Class 100 - Starting Short Sales

You have to start understanding terms and what different terms mean in the foreclosure short sale business. That is where this class starts.

Non-Judicial Time line for Short Sale

Sequence of Events:

90 days after non-payment request to initiate foreclosure received. Default documents will be prepared and sent for signature/recording (Substitution/Notice of Default). Deed will be ordered from Title Company.

On Day 1, notice of default recorded with County Recorder.
10 business days later, notice of Default and Important Notice are mailed to trustor/new owner on the Deed of Trust at the property address, address on Deed of Trust and any other addresses known to lender/trustee. Notice is also sent to any parties with a recorded request.

Within 1 month, TSG is received and reviewed. Notice of Default mailed to all entitled parties with an interest in the property (ie, new owners/junior lien holders) is required.

3 months after recording  the Notice of Default, Notice of Trustee's Sale is prepared and sent for publication.

25 days before the sale date, send a Notice Of Sale to IRS (if applicable).

20 days before the sale date, begin publishing Notice Of Sale in an adjudicated newspaper.  This will run once a week for 3 consecutive weeks.

20 days before the sale date, post the notice of sale on the property itself. Most posting services will photograph the posting location for your records.

20 days before the sale date, mail notice of sale to the trustor and all other parties to which the Notice of Default was mailed.

14 days before the sale date, the Notice of Trustee's sale is recorded in the County Recorder's office.

5 days before the sale date, the borrower's right to reinstate expires.

On sale date, the property sale is postponed to a new sale date, the property is sold to high bidder, or the property reverts to the foreclosing beneficiary.

Judicial State Timeline

    * 30 – 90 days - missed payments – default.
    * 30 days later – legal proceedings begin – complaint.
    * 28 days – answer the complaint.
    * Within 5 – 30 days – motion for default – summons.
    * Within 3 days – to sheriff – judgment.
    * During next 3 months – appraisal ordered and 5 weeks of advertisement in paper.
    * Day of Sale – courthouse – sheriff sale.
    * Within 30 – 60 days – confirmation of sale.
    * 14 days after confirmation of sale the Sheriff’s deed issued – foreclosure.

• Can take as little as 180 days from start to finish or as long as 9 months depending on county.

• Must always know where the borrower is in regards to timeline.

• In some states the owner has the right to redeem the property at any point up to the confirmation of sale.

• Only Sheriff has the right to tell you to move out of your home.


Short Sale: Definition

A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (of foreclosure).


Foreclosure: Understanding

The  bank will foreclose on a homeowner because they did not pay their mortgage. The first question you have to ask is, “does the bank have a Mortgage or a Deed of Trust?” Determining whether the homeowner has a Mortgage or if they have a Deed of Trust will help determine how long the homeowner has until the property goes to auction.


Deed of Trust

Deed of Trust has some similarities to a mortgage. With a mortgage, a lien is put on the property and you hold the title to the property. When there is a mortgage,  if you do not make payments the lender can foreclose on the property.

In some states, the Deed of Trust is used instead of a mortgage. On a Deed of Trust the lender has the deed to the property but the lender can only take the property back if you do not make your payments or meet the loan terms.

There is very little difference between these two methods of giving the lender a controlling interest in the property whether a deed of trust or a mortgage

What is a Trust Deed?

A Deed of Trust isn't like the other types of deeds; it's not used to transfer property. It’s a similar version of a mortgage, commonly used in 12 states. A trust deed transfers title of  land to a "trustee," usually a trust or title company, which holds the land as security for a loan. When the loan is paid off, title is transferred to the borrower.


Mortgage Default Explained

Once two or more payments have been missed, the bank will start the process to begin foreclosure. Depending on your state, the foreclosure process takes a certain amount of time anywhere from one month to a year or two. Before the home goes to auction,the homeowner will get a notice stating the fact that it will either be sold at a sheriff sale or a trustee’s sale.

Mortgage experts say, while the number of mortgage delinquencies has increased in the last six years, the proportion of homes that end up being sold through foreclosure has been declining. And that, the experts say, is largely because of lenders' intensified efforts to work out arrangements with delinquent borrowers that let them avoid foreclosure and stay in their homes whenever possible.

Among those arrangements are special forbearance agreements. This is where the lender may temporarily reduce mortgage payments. These are called mortgage modification plans, where the borrower refinances the mortgage to one with a lower monthly payment; and partial claims, in which the Department of Housing and Urban Development will provide certain homeowners with the money necessary to make a delinquent mortgage current.

