Cory Boatright
asked:

It is good to understand the general perspective of the agent conducting a BPO. Did you know the BPO Agent usually only makes $40-50 for each BPO the lender orders? Consider that for a moment. The BPO Agent has to drive out to property, spend 30 minutes or more inspecting it, take 10-20 pictures, drive back to their office (which many work from home), spend ANOTHER two-three hours putting together all the data they collected and uploading the pictures and information to company the lender used to order the BPO. All of that work for $40-50 buckos. The reality is the BPO Agents do not make any money if they have to spend A LOT OF TIME with one BPO. They have to burn thru as many BPO’s as possible to at least make a few hundred bucks every two weeks. This doesn’t mean they do not do a good job conducting one. In my opinion they are simply not motivated enough to spend the required time to produce an accurate value on the property every time. Hence, here is where investors can make more profit.

Many banks typically are not looking at just one property when they consider a short sale transaction. They are considering the entire portfolio and YOUR property may be .25% of a 50-100 million dollar portfolio. Banks for the most part do not make time or spend enough money to really care if they lose MORE on ONE house than what it is worth. They spend as little as possible to have some type of paper trail to present to their superiors and Senior Lender/Credit Officers, so they can sign off for compliance with standard operating procedures for the short sale approval. The incredible part of their story is this. Even though banks spend as little as possible to obtain a value on a property and short sale it when a Loss Mitigator writes a letter of recommendation. They still SAVE MORE MONEY by accepting short sales and not let their properties go into foreclosure and complete the auction process. Can you believe that? With all the mistakes and lack of due diligence on THEIR part…they STILL SAVE MONEY! That is astounding to me, but hey… it still makes great opportunities to profit in short sales. …so carry on with the bad habits banks….carry on.

Here are the basic factors that are considered in a BPO for the lender.

• What is the condition of the property?
• What have similar properties in the area sold for on the MLS?
• What does the home need to be sold in 90 days or less?

Serve One Another Better,

Caffeinated Content

Colin Andrews Egbert
asked:

Determining the short sale appraisal of property you have under contract is one of the most important aspects of the short sale business. Without knowing the short sale appraisal value of the property you are interested in, it’s impossible to formulate your offer to the short sale lender without knowing the home appraisal value of the property you are interested in. Knowing the appraisal value of the property is just as important to the loss mitigator at the bank.

So he has a baseline price for negotiation, the loss mitigator must establish an appraised value for the short sale property. The appraised value of the property determines how and for what price we negotiate the short sale price of the property.

An Example of Finding the Home’s Value

You may outsource the short sale appraisal needs of your short sale business to another company or a certified FHA appraiser.

The real estate investor will email the FHA appraiser, the address and owner’s name when a deal comes in and about 24 to 48 hours later the appraiser will send back a limited desktop appraisal with three comparison prices. These comparison prices are on other similar properties that have sold in the area and the market value that the appraiser has determined for the property. These appraisals may also include some additional information and a map.

You’ll get an idea of the market value of the property in comparison with other distressed properties in the area using this method. Don’t look for sales of well maintained properties when looking for compositions. Instead look for comparisons of other properties in foreclosure, REO properties, or corporate-owned properties.

Comparing Property Prices

Looking at the properties in the same area of the short sale property is the best way to determine the short sale appraisal value of a property. In the short sale business this is called using property comparisons (comps).

It’s easy to get the comps for your area with the following four services;

• Free comps services on the Internet
• Subscription programs (one is Haines, a subscription service on disc)
• Network with a realtor who can pull comps for you
• Multiple Listing Service (MLS) if you have access

We don’t recommend that you use the free market comparison services found on the Internet, since they are worth as much as you pay for them. Spending some money to get comps for your short sale business is a good thing. Paying for the comps means that someone is actually doing research behind the website or program.

Price Comparisons do Cost!

Short sale businesses pay for their comps because they want accurate, realistic market value comparisons. Remember to allocate funds to pay a company or a certified FHA appraiser for that home appraisal when you are figuring the budget for your short sale business.

It’s worth the cost to pay for a home appraisal so you can have accurate comps from third person parties or neutral parties. You’ll feel confident in presenting their appraisals as objective evidence to the bank in your short sale package.

