2008 As a Realtor Investor Handling the sale, the flip, the double closing has become tremendously more problematic over the last several years. Nearly all lenders demand seasoning i.e. ownership for 90 days to a year or two. www.Mckissock.com Add to that the title companies are refusing to issue title insurance during any of the old double closings, etc. www.McKissock.com 1-800-328-2008 As a Realtor Investor Without the ability to immediately re-sell the property the Realtor Investor is placed in a position where they have to take long term ownership. Should you chose to keep the www.Mckissock.com property you have these choices: Sell it “As Is” Fix it up - sell it for more money than “As Is” Rent it out Live in the property www.McKissock.com 1-800-328-2008 As a Realtor Investor As of this writing there seems to be only two or three ways the Realtor Investor can still perform short sale negotiations and collect a fee. www.Mckissock.com These days it isn’t even a question of legally collect a fee. All the questionable methods used over the past few years- straw buyers, hard money middlemen, creative seasoning, marketing fees, attorneys looking the other way; have all been completely removed . www.McKissock.com 1-800-328-2008 As a Realtor Investor Over the last few years it was the lenders that placed many rules to prevent the Short Sale negotiator from acting as a middleman. www.Mckissock.com As of this writing – it is now the title companies that put safe guards and rules in place. They are refusing to issue title insurance if there isn’t total transparency. www.McKissock.com 1-800-328-2008 Feedback Question 33. Seasoning a sale means: A allowing a certain amount of time to pass B selling it soon C www.Mckissock.com having an attorney review it D selling it to an LLC www.McKissock.com 1-800-328-2008 Feedback Question 33. Seasoning a sale means: A allowing a certain amount of time to pass B selling it soon C www.Mckissock.com having an attorney review it D selling it to an LLC www.McKissock.com 1-800-328-2008 As a Realtor Investor When selling your short sale home you might want to offer these to avoid the stigma of a short sale home Certified Home Inspection www.Mckissock.com Home Warranty : For about $300, you can get a warranty on everything in the home except the roof and main sewer drain to the street. Pest Report www.McKissock.com 1-800-328-2008 As a Realtor Investor If you choose to invest money in fix ups or repairs the profit margin must be real and substantial. Many gurus lead you to believe you will “buy low, fix up, sell high”. The fact is if you attempt to sell “high” or even close to retail you will morewww.Mckissock.com than likely hold the property for a long time www.McKissock.com 1-800-328-2008 As a Realtor Investor Maybe you have chosen not to sell the property to make a profit. You might be selling to someone who wants to move into the property. The tenant buyer will make you payments on a rent to www.Mckissock.com own situation until they can qualify for a new loan. After seasoning issues etc. your buyer will secure a new loan, you will have a closing which will pay off the original debt and then you make your profit. www.McKissock.com 1-800-328-2008 As a Realtor Investor Many time the Rent To Own buyer has credit issues. Many Realtor Investors guide the tenant buyer to legitimate credit repair agencies and after a few years they are ready to get a loan for your property. www.Mckissock.com Many investors like rent to own buyers as they change their minds after 3 years in a house. They forfeit the down payment they gave you and move out. You as the owner start the process all over again. www.McKissock.com 1-800-328-2008 As a Realtor Investor Whether you have chosen to hold the property short term or long term you could very likely need or want an investor. THE INVESTOR Generally speaking the investor puts up the www.Mckissock.com money for the closing and then waits for the property to be sold at which time he gets half of the profit. Depending on your short sale negotiations, the return can be exceptional. It will be much more than the investor can get for a bank investment and much less risky than a stock investment. www.McKissock.com 1-800-328-2008 As a Realtor Investor The perfect short sale investor would be someone who understands a bit about the real estate market or even enjoys the vision, but does not have the time for anything outside of their life. Doctors, attorneys rocket scientists, basically anyone www.Mckissock.com who wants to make a good return on a real estate investment that is especially attractive in a down market. You can divide the proceeds of the sale of the investment in any way you like. You may have more than one investor in the joint venture. www.McKissock.com 1-800-328-2008 If you are planning on investing in the property as a joint venture, you are going to have to have legal documents drawn up by an attorney and will have to present them to the lender as well as the closing agent so that the joint venture can take title to the property. As a Realtor Investor In some states, a joint venturewww.Mckissock.com cannot take title. If this is the case in your state, you can simply have everyone who is involved in the joint venture take title as tenants in common. This means that everyone will get