One of the lesser-known means of bailing out a homeowner facing foreclosure is with a “short sale.” Here we will consider ways to help a distressed borrower sell a home to us with the help of the mortgage lender.


List of States - Mortgage or Deed of Trust

Alabama     Mortgage
Alaska     Deed of Trust
Arizona     Deed of Trust
Arkansas     Mortgage
California     Deed of Trust
Colorado     Deed of Trust
Connecticut     Mortgage
Delaware     Mortgage
District of Columbia     Deed of trust
Florida     Mortgage
Georgia     Mortgage
Hawaii     Deed of trust
Idaho     Deed of trust
Illinois     Mortgage
Indiana     Mortgage
Iowa     Mortgage
Kansas     Mortgage
Kentucky     Mortgage
Louisiana     Mortgage
Maine     Mortgage
Maryland     Both (Mostly Deed of Trust)
Massachusetts     Mortgage
Michigan     Mortgage
Minnesota     Mortgage
Mississippi     Deed of Trust
Missouri     Deed of trust
Montana     Mortgage
Nebraska     Mortgage
Nevada     Mortgage
New Hampshire     Mortgage
New jersey     Mortgage
New Mexico     Mortgage
New York     Mortgage
North Carolina     Deed of trust
North Dakota     Mortgage
Ohio     Mortgage
Oklahoma     Mortgage
Oregon     Deed of trust
Pennsylvania     Mortgage
Rhode Island     Mortgage
South Dakota     Mortgage
Tennessee     Deed of trust
Texas     Deed of trust
Utah     Mortgage
Vermont     Mortgage
Virginia     Deed of Trust
Washington     Mortgage
West Virginia     Deed of trust
Wisconsin     Mortgage
Wyoming     Mortgage


Discounting Mortgages

It’s true that many lenders will facilitate the sale of a home facing foreclosure by allowing the mortgage loan to be paid off at a discount from the amount owed. They will only consider doing that if they have begun a foreclosure action against the homeowner.

Why will lenders sometimes accept a discounted loan payoff?  Hey! You asked for it.

Lenders base many of their financial decisions on the "Note Rate". That is what the bank chooses to earn on investments. The Note Rate is based on the following: current T-Bill yields, Net Cost-of-Funds, what competitor’s are charging for mortgage money, brokerage discounts, pass book savings interest rates, etc. Into this they calculate their cost of doing business and what they must produce in shareholder profits

Based on these calculations lenders decide what they have to charge on AA, A, B and C mortgage paper and personal loans, and what to pay out on passbooks, and money market accounts.

Each category is assigned a specific "Note Rate” or interest rate… a higher rate for loans with higher risk – lower rates for less risk. That Note Rate is the overall yield the lender must earn on the money it loans in various categories

The note-rate requirements are then the lending bible for every type of loan made in each of the lender’s departments.

A loan department may offer money at 3% for 6 months, after which the rate adjusts-up every six months until it reaches the Note Rate. That allows the lender to receive its predetermined profitable yield.

Then they calculate how much of their anticipated yield would be lost if a loan were to terminate before it reached the Note Rate level. They add that figure into the contract as a decreasing-term pre-payment penalty, so that no matter what happens the bank still gets its Note Rate.

If there is no pre-payment penalty, then the borrower must pay points to insure that the lender will not be deprived of its expected Note Rate yield. The Note Rate changes with the general cost of money. So how does this motivate a lender to accept a discounted mortgage payoff? When an aged loan defaults, the Note Rate often has already been achieved, and the lender has nothing to lose by allowing the property to be sold for less than they are actually owed. Even though the loan may have a balance of $150,000 over the next 25 years, the lender will usually be better off to convert that "Future-Value" money into "Present-Value" money and get it back into profitable circulation with new loans.

That business decision allows the lender to accept, for example, a

$100,000 payoff on a $150,000 loan (or some other discounted figure) and still be in a sound financial position. That $100,000 in cash today is worth a lot more than $150,000 that won't be completely returned for another 25 years. When the money goes back out to new borrowers it will virtually always be even more profitable to the bank than their having waited for the old loan to pay down.

To further protect the lender from risk, they send an IRS Form 1099 to the short sale seller for the difference between what they were owed on the loan, and what the property eventually sold for. Now they don't end-up paying the income tax for their borrowers debt-relief or on their costs.

The lender ends up with additional loan-points on new loans, after already obtaining their desired Note Rate.

The IRS now requires lenders to send the 1099 forms instead of paying the income tax themselves. When they did pay the tax they would just write-it off as a bad debt, and the IRS would lose revenue.

