Short Sale Success Secrets with Foreclosures
by Richard Odessey
Published on this site: August 3rd, 2005 - See
more articles from this month
If you're active in real estate investing, you may already
realize one of the biggest issues real estate investors face:
Finding Great Deals.
FORECLOSURES AT A 52-YEAR HIGH
With foreclosures at a 52-year high, there are thousands
of deals available on the market, if you know where to find
them and how to secure them. The first challenge you'll face
once you locate the property is that most of these homeowners
are mortgaged to the hilt. They have no equity, and big loan
payments. In fact, many actually owe more than the property
is worth!
Most investors will walk away from these deals because they
see no obvious profit. That's because they don't know about
the Short Sale.
WHAT IS A SHORT SALE?
The concept behind the short sale is simple: your goal as
a real estate investor is to convince the bank to sell for
less that is owed as payment in full. Of course, this concept
is easy - buy the foreclosure from the bank at a big discount,
sell the real estate, and make money! So how does it work?
SUCCESS WITH SHORT SALES CAN BE ACCOMPLISHED IN THE FOLLOWING
STEPS:
Step 1: Do your research.
Many new real estate investors make the mistake of waiting
until some subscription service sends you the list. The disadvantage
is that a ton of other investors are also getting the list.
If your first contact is to send a letter, forget it. Your letter will be lost in the huge pile the homeowner is
getting from all sorts of other investors, credit repair etc.
99% of the time these go directly into the trash or a big
basket unread. If you go directly to their door you've got
a chance.
So if you're going to mail, be the first to act when the
default notices are printed in the local newspaper. Or be
the first at your courthouse, if that's where they're filed
first. The key to finding investment-worthy properties is
to act quickly. Be disciplined and mail out the letters the
very same day-in fact take them to the post office. In this
business, the early bird really does catch the worm.
Tip for Success: If you don't have a company that
publishes your notices of default, check with local title
companies or bankruptcy attorneys to see if they offer these
services; you need somebody familiar with the subject that
visits the courthouse often.
Step 2: Develop your marketing strategy.
When you have located foreclosures, make sure your timing
is swift. Mail your initial letters of approach to the homeowner
the same day you discover the property. Placing ads in your
local papers also helps to generate leads and find homeowners
eager to avoid the credit penalties involved with foreclosing.
Tip for Success: A typical advertisement strategy
taught in real estate training is to get listed in real estate
or credit section of the classifieds. These ads typically
have a bold, to the point headline, such as "Avoid Foreclosure"
or "Stop Foreclosure, Today!" If you are targeting
a specific property type, or reaching for higher market values,
specify this in your ad. (Instead of simply "Avoid Foreclosure,"
add your target market to the bottom of the ad. Example: "Avoid
Foreclosure, call 1-800-555-1212. 500K and up." You'll
make more money in real estate by reaching for high-value
properties, and an ad like this shows your prospects that
you specialize in helping those with higher value homes avoid
foreclosure.
Step 3: Work with the homeowner.
You can't get anywhere without the cooperation, and often
gratitude, of the homeowner. The homeowner you are working
with has obviously run out of options, but you'll need their
trust and confidence if you plan to short sale mortgages.
Remember, in these situations, you are often looked at as
the "rescuer". Make sure you explain the homeowner's
part in the process thoroughly. Once they deiced to allow
you to work with them, there is important paperwork you need
them to fill out and sign:
- an "Authorization to Release" form that
gives you permission to contact the lenders and the foreclosing
attorneys.
- a sales contract - signed but leave the purchase
price blank. You may need to change the numbers as you negotiate
with the bank
- a financial statement - to show they can't afford
to make the payments
- a hardship letter - to explain in personal terms
what happened.
Tip for Success: Remember that this is a stressful
time for the homeowner. It's easy to get caught in the excitement
of a prospective short sale profit. You can get them to make
a decision when you are able to convince them that this is
the right option for them Emphasize the benefits of working with
you, and then ask for them to take action. Make sure to let
them know that once your contract is signed, and the bank
accepts it; they'll be free to move on with their life.
Step 4: Negotiate with the bank.
Although banks don't enjoy taking a loss, it is a simple fact
of the lending business that short sales are a necessary evil
for lenders. Indeed owning the property (a non-performing
asset) is even more expensive than selling it for a loss.
Consider:
Banks use short sales to drop unwanted property quickly without
having to deal with the REO office and go through the long
process of putting the home back on the market. When you speak
with the Loss Mitigation department, remember, this property
is actually costing them money! Federal regulations require
somewhere between $300,000 and $800,000 (or more!) to be held
in reserve by lenders, which is many times over the actual
price of the bad debt.
When you call the bank and ask for the Loss Mitigation Department
(the department that handles properties that are in foreclosure)
tell the person handling the account that you are trying to
help Mr. X with his foreclosure and you are willing to buy
the property from him, but due to the condition of the property/declining
values/etc. you are only willing to pay X amount. This is
where your negotiations begin.
Be firm and polite, but don't ever make threats to not buy
or be forceful in your approach. Loss mitigators are often
busy and overworked, and they want to see you as somebody
who is minimizing the damage - and hassle - of the bad debt.
Tip for Success: Larger banks are the easiest to deal
with when working with short sales and foreclosures. This
is because the larger banks have more resource, more experience,
and more loans! While there are some larger banks that don't
work with short sales at all, other banks, such as Wells Fargo
or Fairbanks Capital, tend to work with a much larger volume
of short sales.
Once you have worked with enough short sales, you'll find
that you have inside contacts at some of the larger banks;
be friendly, ask them about their day, Develop a rapport.
Sometimes, they'll open up about problems they're facing or
current trends, which of course, you'll need to keep on top
of!
You don't have to be a real estate pro to see the potential
for making money with short sales, and now you definitely
have some great tools to get started. Great deals in real
estate are out there, and with today's market, your potential
for profit is limitless. Just keep in mind: do your research,
market your services, and treat the homeowners and lenders
with respect. When you use this approach with short sales,
you can make a win-win for everybody, especially the officers
at your own bank when you cash in on your profit!
In the next article, we'll discuss the tricks and tips in
convincing the bank to take a big discount on the short sale.
Best of Success,
Richard Odessey
Richard Odessey and Michelle are experienced investors
and founders of the premier site on the internet - http://www.InvestorWealth.com:
training real estate investors to do high profit deals. Offering
Free Teleseminars by the top real estate investors, how-to
tools and kits and hands-on training with personal advice
from experts from the comfort of your home
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