Adding the Repair Costs

Just as important as comps in the short sale business is the physical condition of the property. You’ll want to make notes of what’s wrong, take photos, and get construction estimates for the cost of repairs, if there are any repairs to be made on the short sale property.

When you do your cost estimates remember that the short sale deal may include getting the bank to make the repairs, not you. Be sure to get cost estimates from a general contractor the bank would typically hire.

Hiring a certified home inspector is the best way to get cost estimates for your home appraisal. It’s easy to use the yellow pages to look one up.

You can also use an organization called the National Association of Home Inspectors (NAHI) to find a home inspector. This organization has high standards and is a good way of making sure you get a thorough inspection.

It takes about two and a half to three hours to complete the typical home inspection. This is because the inspector gets up on the roof, checks the crawlspace and goes over the home with a fine-toothed comb. On completion of the home inspection the inspector hands over a report that can be 20 pages with detailed information about the property defects. Home inspectors may also takes photos and provide detailed cost estimates.

A great way to calculate the short sale appraisal value for your property is by paying for a home inspector to get cost estimates.

An Example of Getting Cost Estimates

A member of NAHI is Dan Shields, a typical home inspector. He does all of the short sale appraisal evaluations and repair estimates for many investors.

He likes to start an inspection from the outside of the property to get a look at the house over all. He checks the;

• roofing,
• gutters,
• siding,
• windows,
• porches, and
• columns,

all to make sure they’re properly installed and flashed.

He then enters the home to document built-in amenities, appliances, and flooring. He next goes to the mechanical room and checks the heating/cooling package and plumbing. Lastly, he checks the attic and looks at the insulation factor of the property.

How the Broker’s Price Opinion figures in?

The loss mitigator will want to determine their own estimate of property value when you complete your short sale appraisal and submit the short sale package. In the short sale business, you’ll often find that two sides must each do their own evaluations before meeting in the middle.

The loss mitigator gets their property value by way of a broker’s price opinion (BPO) or market value. Sometimes this appraisal is done by a realtor or an appraiser.

It’s important that you do your best to influence the final BPO that the appraiser turns in on the property. Do this first by being the contact person that the appraiser goes through to get into that property. It’s very important that you meet the appraiser at the property. So you can convince him or her that your home appraisal value is close to the same as the BPO value.

Let the appraiser know that the property is in foreclosure and that you’ve been working with the seller to try to do a short sale when he or she drops by for the walk through.

This meeting is first impression time so be yourself but also stay calm and non-threatening. Let the appraiser do his or her job and talk shop for a few minutes before you start shoving your material on him.

The whole BPO process is much quicker than a traditional home inspection and it will probably take less than 15 minutes. So the appraiser is likely to miss a lot unless you point it out to him or her.

What Happens During the BPO?

To help yourself and your short sale business is sure to take three things to the BPO;

• a copy of the Real Estate Purchase Contract with your offer amount,
• your market value comparisons and
• a copy of your home inspector’s report.

Offer the material to the appraiser in a conversational tone. A professional appraiser will usually always want a copy of your inspector’s report. An appraiser will always take the property inspection report because it’s a good, neutral indication of property damage. If it’s a realtor doing the appraisal you can never tell what they’re going to take. Just ask and see what he or she will take from you.

Let the appraiser know that your Purchase Contract has been at least preliminarily accepted by the bank and that’s why he is appraising the market value. You’d be surprised how often the bank’s appraiser doesn’t even realize the property is in foreclosure.

Also try to share comps with the home appraiser. Usually appraisers have pulled comps before they go out to the property, so you may be able to share comps to get an idea of what their BPO will end up being. This knowledge definitely helps you in the negotiation process.

Chances are high that the bank’s BPO will come in close to your short sale appraisal value once you get these three documents into the hands of the bank’s home appraiser. When you get a good short sale appraisal value and cost estimates on that short sale property your short sale business will get off to a great start.

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Randolph Rempe
asked:

The home mortgage crisis is affecting people all over the world. Every day, families are losing their homes due to defaults or foreclosures. Many times, families do not know what other choice they have other than foreclosure. It seems like the only option is to let the bank take back the house, as the payment is just too much to handle, especially in these times when the economic conditions are stormy and dangerous. Short sale services are only a step away, continue forward with this article:

Although, foreclosure may seem like the best choice, however, there could be a better option if you are getting suffocated under the loan(s) due to the ownership of your house.