Lenders usually don’t lose money on short sales. If they did, they would never approve a discounted loan payoff and just foreclose on the home. In fact, many times in a robust real estate market they would rather foreclose and resell the home at a profit.

The above is a brief explanation of why it is often worth the effort to

contact a lender and ask for a discounted pay off. Other factors are involved in a lender’s attitude about short sales, but now you understand one of the important ones.

Sometimes the financial climate creates a jump in the number of

foreclosures and the lender already has too many homes in his REO inventory.

As these words are being written HUD, who insures many loans through FHA, is urging lenders to try and find a way for defaulting borrowers to keep their homes or at least get out of them with the least amount of financial pain.

Under these circumstances most lenders will entertain a discount, or

short sale or other means of working out the problem. There will be other periods when there are few foreclosures, there is a robust economy and banks can easily sell any homes they acquire through foreclosure. During those times you will seldom have a discounted offer accepted. A short sale can be attractive to the real estate investor, because it is a chance to acquire a home with considerable equity at a bargain price.

The investor’s challenge is to find homeowners who are facing foreclosure and have little or no equity in their homes… and no ability to bring their mortgage loan payments current.

That brings us to the key in any business MARKETING!

Class 101 – Marketing Short Sales

Marketing

This is the key to your business. If you are not doing the proper marketing to get clients to call you, a short sale cannot be initiated.  We always want Homeowners to come to us and we do this by sending letters directed at individuals that have already started the foreclosure process.

 
Sending letters is the easiest and most efficient way to get Homeowners to contact you about their foreclosure situation. The number one reason people do not get called or do not meet with enough Homeowners to do short sale deals is because they do not send letters fast enough or they do not answer their phone from 8:00 a.m. to 10:00 p.m. This is a simple marketing plan, once you get the newspaper with a list of daily or weekly foreclosures, just send letters that next day. Let me tell you, these two things will get you short sale deals , but  you must meet with the homeowner ASAP.

Letters

The key to getting responses to  your letters is to hand write the homeowners address on the envelope and use regular postage stamps not bulk mail. When the homeowner receives your letter, they get the sense that this is someone who  knows them since the envelope is hand written. Your letter will be opened along with the 20 other letters they received from people wanting to do the same thing you're doing. The difference between you getting this deal and someone else is you answering your phone. The person that receives these letters will start calling the letters one at a time. The first person to answer the phone is usually the person the homeowner is willing to work with. If you do not answer your phone, the homeowner will just go to the next letter and sign up with the first person they get to talk with.

Once you get the list of homeowners in foreclosure, always send letters to the homeowner the next day.

Always answer your phone from 8:00 a.m. to 10:00 p.m. two to three days after the letters were sent.

Example: First Letter


December 11, 2006

Ms Jane Doe
8888 North Lane Ave
Columbus, Ohio 43211

Dear Ms. Doe,


Hello Ms. Doe. My name is (Put Your Name Here) and I can help you with your home.

You could put your house on the market and try to sell it yourself, or you could take your chances and list it with a real estate broker. However, right now it takes about four months to sell a house in Franklin County.

I specialize in helping people in Franklin County who are in foreclosure. And I can help you, too! All that you have to do is to pick up the telephone right now, and call me at (888) 888-8888 to set up an appointment so that I can make you an offer to buy your house today.

I will handle all of the details of the sale and deal with your lender and the title company processing all of the paperwork that is necessary to transfer the property’s title.

I look forward to hearing from you very soon and to working with you to stop your lender from foreclosing on your house.


Sincerely,

Your Name

This is the letter I use, but each market responds differently so experiment with different letters.

 

Example: Second Letter


Hello Bob,

 
My name is Jane Doe. My wife and I would like to BUY your home. We are not realtors and we do not charge a fee for this service.


Please call or email us at:
Cell Phone          - 888-888-8888
Email us at         - stopforeclosure@hotmail.com


Thank You.

Jane Doe


Door Knocking Technique:  


The key to successful door-to-door sales is to be friendly and really personable when approaching somebody about buying their house.

The best time for door knocking is:

1.    5:00 p.m. to 8:00 p.m. Monday through Thursday  

2.    8:00 a.m. to 9:00 a.m. in the mornings

3.    9 to noon on Saturdays

I personally do not door knock. I get enough responses from mailings. Door knocking takes a lot of time and my time can be used more efficiently.
 

Basic  Door Knocking Script:

 
Hello my name is Derek Carter. (At this point I will hand them some information like a one page info sheet)

“Bill, these are some of the services my company offers. I understand you may want to sell or get rid of your home. I would like to talk with you and your wife about buying your home.”