a share of the proceeds of the property. If one of the partners dies, their share will go to their estate and not to the other partners. www.McKissock.com 1-800-328-2008 As a Realtor Investor You can find short sale investors by joining investor clubs or talking to people who are interested in making an investment. www.Mckissock.com www.McKissock.com 1-800-328-2008 As a Realtor Investor You have 5 possible methods to sell the property if you took ownership: Wholesale a marginal fixer to an investor, contractor or bargain shopper for all cash using your current contacts. Auction a luxury house www.Mckissock.com Place on MLS to find a wholesaler Place on MLS to find an end user Sell as a Rent To Own www.McKissock.com 1-800-328-2008 As a Realtor Investor We have not discussed another possible outcome. You could have assumed the first mortgage. This is possible when you find a house going into foreclosure with a very large second mortgage. You need to have the 2nd www.Mckissock.com discounted (during the threat of the foreclosure) to create the equity www.McKissock.com 1-800-328-2008 Feedback Question 34. Many investors like the “rent to own” plan as the tenant/buyers usually don’t end up as buyers. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 Feedback Question 34. Many investors like the “rent to own” plan as the tenant/buyers usually don’t end up as buyers. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 As a Realtor Investor Look for a fixed rate first mortgage where balance is approximately 60 – 65% of the 90 day sale price.. The mortgage must not have a balloon that would require you to pay it off You will need the required funds needed to bring the first mortgage current www.Mckissock.com The Rent To Own tenant moves into the home to cover the original mortgage payment. You record the deed in your own entity, usually a LLC or trust, to protect your interest in case the Rent To Own tenant declares a bankruptcy www.McKissock.com 1-800-328-2008 As a Realtor Investor BONUS: The first mortgage may be modified by the original debtor to an excellent rate prior to the Investor Realtor assuming it (check local state compliance as sometimes there must be a minimum number of months the seller must own the propertywww.Mckissock.com after the modification PRIOR to selling). www.McKissock.com 1-800-328-2008 As a Realtor Investor Possible Scenarios The property is listed with a Realtor and you a Realtor Investor want to negotiate with the bank and become a principal www.Mckissock.com This means you would have to approach the current agent who has had no offers and is too busy to negotiate. In some states you would get that agent to release the listing to you. You would assure the agent they will get the commission when you sell the house at a reduced price. In other states the listing can stay with the agent. www.McKissock.com 1-800-328-2008 As a Realtor Investor Most important is disclosure and signed documents that make it clear the Homeowner understood every detail. It is always advisable when in these types of transaction to have the Owner sign an Unrepresented Persons Agreement as issued by your local Real www.Mckissock.com Estate Board. Since the Owner knows they will not and cannot receive any funds there is seldom any issue about representation, at this point they want out. The Owner needs to clearly understand that if the Realtor Investor chooses not to purchase the property while under contract it will go to foreclosure. www.McKissock.com 1-800-328-2008 As a Realtor Investor Possible Scenarios The Realtor Investor gets (or doesn’t get) the listing and wants to negotiate the short sale www.Mckissock.com Doubtful you can get a commission and the profit in the middle of the sale. It is common to list yourself as the Buyer and collect the commission as the Buyers agent. www.McKissock.com 1-800-328-2008 As a Realtor Investor I would advise you contact your association of real estate agents’ legal department to clear : Collecting profit plus commission. Being the Buyer and Buyers Agent. www.Mckissock.com Telling the Seller you will be the Buyer and not an agent representing them. You could relist the property through another Realtor. When you have a prospective Buyer you start the real mitigation with the lender instead of working every short sale you have working www.McKissock.com 1-800-328-2008 As a Realtor Investor Steps to a perfect Rent To Own- Short Sale 1. Find a first mortgage that is no more than 60% of actual current market- or market in 90 days. 2. The rate you can rent it for must be exceed the property’s taxes plus insurance plus mortgagewww.Mckissock.com payment by $100/mo 3. You assist the current homeowner in the property to qualify for a mortgage re-modification requesting the lender to create a fixed rate for 30 to 40 years with a very low interest rate 4. Have the new buyer sign up for credit restoration. www.McKissock.com 1-800-328-2008 As a Realtor Investor Steps to a perfect Rent To Own- Short Sale 5. You must transfer the title to a different owner than the original debtor 6. Check your state laws to make sure you are not violating a foreclosure law for registering the deed in your name. www.Mckissock.com 7. Make sure you have taken control of paying the taxes and insurance 8. Because of the modification, the payments might not be escrowed and must be paid monthly or quarterly to protect your interest. 