If you do wish to foreclose on your home, then a short sale might be the right option for you. Basically, a short sale is when the outstanding obligations of loans against a property are larger than what the property can be sold for. If you choose to do a short sale, this is the way to save yourself from having to foreclose and be able to pay off the loan by settling with your lender(s). This article will show you how you should go about doing a short sale.

Get the value of your house assessed: If you decide to go through a real estate agent, then your agent will provide you with an estimate of what your property is worth. However, if you opt to sell on your own, you will have to do research on the market value of the area where you live and of your property.

Consider the costs involved: If you have an agent, they will provide you with an estimate of how much it will cost you to close. If you are selling your property yourself, you will need to call a local title company or a real estate attorney and ask what it will cost you as a seller to close.

Confirm the dues that you owe: This is the amount that is due against the property, which is the total of all loans against your home.

Do the math’s: Subtract the total amount of what you owe against your property from the estimated proceeds of the sale. Do not be alarmed if you get a negative number.

Get in touch with your lenders: Speak to a representative in customer service and explain your situation. They may transfer you to a particular department. If it is possible then ask to speak to a manager; they will have more authority and will be able to help you better.

Inquire about the formalities required to be done for a short sale. Some lenders will be more than happy to work with you by reducing the amount that you owe. Then there are others who will look into the agent that is involved(if one) and any other parties that stand to gain anything from the sale of the house and decide if they are willing to make any concessions to make the deal happen. However, there will be lenders that will tell you that your debt is your responsibility.

Short Sales

Cory Boatright asked:

Short sale real estate is becoming a new trend for real estate investors everywhere. What is it? A short sale is when a bank agrees to accept less than what is owed on a property in order to liquidate their inventory and clear their books from non-performing assets. Here is what they consider for a short sale approval.

The following steps are to be used as a guideline to consider before submitting your property to a lender for a short sale. It is recommended that you consult a legal adviser before involving yourself in any real estate transactions.

All the steps you need to know:

1. Determine Fair Market Value (FMV)

2. Evaluate Sold Comps Systematically

3. Reveal the ARV (After Repair Value)

4. Figuring out the Lenders BPO

5. What is The House Type?

6. Learning the Loan Types

7. Memorizing the Percentages

8. How to Deal with Junior Lien Holders

9. In Closing

The FMV can be determined by evaluating sold, comparable properties in a similar or close proximity to the subject property. Realtors have access to what is called the MLS (Multiple Listing Service). This service provides an inventory of properties available, sold or pending a sale. This analysis will identify sold comparable properties with same square footage, bedrooms, baths, garage and other similar characteristics. Request the Realtors use a sold time frame within 6-12 months when pulling properties in the immediate or surrounding areas. Usually the short sale lender will not consider any sold comparables that are older than 12 months and that are further away than 2 miles from the location of the subject property.

2. Evaluate Sold Comparables Systematically

Contrary to popular and often misguided belief; you can use a formulaic system to work in your favor when determining what to offer on the short sale property. The way this works is like this

Let’s say you have eight sold comparables. You would take out the two highest comps and the two lowest ones and average the rest.

EXAMPLE:

You have a property you think is worth $145,000.

A Realtor pulls a CMA and you find eight sold comparable properties.

The MLS (Multi Listing Service) shows the following sold property values:

$159,000 $154,000 $153,000 $161,000 $148,000 $143,000 $146,000 $151,500

When you use the formulaic approach you would take the two highest sold comparables ($159,000 and $161,000). Take out the two lowest sold comparables which is ($143K and $146K). This would leave four others comps.

$154,000 $153,000 $148,000 $151,500 -

You would then take an average by simply adding up the sum of all the sold comparables and dividing them by the total number of properties left. In this case, that number would be four.

Total: $606,500 divided by 4 = $151,625

You can reasonably justify the house may sell for $151,625 instead of the $145,00 you originally estimated.

3. Reveal the ARV (After Repair Value)

This terminology is jargon or slang often used with real estate investors. FMV (Fair Market Value) is similar. The ARV is made up by the amount of repairs the investor thinks the property needs in order to sell quickly on the open market using FSBO (for sale by owner) techniques and not using the MLS.