“Can I set up a time to talk with you or do you have time now?”

 

Where to get the list of foreclosed homeowners

 
We currently get our list from the Daily Reeporter, which is a legal newspaper in Columbus Ohio. We pull the list of foreclosures from the Internet every day.  

Link to Site
Source News - Daily Reporter – www.sourcenews.com

Once you have pulled the list of foreclosures from the Internet site, the letters go out the next day. The longer you delay the letters, the less of a response you will get from your mailing.

Some cities publish the foreclosures in the daily newspaper. Look in the legal section to find a listing of the foreclosures. Some cities may print the foreclosures only once a week. There are other foreclosure sites that for a fee will sell you the list for your area, but be careful, most of them send out lists monthly and that info is old and not worth the money.

 

Bandit Signs:

 Another way to get people to call you if their house is in foreclosure is to put up bandit signs. However, some cities have strict policies on bandit signs.

I place the signs at busy intersection either on telephone poles or in the ground with a metal stake.

Check out our marketing section to get more great ideas on finding motivated sellers.

Class 200 - Talking to Homeowners

Phone Call From Homeowner

          There are two main reasons people are not calling you. You are not answering your phone from 8am to 10pm at night the 3 or 4 days after you send mailings or you are not sending letters fast enough. If you are going to be sending out mailings every day like we do, then answer your phone. Here are the main reasons a homeowner said they called me: first reason is because I was the first letter they received, and the second reason is that, I answered the phone.

          Use the informational sheet to ask questions on the phone to get the information needed.  Try not to sound like you are reading from a script but rather hold a conversation and get your questions answered in that manner. Use the same Client Information form every time you get a prospect on the phone, remember to be consistent with what you do.

          I tell the homeowner on the phone that I may be able to work with their lender to buy their home to prevent the foreclosure.  Ask to set up appointment to see the property ASAP and tell them what paperwork will be needed by the bank to buy their home. If you don't, they may speak with another investor. If you can't meet with them the same day ask them to please not speak with anyone else until you can sit down face to face with them.  Often, homeowners will agree to your request and be very open minded when you meet with them.

 

What to Say When a Homeowner Calls:

 

Realtor Script

Homeowner says: “Hello Jim. I received a letter from you about buying my house.”

 

Realtor says: “Phil, good  to hear from you. That’s great that you received my letter and thanks for calling me. What type of situation are you in?” (Let them talk, empathize and gain rapport)

 

Homeowner says: “Well Jim I got behind my house payments and my wife and I just cannot make up the payments. We just want to be done with the house and move on, is there any way you can help us?”

 

Realtor says: “Phil I would be glad to sit down with you and your wife to go over this process. I have a few questions to ask you before we set up a time to meet. (Check out the phone interview questionnaire below) What’s a good night we could meet for a half-hour to an hour?”

 

Phil may ask if you are a realtor and you will say yes. Explain to Phil that you can help them get out of foreclosure by negotiating with the bank to sell their house.

 

Investor Script:

Homeowner says: “Hello Jim. I received a letter from you about buying my house.”

 

You say: “Phil, great to hear from you. I know you received a letter and thanks for calling me. We help Homeowners by negotiating with the bank to buy your house and keep the bank from doing anything with the home. What type of situation are you in?” (Let them talk, empathize and gain rapport)

Homeowner says: “Well Jim I got behind my house payments and my wife and I just cannot make up the payments. We just want to be done with the house and move on, is there any way you can help us?”

You say: “Phil I would be glad to sit down with you and your wife to go over this process. I have a few questions to ask you before we set up a time to meet. (Check out the phone interview questionnaire below) What’s a good night we could meet for a half-hour to an hour?”

The scripts are basic and very simple but please make the script your own. Whether you are a realtor or an investor you have to gain rapport and once you do that, any objections they throw at you can be overcome.

 

Call Information Sheet

 

Homeowner Name ______________________________________________________

Phone: _____________________

Email ______________________

PROPERTY Address:____________________________________________________

City:            County:                State:                   Zip:

 

AS-IS VALUE:$           ARV: $                REPAIRS: $

Describe Repairs:

1st Mortgage Payment: _________________ 2nd Mortgage Payment _________________

How old:              Garage:                Basement:

Used as rental or residence?                            Currently occupied:

How much is owed on the first?

Is there a second loan or third loan?

Who is your lender?

Motivation to sell?

Seller needs?

Will you sell the property for what you owe?

Is the property listed?

Appointment Date:

Follow-up Date:

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