9. The property must be in an excellent location www.McKissock.com 1-800-328-2008 As a Realtor Investor The one place new Realtor Investors lose sight is Taxes. This class cannot begin to discuss the extensive tax scenarios. At the simplest level there are two to consider: www.Mckissock.com Any real estate sold in less than 1 year qualifies for capital gains. This means any money/profit is taxed like income. Usually around 28% Held longer than one year and several tax strategies appear. A 1031 exchange is possibly available . www.McKissock.com 1-800-328-2008 CHAPTER 8 THE CLOSING www.Mckissock.com As a Realtor www.McKissock.com As a Investor 1-800-328-2008 Feedback Question 35. 1031 Exchanges are the best way to sell a property if owned for a year to defer payment of taxes. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 Feedback Question 35. 1031 Exchanges are the best way to sell a property if owned for a year to defer payment of taxes. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 As a Realtor & Investor Listing Agent -Depending on the Buyers Agent- Generally a State and the actions of the listing traditional yet nerve racking agent he could have no closing. Perhaps you are on your interaction outside of a normal 2nd or 3rd Buyer, they might have transaction. This would occur hesitated several times andwww.Mckissock.com are when a short sale expert or the still very scared, apprehensive, owner themselves did the worried and annoyed. The HUD negotiating. If the listing agent was prepared ahead of time and also did the negotiating it could was reviewed by Buyers attorney possibly be smooth but many and the Sellers bank. times the sellers bank has a few monkey wrenches waiting. www.McKissock.com 1-800-328-2008 As a Realtor & Investor As previously discussed there only one or two ways possible to profit as the short sale negotiator. Create an LLC - Sell the LLC Use an attorney www.Mckissock.com www.McKissock.com 1-800-328-2008 As a Realtor & Investor Reasons a Short Sales might fail: www.Mckissock.com www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Due to Unreasonable Second Lenders Many times the lenders just www.Mckissock.com pit you against each other. Each orders you to see what the other will do. First lender might not agree to meet the second lender's demand. A third lender might refuse to do anything. Occasionally second lenders lead sellers to commit short sale mortgage fraud. i.e. If the lender demands a payment outside of the HUD-1. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because the Home is Vacant www.Mckissock.com Many servicing guidelines require that the home be occupied. They might insist that the seller move back in. Most sellers have no funds for this. If the Seller lives in the property the chances are much better for a short sale to close. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Due to Demands for Seller Contributions Banks demand seller contributions all the time, even if the seller has no www.Mckissock.com money and no assets. The bank might insist that the seller kick in cash or sign an interest-free, long-term promissory note. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because of Deficiency Verbiage www.Mckissock.com Most states allow deficiency judgments when lenders take a short payoff. Even if the financing is purchase money or a hard money loan. These days most lenders won’t agree to remove deficiency verbiage from a short sale approval letter. Even in situations that are exempt from deficiencies, doing a short sale might change or alter the sellers' exemption. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because PSAs Prefer Foreclosure www.Mckissock.com It's possible that the servicing guidelines might not outline the scenario for a short sale. Then the short sale will not be granted, even though it may have appeared all along that the bank would approve the short sale. Some PSA’s make more money if the home goes to foreclosure due to incentives in the guidelines. www.McKissock.com 1-800-328-2008 Feedback Question 36. Vacant homes make the best short sales as there is no hassle with moving/closing dates. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 Feedback Question 36. Vacant homes make the best short sales as there is no hassle with moving/closing dates. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 As a Realtor & Investor What Is A PSA? A PSA is an acronym for Pooling Servicer Agreement. About two-thirds of the loans made since 2005 have been www.Mckissock.com securitized. Securitization is a process that involves gathering hundreds of loans into one package and selling that package in the secondary market. Often the purchaser is a trust. Trusts are comprised of investors. After the loans are pooled and sold, the trust hires a service provider to collect monthly payments and distribute that money to the investors. That securitization agreement is called a pooling and servicer agreement or PSA. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Due to Tax Liens, UCC Filings and Judgments www.Mckissock.com A review of the public records would show liens filed against the home or the seller. Most buyers don’t order a title check until they get short sale approval. Certain liens will follow the seller after a foreclosure and will require payment before the short sale can close. As a rule banks will not pay those liens. