Short Sales - A Guide For Foreclosure Investors - Part 3 To assure the lender’s mitigation division that you are capable of closing
the sale it is a good idea to include a proof of funds. This can be a letter from
your bank, from your hard money lender or a copy of your monthly bank or
brokerage statement.
In the package will be the sales agreement and the contractor’s estimate
of costs for repairs needed to get the home into very good condition. You want
the lender to know that this is not a property they want to own. List every
possible repair the property needs. Be very detailed with your list:
Carpet $1,900
Paint Interior $1,750
Paint Exterior $2,500
Repair porch $1,350
Replace garage roof $1,700
Two New Interior Room Doors $280.00
Sprinkler Repair $195
Tree Removal $550
Rain Gutters $1,200
New Floor Covering $3,100
Etc.
You can have a contractor prepare the list of repairs or you can get
Contractor’s Estimated Cost of Repairs forms from an office supply store and do
it yourself. We made our own form from an example we found on the Internet at:
http://www.amosprint.com/contractors/forms/215lg.GIF
If you prepare the estimates yourself visit home improvement stores like
Lowes and Home Depot to get prices of materials and fixtures. Estimate labor
costs.
Take the least flattering possible photos of any damage to the exterior and
interior of the home. If there’s junk in the yard make sure it is visible in the
photos.
Could you dump trash in the yard, put up torn window screens, park a
rusted out car on the lawn? Yes, you could do that for your photos and for the
inspection the lender will probably order… BUT it’s dishonest! Don’t do it.
Take the photo in late afternoon when light is dim and shadows are hard
and dark. Urge the homeowner to leave the lawn unmowed, trees and scrubs
untrimmed. Chances are the home’s condition will already appear neglected
without your help. There’s no reason to out and out cheat. You’ll find plenty of
profitable deals without deceiving lenders. Your reputation is too important to do
that.
Most homes where the owners are experiencing financial problems have
been neglected. The owners don’t have the money or state of mind to take care
of ordinary maintenance. In some cases you will be working with newer homes
and they have not had a chance to show much age. Do the best you can in
finding problems and flaws that will take money to correct. Keep your eyes open
for anything that might diminish the value of the home.
It is a good idea to prepare a “hardship letter” for the homeowner to sign.
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Pacifica Atlantic Financial
123 West North Dr
Pot Hole, WV 99999
Hello,
Please accept my request for a discounted loan payoff on my
home loan. For the last three months I have tried to sell
my home without success.
No realtor will take my listing. They tell me that because
of the condition of my home, the amount of money it would
take to make repairs and the falling property values in my
neighborhood there is no way that they could find a buyer
at a price that would allow me to pay off your loan.
I recently lost my job and because of my wife’s medical
bills I have fallen behind in payments on all of my credit
cards and other debts.
I am a carpenter and building in this area has come to
a
stand still. To find work I am moving to California and in
with my brother’s family.
I have accepted Mr. Homer Homebuyer’s offer of $60,000 for
my home. Will you please accept that amount as payment in
full for the money I owe your company.
I am sending you my most recent bank statement and late
notices on credit card and auto loans. Also find
a
termination notice from my job. Without your cooperation
I
may be forced to consider bankruptcy.
Please help me,
Harried Homeowner
(The above is just a sample letter to give an idea of what to write. Have the
homeowner sign it. If the homeowner is capable you can explain what is needed
and have them write it in their own hand.)
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Get comparable sales for homes in the area. There are many sites on the
Internet where you can get recent comparable home sales at no cost. Do a
search on Google.com for “Comparable Home Sales” or “home values”. When
you compile your list delete the most expensive. You want to honestly emphasis
that the home in its current condition is worth far less than is owed on the
mortgage loan.
Yahoo offers free “comps”. Here’s an example where you can easily see that
you would delete any price over $100,000 before sending the list to the rep:
http://list.realestate.yahoo.com/re/homevalues/
Property Address Sales Price Sales Date Square Feet Year Built
11931 W ROSEWOOD 99,790 02/28/2000 1750 1995
11926 W CORRINE 102,000 11/29/2001 1000 1995
11943 W ROSEWOOD 99,610 02/24/2000 1750 1995
11942 W FLORES 103,630 02/23/2000 1750 1995
11920 W ROSEWOOD 99,810 03/02/2000 1750 1995
11918 W ASTER 95,530 03/21/2000 1750 1995
11932 W ROSEWOOD 123,900 12/07/2000 1750 1995
13018 W POPPY 94,000 02/23/2001 1000 1995
11935 W DAHLIA 101,420 03/15/2000 1750 1995
11947 W DAHLIA 106,090 03/16/2000 1750 1995
11928 W ROSEWOOD 100,730 03/02/2000 1750 1995
11799 W COLUMBINE 99,900 02/08/2001 1500 1995
11930 W CORRINE 96,020 03/09/2000 1750 1995
11938 W CORRINE 99,890 03/09/2000 1750 1995
12244 W COLUMBINE 99,500 06/26/2001 1000 1995
11927 W ROSEWOOD 101,000 06/25/2001 1000 1995
Don’t do anything dishonest, just stress the problems with the property
and the reasons why the lender should not want to complete a foreclosure and
take on the headaches of owning the home.
