Archives for July 2009

5 Step Short Sale Strategy-Offers-Timing and Ratios

Ground zero-Determine the total debt, what type of loans and who they are with. PMI FHA etc..

Step 1. is to determine what the current fair market value for the home is on a 15 to 20 day price.

Step 2. List the home on the MLS at 90% of FMV. (Fair market value) or 15 to 20 Day price.

This should help any early on drive by BPO’s to still come back in a range that will help your approval.

Step 3. Is to provide an investor cash offer to the bank at 65% of the FMV.

Start the negotiations off on the right foot and set the expectations as low as possible, but high enough to get the process going. It need to be at least around 65% of what the banks AV will be. (automated valuation)

Step 4. Place the home under contract on the MLS for the next 30 to 90 days OR until the bank starts the process and orders the BPO’s.

This will save the seller months of unnecessary showings and calls as almost none of the potential buyers in the first phase will still be around to purchase the property in the final phase.

If the bank approves the investor offer with a clean approval letter, then its a done deal! Mission accomplished.

If they approve the investor offer but ask for a promissory note OR the second mortgage needs more money that the first mortgage is willing to pay, then be happy you started the negotiation low enough and ask the buyer to increase the offer to satisfy the note or have them pay the second mortgage additionally at closing.

If you didn’t send the investor offer in and sent the highest offer you could find, this option most likely wont be available to you.

If the bank sends a counter offer at an “approved price” then you put the home back to active status or provide an offer that will close at the approved price. Which should be a 15 to 20 day price. Which at this point would actually be able to close in 15 to 20 days. Marketing a 15 to 20 day price on a home that cant close for 90 to 120 days is what has caused so much chaos and frustration among short sales in our market.

Step 5. Negotiate a clean settlemnt approval letter with language that the seller is happy with and its a done deal.

NOTE: Listing the home higher than market and showing the bank a listing history with price reductions and feedback CAN help get a market price approved but runs the risk of early drive by BPO’s coming back inflated making the final approval more difficult.

Bookmark and Share

4 Reasons why you dont want to send the highest offer to the Bank

If you are a seller attempting a short sale with your lender there are a few reasons why it does not represent your best interest to send the highest possible offer to the Bank.

1.The lender is not your friend. This is a negotiation.

You never start the negotiations and expectations high, and then try and back them down later. You want to start the negotiations low and let them feel like they are doing their job and mitigating their loss to a perceived reasonable amount, based on the first offer you send in , and the banks BPO.

The bank is not going to give you more time, postponing a Trustee sale date because they think you tried to be nice and send the highest offer in. In fact the exact opposite thing will happen. They will think maybe because they saw a higher offer once they can get it again, even if they have to foreclose, re-list the property and get it themselves.

2. Time is of the essence! You want a 15 Day sales price approved, NOT A 90 day price.

If your  buyer defaults and you need to find a new buyer while facing a Trustee sale date you need to be able to have an approved price that is attractive enough that you can find a new buyer within 10 to 15 days. That buyer will need to have enough incentive to close on time.

3. Buyer Non-Performance.

If most of your offers are 30K or 40K less than your highest offer and you send the highest offer to the bank and that buyer doesn’t perform, you will have a very difficult time getting the bank to accept less than the previous offer you sent in. In the banks mind you got that offer once, you should be able to get it again, and time is not on your side when in foreclosure. It doesn’t look good for the loss mitigator either to have a higher offer initially and accept a lower offer later. Also, beware of retail buyers who have 15 offers on short sales. They go and make careless offers thinking that price will get them into a short sale in 30 days or less, this is simply not the case. Instead they set unreasonably high expectations for the lenders, end up not closing on any of the offers and make the situation for all 15 sellers much worse.