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because Bank Offers Loan Modification www.Mckissock.com In certain situations the bank will offer the Owner a loan modificationeven after they had already denied them one. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because Home is Vandalized www.Mckissock.com Vacant homes are easy targets for thieves. Very common in New England to see water pipes that broke and flood the home. Lightning can strike it and burn the home to the ground. Most commonly appliances are stolen copper pipes are stolen. Banks seldom will pay for repairs. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because Sellers Get a Job www.Mckissock.com In a lengthy short sale approval process the seller will find a job. Once employed the seller may no longer qualify for the short sale. www.McKissock.com 1-800-328-2008 As a Realtor & Investor Short Sales Fail Because Not Every Fee is Approved for Payment www.Mckissock.com The buyer could need a credit toward closing costs and the bank might refuse to pay it. Buyer's closing costs might be as much as 3% of the sales price. The homeowner's association dues are in arrears, a bank might refuse to pay those fees or similar charges. www.McKissock.com 1-800-328-2008 Feedback Question 37. Many short sales fail because the _____ prefers a foreclosure. A Owner B Listing Agent www.Mckissock.com C BPO D PSA www.McKissock.com 1-800-328-2008 Feedback Question 37. Many short sales fail because the _____ prefers a foreclosure. A Owner B Listing Agent www.Mckissock.com C BPO D PSA www.McKissock.com 1-800-328-2008 As a Realtor & Investor When you create the final HUD settlement statement, the amount to the seller must be zero or the payoff will be rejected. It has been rumored that serious hardship cases can have funds as high as $5000. Cancer, terminal illness etc.. There are numerous instances where the seller “at arms length” sells the www.Mckissock.com contents in the house for cash and receives a bill of sale for those goods transferred. The laws and rulings on this vary by state and lender, even some investors do not condone this method. You need to know your laws. As always >>>Fully disclose everything you are doing on the transaction with the homeowner and loss mitigator. www.McKissock.com 1-800-328-2008 As a Realtor Investor Whether a New Buyer Can Close on the Approved Short Sale Usually a new buyer's offer would have to match exactly to the terms of the short sale approval letter. Typically that works only if the approval letter www.Mckissock.com does not name a specific buyer. When approval letter is specific to a buyer, the listing agent will need to request a new short sale approval letter. The entire short sale process could be forced to start over from the beginning-Depending on the bank. www.McKissock.com 1-800-328-2008 As a Realtor Investor Whether a New Buyer Can Close on the Approved Short Sale To close on the existing approval letter, the following would need to take place: www.Mckissock.com Terms of the new offer must match the offer that was approved and be submitted at the same approved sales price. The buyer must close by the date specified in the short sale approval letter or an extension may be required. www.McKissock.com 1-800-328-2008 As a Realtor Investor THE CLOSING All states do closing differently however by the time you the Realtors get to the actual closing nearly every detail will have been reviewed – ad www.Mckissock.com nauseum. The HUD with fees, credits commissions etc.. will have been generated for the Lender early in the transaction. The actual closing at this point will be nearly like a traditional closing. You will collect your commission – win-win for everyone! www.McKissock.com 1-800-328-2008 CHAPTER 9 www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback Question 38. The best way to get some cash to the owner at closing is to buy his personal possessions he leaves in the house. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 Feedback Question 38. The best way to get some cash to the owner at closing is to buy his personal possessions he leaves in the house. A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 The laws, rules, gudielines and players are changing almost daily. What is approved in one state is verboten in another. This class cannot possibly cover all scenarios you will encounter. We have discussed methods used in the past that could be considered illegal if used today. We shared those so you can get a feel for the methods used and the creative thinking involved in the world of a creative short sale. www.Mckissock.com www.McKissock.com 1-800-328-2008 In this chapter we will share with you some of the very latest strategies to enable you to stay clear of the law and still profit as a short sale negotiator. www.Mckissock.com www.McKissock.com 1-800-328-2008 First and Foremost: You would never want to be the Listing agent and also the negotiator who ends up buyer the short sale property. When you sold the property for a profit you could be found far outside your fiduciary duties as www.Mckissock.com you knew the property was worth more than you