The B.P.O.(Broker Price Opinion) is the single most important part of the
short sale process. It is critical that you "influence" the BPO. To speed up the
offer process request that the lender go ahead and order the BPO. The lender
may be unwilling to spend the extra money to order the BPO until they receive
from you the completed "package" components.
Too many investors have put lenders to work ordering BPOs and then
never complete the offer package. Lenders can be reluctant to order pay for a
BPO this early in the negotiation. If you can convince the loss mitigation rep to
order the BPO while you are gathering the rest of the offer package it will save
time for both you and the lender.
The lender will hire an appraiser or realtor to go to the house and
determine the value of that property…. that’s how the BPO is created. Make
sure you are the contact person who meets them at the house. At that time be
sure you have prepared a list of some low comparables ("comps"). Your goal is
to present whatever evidence you can that will influence the person doing the
inspection to submit the lowest BPO possible.
In your conversation with the mitigation rep your can ask if you should
include documentation of why the homeowner is financially distressed. That
could include notice of termination from his job, divorce papers, medical bills,
death of a wage earner… whatever it takes to convince the lender that this
borrower cannot make payments. If the homeowner has been considering
bankruptcy, include that. All that goes into the “hardship letter”.
One other item should not be overlooked. Remember in the example
above we said that the $60,000 the lender receives as payoff is a gross figure.
Out of that he will have to pay certain settlement costs. The lender wants to
know what he will net out of the payoff amount? In other words, how much cash
will he end up with after the deal closes.
Although you are not buying the home from the lender, he is stepping into
the shoes of the home seller as far as paying the seller’s customary closing
costs. What he receives after paying those costs is his “net”.
In the package you send to the lender/mitigator you should enclose a
projected closing statement… an itemized list of debts and credits. The
statement that is best understood by the lender is a HUD-1. There is a very
affordable online service that makes preparing a HUD-1 very simple. You will
find it at www.EasyHud.com .
Do you get the picture here? You want to convince the lender that his
best course of action is to discount this loan before he loses even more money
and ends up with a problem property.
In the package that you send to the lender you will include:
Your cover letter/letter of intent
Sales Agreement/contract
HUD-
1
Comparable Home Sales
Hardship Letter.
Estimated cost of repairs (with photos if practical)
Proof of funds letter from your money source,
Name of company or attorney where escrow has been or will be opened.
Any documentation that will support the homeowner’s inability to pay (if
required)
.
The mitigation rep may ask that other items be added to the list.
Now you either fax or put the pages in a folder and send the package by
overnight delivery to the mitigation representative. In your first conversation with
the rep be sure you get phone number and extension, fax number and mailing
address, as well as the name of the rep or the person to whom you must send
the package if it’s someone other than the person you are talking with.
Always be pleasant in these dealings. Remember this is just business
and there is nothing personal between you and the representative.
It is the representative’s job to help make the deal work. He or she is
operating within the guidelines and policies imposed upon him or her by the
company. They want to make the best deal they can, but they also want to
protect the company from adding another problem property to their list of Real
Estate Owned.
The representative may be willing to answer certain questions about what
documentation they would prefer you include in the package that you send them.
Ask.
Could you ask what the lowest figure they would accept for loan payoff?
Yes, you could ask, but don’t expect an answer. Besides if they give you a
number that is more then you can pay they might find it difficult to negotiate down
from there.
After the mitigation rep indicates they might do a discount deal, but before
you send the package, ask your title company to give you a preliminary title
report. You may find other liens against the property that would have to be
discounted in separate negotiations before you could agree to buy the property.
After you send the package with your offer you may find that the
representative will counter your offer. You can accept the counter or you can
offer a compromise figure. They may have some room for negotiation. If it gets
right down to it you can just say, “I hate to walk away from these people, but my
last offer is the best I can do. Please accept it, because I can assure you that
this is a property your company will not want to own. The homeowner may have
no other recourse but bankruptcy.”
When the mitigation representative accepts your offer GET THE
ACCEPTANCE IN WRITING. Ask the rep to mail the acceptance to you or fax it
to you. When you receive it be sure the loan payoff amount is “all inclusive” and
releases the homeowner from any deficiency obligation.
Often you will receive a call from the mitigation division telling you your
offer is accepted and they are sending you an acceptance letter with details. The
letter may look something like this:
PAY OR DIE FINANCICAL
1234 Penny Lane
Send Cash, TX XXXXX
RE: Loan #0000003
Dear Ms. Homebuyer,
Pay or Die hereby agrees to accept your offer of $60,000 to
release its lien on the above referenced property.
The funds must be wired and received not later than June 7,
2005.
The closing agent is required to contact our office on the
settlement date to indicate how the funds will be
transferred to our office. Pay or Die will provide
a
satisfaction of debt.
Closing agent must provide a copy of the HUD closing
statement no later than 24 hours prior to closing.
This agreement will be reported to the credit bureau as
“settled” and Pay or Die waives any deficiency judgment
against the borrower.
Sincerely, This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
