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Short Sales make it into the Advanced Lesson plan, not because they are complicated to understand, but because there is a lot of coordination and multiple skills involved, even for experienced investors, much less inexperienced investors. Short Sale = Ask a lender to take an amount less than the amount owed on a house to release their lien. We know investors who execute them successfully. Our parent has executed them successfully. We even know a mortgage broker helping a buyer execute one successfully (she had no real estate investing knowledge). We waste little time on them now - the deals exist but our cost structure values people's time. And a lot of time is wasted on short sales. SHORT SALE STEPS Short sales take a long time. Here is why (some of these steps can change places depending on what is most immediately available):
2) Get under contract 3) Gather mortgage info 3) Check title to see if another mortgage or lien 4) Check back taxes 5) Get a hardship statement from borrower - saying why they fell into foreclosure and why they cannot get out 6) Obtain a monthly budget from the seller, signed - good luck 7) Obtain the seller's last two months bank statements 8) Obtain the seller's paystubs with Year to Date Income and potentially the last several years Income Tax Returns. 9) Do all of that again for a spouse or anybody else on the loan, or anyone listed on borrower's tax returns. 10) Prepare a sample HUD (download Free Trial - it says DEMO but banks will accept it) showing all costs and the Net to the Bank from a closing 11) Send to the bank. 12) Realize that you sent it to the wrong person at the bank, or that it was never received some 3-10 days later, depending on the bank. 13) Find out that the house had to be on the market for 1-4 months before they will consider a short sale. 14) Put the house on the market. 15) Take it off the market. 16) Send proof of being on the market to the bank. 17) Wait for bank to do a Broker's Price Opinion (BPO) - sending an agent or a photographer out to the house. 18) Meet them at the house. Show them that the house is worthless even though you are buying it. Convince them. Have materials prepared that show the problems with the house, the repairs needed with cost estimates, and some of the terrible comps they should use for their opininion. 19) Find out the value on the BPO from either the broker or the lender. 20) Wait for the bank to perform an appraisal on the property. 21) Repeat Steps 18 and 19 for an appraiser this time. 22) Negotiate with the bank account manager for the minimum they will accept. THAT'S NOT THE WHOLE LIST We were so tired by the end of the list, we realized that we didn't even describe the negotiating with the bank process. Know the most you will pay. Offer what you think they may take - we would start at 80% of appraised value knowing that the real number is 95% or so. Did we forget to mention that the Buyer has to show proof of funds, etc.? And the short sale bank will not allow a double closing if it knows about it? THAT WAS A SIMPLE DEAL What about a second mortgage? Second lienholders should be easier entities with whom to negotiate. They are. But they must be paid separately from the HUD on the actual closing of the home (and prior to) if the first is taking a short. No first mortgagee will allow a penny to go to the second lienholder if the first is taking less than full balance as payoff, ie a short. You will have to provide proof that the second mortgage has been released. What if it was FHA or VA financed, or has Private Mortgage Insurance? We are guessing those to be a waste 90% of the time. What if the owner wants $5,000 to move on with his life out of his house at the last minute? Do you have a way of getting it to him? Do you have a legal way of getting it to him? SHORT SALES TIPS FOR THOSE WHO WANT TO MINIMIZE TIME PER SUCCESS Our tips below assume an investor is a MAO buyer. If an investor is willing to buy well above MAO, there are plenty of deals in short sales. Of course, there are plenty of deals in the MLS as well which take only about 3 steps. If the second mortgage is the one that is behind, and the investor does not need to take a short on the first lien, then the investor has a workable and straightforward deal. If the investor is working with a small bank that does not seem process-driven, then the investor has a workable deal. If the investor is working with a bank that cannot transfer the call to the right department after 2 tries, the investor does not have a workable deal. If the home is not in bad shape, and there is conformity of value to a neighborhood, then the investor probably does not have a workable deal (by MAO standards). CONCLUSION This process can take 90 days or longer, but at the very least 45 days. Some of the gurus out there, including Mr. Preforeclosure, say you can quit your job in 90 days. We believe that you will bang your head against the wall in 90 days. But there is light at the end of the tunnel. You can work the numbers with banks by being influential with appraisers and BPO'ers. If done successfully, you will perform a profitable short sale. Furthermore, we feel there is value to sharing information as to which banks are good to work with in short sales, and which ones are not very good. We will start off with the easy ones with which we have experience worth sharing: TERRIBLE: Chase Wells Fargo Citibank Washington Mutual Long Beach Mortgage Bank of America World Savings (tip - Katheryn Burson GOOD: North Houston Bank Horizon Capital Bank (now Frost Bank) Send us an email with a story about any of these or other banks that you have worked with and we will add to our list. If you have questions and would like more dedicated and one-on-one/small group education, we can set up live in-person or on-the-job learning sessions - upon request or at a regularly scheduled time. Related Articles -ADVANCED EDUCATION OVERVIEW - Real Estate as a Market Buying Without Title Insurance Cash Flow Vs. Appreciation and Housing Affordability Cash Investing - the opposite of No Money Down Deferred Taxes and Profit Calculation FHA "Flipping" Guidelines Foreclosure Deeds and Title Insurance (Trustee) Future Topics Being Drafted Gurus and Market Efficiency KHAP v FEMA v Section 8 Passive Income for Long-Term Wealth Short Sales Tax Benefits of Real Estate Investing Return to Listing Return to Investor Education |
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