convinced the bank to take. www.McKissock.com 1-800-328-2008 The following are what appears to be the only methods available to still collect / make a profit in the world of Short Sales. www.Mckissock.com www.McKissock.com 1-800-328-2008 YOUR TEAM: • • • • Sellers RE Agent Attorney Investor Loss Mitigation Company www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback Question 39. Being the listing agent in a short sale and being the negotiator is the best possible scenario A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 Feedback Question 39. Being the listing agent in a short sale and being the negotiator is the best possible scenario A TRUE B FALSE www.McKissock.com www.Mckissock.com 1-800-328-2008 Short Sale Processing Fee: Addendum to the Purchase Agreement that buyer must agree to when they make offer. State this right on MLS and have it available so other agents can download it and have it with them to present to clients. www.Mckissock.com Usually 1-2% of purchase price Paid to your attorney or LM Company and on buyer’s side of HUD. www.McKissock.com 1-800-328-2008 Get paid by finding deals and referring them to the attorney on your team to negotiate short sale or modification. They will charge a fee fee of 1% or 2%. Your attorney then goes into a PIC agreement (preferred independent contractor agreement) with your Loss Mitigation company to negotiate short sale. www.Mckissock.com Attorney pays your LM Company whatever was agreed on (1/2 of retainer) www.McKissock.com 1-800-328-2008 Flip back to back: Pretty hard in today’s market. Need attorney and title insurance company willing to do it. Cash buyer and a short sale approval letter with no re sale restriction language. www.Mckissock.com Has to be cash buyer – no 203k loans or conventional financing. www.McKissock.com 1-800-328-2008 Buy, close and wholesale: Go through the whole process of grouping your team in order to make as much as you can from short sale. Realtor has investor buy property. If there is no language of re sale restrictions wholesale property same day if youwww.Mckissock.com have buyer – if there is hold property for the length requested and wholesale. www.McKissock.com 1-800-328-2008 Buy in LLC and sell shares or LLC: If there is language on re sale restrictions you can sell the LLC that only owns that property or have the end investors LLC as a member of your buying LLC and have him buy out your shares of LLC day of close. www.Mckissock.com www.McKissock.com 1-800-328-2008 Buy, Fix, Hold and Sell: Self explanatory, realtor makes dual commission on short sale to investor. If partners with investor – makes split of profit. Makes commission on finding buyer on property. www.Mckissock.com www.McKissock.com 1-800-328-2008 Poll Question 40. The average amount an attorney or loan modification person usually collects is: A 10%-20% B 5%-10% www.Mckissock.com C $5,000- $10,000 D 1% - 2% www.McKissock.com 1-800-328-2008 Poll Question 40. The average amount an attorney or loan modification person usually collects is: A 10%-20% B 5%-10% www.Mckissock.com C $5,000- $10,000 D 1% - 2% www.McKissock.com 1-800-328-2008 CHAPTER 10 www.Mckissock.com www.McKissock.com 1-800-328-2008 A short sale is going to be creative real estate no matter what part you play. Buyers Agent, Sellers Agent and Investor Realtor and as you can see perhaps 2 or even all of these. The Seller is not in a good psychological or financial place, the Lender is in a bad financial place and the new Buyer is not usually going to be in a great frame of mind. Throughout all of this you had to hold something and someone together. Soothe feelings or egos or BPO agents visions or educate attorneys and even appease title companies. www.Mckissock.com www.McKissock.com 1-800-328-2008 And quite possibly the lender beat you up on the commission! The good news; As of this writing the time line is getting shorter during your negotiations with the bank. They have realized they don’t want the REO’S and they are streamlining the procedures. If you were the Sellers agent you helped someone and made a commission and are one www.Mckissock.com step closer to being a master of the short sale. If you were the buyers agent you made a commission and learned a little about the short sale. And helped someone get a great deal on a property. If you were the Realtor Investor you learned a lot, you worked very hard. You should have made a profit of at least 10% instead of the usual commission. Possibly you received both www.McKissock.com 1-800-328-2008 Warning! Depending on your role in the transaction you have tremendous risk and liability. Between Realtor codes, State Statutes and Civil liability many of your actions could cause you problems in the future. www.Mckissock.com Make sure you constantly disclose, Never give legal or tax advice. Make sure all parties have signed a document that states they have sought legal and tax advice. Seek out a local Short Sale expert. They will have extreme knowledge and documents specific for the area. www.McKissock.com 1-800-328-2008 Hopefully, you have ideas on how to diversify your appraisal practice Please take time to complete the McKissock Feedback Evaluation www.Mckissock.com Additional Questions may be posted to McKissock’s User Forum Have a terrific day! www.McKissock.com 1-800-328-2008