4. You have a higher risk of signing a Promissory Note when you send the highest offer.

Suppose you send the highest possible offer in to both the first and second mortgage. The first mortgage approves your offer and the second mortgage does as well but they want you to sign a note to promise to repay 10K over the next 2 years. Even though the offer you sent in was HIGHER than their BPO, they still want the promissory note because they say that it is in their written guidelines to require one. What do you do? The buyer doesn’t want to pay it because they already sent in the most they were willing to pay. Most of the time in this scenario you have no choice but to sign it. If you had sent in the offer for 20K less in the first place and the 2nd mortgage wanted a promissory note for 10K you could have easily asked the buyer to pay it and still sold them the property for 10K less that what they were willing to pay. There are dozens of similar variations of this situation involving HOA dues, 1st mortgages, tax liens, etc..

The bottom line is the more of a margin you have to fix promissory note problems when the approval payoff comes back the better. If the payoff comes back clean than you have no problem. If comes back with some issues than you are in a much better position to increase the price or negotiate someone else pay it instead of the seller. I have never seen it work in the reverse order.

5. I have added a reason 5. =) Declining Market Values!

Our Market is still decling and you need to start getting a price approved that will still be a wholesale-10 day price in 4 to 6 months or longer. Prices have dropped more than 10% in some areas in less than 6 months. Correcting the banks inflated opinion of value is more difficult than influencing that opinion appropriatily in the first plae.

How to write a good short sale hardship letter

When writing a hard ship letter for a short sale there are 8 keys you must know about.

1. Make it less than 1 page.

In this case less is more. Take the space you need to clearly explain your hardship and that is it. If it is more than 1 page it wont matter much what you write because no one will ever read it! I frequently get questions from loss mitigators that are answered in a 3 page hardship letter that they didn’t take the time to read because they were too long.

2. Get straight to the point.

Tell them exactly what your hardship is, IE How your circumstances have changed since the time you signed your loan papers. Only include the facts, use bullet points if you have to.  An example is; “When I receive the loan on my house I was employed with ABC company and made $4,000 a month. 2 years later on Jan 1, 2009 I was fired and I am now unemployed.”

3. Be very specific

Explain exactly what it is that is keeping you from making your payments. Not things in general about the economy. They want to know exactly how you have been effected.

4. Explain what you have done to try and mitigate the problem.

Example;1 ” I have worked full time interviewing for 6 months and have not found a job”

Example 2; ” I have borrowed from Credit Cards and family and done everything I could to keep making payments. We even cancelled our cable TV and home telephone”.

Example 3; “I tried everything to avoid having to sell the home in this down market. I called Countrywide 57 times for a loan modification or forbearance plan and did not receive a single returned phone call. I feel I have no other choice but to sell the house.”

5. Explain if your situation is temporary or permanent and that you are unable to pay.

If it is true, explain that you do not see your situation improving anytime soon and that you have spent depleted all your savings and assets trying to keep up with the payments. “I now have Zero assets from witch to keep paying.”

6. Ask for the lenders Help.

Ask the lender to please accept the current market value of the house as payment in full.

7. You don’t want to have to file Bankruptcy.

You may mention that you are trying to avoid bankruptcy.

8. Handwritten.

Hand write it if you can, if not make sure you at least sign the bottom.

If you cant read your writing, make sure you type it and sign it.

Tip: If you have had specfic Job or Family related issues these are viewed more favoribly by the lender.

The Best Fix and Flip Strategy in Our Market.

In our market the best fix and flip strategy is clean the property up with low cost/high impact improvements.

Target price range=Under 250K to 300K.

Put it back on the market clean, and priced less than 90% of the other active similar homes.

You’ll have it under contract in 30 days. You dont want to pre-invest your future profits into unrecoverable improvements.

IE: The idea is you don’t want to make the home the nicest on the block. You want to make money.

Our market doesn’t lend itself to paying a premium price for upgrades.

Its always nice to be the smallest house in a larger home area, but not a must.

Buy at 65 to 70 cents of the true value and sell at 90.

In the “boom time” appreciating market, one days retail was the next days wholesale. Getting a premium price for upgrades was easy. Times have changed.

The strategy in our market isn’t over improve, then overprice. Anyways.. my 2 cents on house flipping.

For more details on flipping short sales in our maket please contact me.