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Short Sale Success Secrets with
Foreclosures |
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by: Richard
Odessey |
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:
1. an “Authorization to Release”
form that gives you permission to contact the lenders and the
foreclosing attorneys.
2. a sales contract - signed but leave
the purchase price blank. You may need to change the numbers as you
negotiate with the bank
3. a financial statement - to show they
can't afford to make the payments
4. 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
About the author:
Go to www.InvestorWealth.comfor these Real Estate Profit
Secrets:
* Super Success Short Sale Secrets (*Best Course)
* Deal Evaluation Tool
* Free Teleseminars on the
latest and most effective real estate profit techniques
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