It can be argued the ARV is more of a guess or suggested value derived by using sold comparables from houses that were NOT sold by a Realtor. One way to explain the difference is a Realtor will typically use a FMV (Fair Market Value) evaluation method. A real estate investor will consider an ARV (After Repair Value). An appraiser can use both value methods, but generally sticks to the ones that come from off the MLS. The ARV is a less accurate and dependable value than what come off the MLS. It doesn’t hurt to know both.

If you like this article, look for a new one on How to Get A Short Sale Approved – Part 2 of 3
Copyright (c) 2008 Cory Boatright

Kansieo.com

James Sopher asked:

Before we discuss the pros and cons of foreclosure vs short sale, let’s briefly define the term “short sale”:

The “short” in short sale refers to the payoff amount agreed to in a sale transaction as being “shorter” than the mortgage balance owed on the property. In other words, there is more owed on the home than it will currently sell for. In a successful short sale, the lender agrees to accept that shorter payoff in order to facilitate a sale of the home and thus, avoid the costly process of foreclosure.

So why, you might ask, should I consider a short sale if I am facing possible foreclosure on my home?

The short answer is that a short sale is less damaging in terms of the long-term effects on your credit. Let’s take a look at some differences between foreclosure vs short sale:

Short Sale:

* negotiated settlement

* seller’s credit bruised

* no attorney fees

* peace of mind

* buy property again in two years

* liens negotiated

Foreclosure:

* court settlement

* seller’s credit ruined

* substantial attorney fees

* no peace of mind

* buy property again in 8-10 years

* all liens exhausted

Credit Score

The losses of credit points from a short sale transaction can be almost as severe as from a foreclosure. You may actually lose as many as 300 points. So, for example, if you have a FICO score of 700, you could be left with just 400. The importance of this is the fact that having a high credit score means you will enjoy lower interest rates when you take out a loan.

Credibility

When you sell your home through a short sale transaction, it will show on your credit report as “pre-foreclosure in redemption status”. Although that sounds better than a “foreclosure” entry, it is still a negative entry that can damage your financial reputation.

Waiting Period

This is perhaps the main disadvantage of a foreclosure vs short sale. Having a foreclosure on your record may mean waiting for as long as 8-10 years before you can qualify to buy another home at a reasonable interest rate. However, a short sale will likely only require a two year wait.

Tax Relief

One other important item to note: The Mortgage Forgiveness Debt Relief Act of 2007 provides help to some of those who did a short sale, deed-in-lieu or foreclosure on or after January 1, 2007 to December 31, 2009. Check with your attorney or CPA to see if you qualify for an exemption under this law. If not, you would have to pay income tax on the amount of debt forgiven by the lender.

Disclaimer

While every effort has been made here to provide a helpful overview of foreclosure vs. short sale, there is no substitute for competent legal advice.

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Layla Tusko asked:

When a home owner finds themselves in a position of failing to meet mortgage payments, there is an option that does not include foreclosing on the home. A short sale is a home sale where the lender is willing to accept less than the amount owed on the home. While some lenders do not offer short sales for the loans they have secured, and other lenders may choose a foreclosure as being more financially beneficial for the loaning party, others will allow a homeowner to enter into a short sale if all paperwork is filed properly and on time.

The paperwork involved in setting a short sale in motion is the not so short part of the sale. For obtaining permission to begin the short sale process from a lender the homeowner will need the following documents.

• Letter of Authorization. The letter of authorization will need to include the property address, the loan reference number provided by the lender, the name of the home owner or the person holding the loan, the date of the request, and the agents name and address. The agent may be a real estate agent or a lawyer dealing with the financial matters in the case. The letter of authorization will give the lender permission to speak to any outside parties listed in regards to the homes loan and the home loan status.

• Preliminary net sheet. The preliminary net sheet is a financial document proving the amount of money you expect to receive from the sale of the home. The amount of the total sale, any fees, late charges, and real estate charges. The real estate firm handling the short sale will be able to address the preliminary net sheet. To ensure the approval of the short sale, the bottom line of the net sheet should show zero profits going to the seller of the home.

• Letter of hardship. This is one of the most important documents the homeowner will provide to the lender. This letter should read as real and honest as possible. If there are extenuating circumstances surrounding the sale of the home or the loss of income leading up to the late mortgage payments, the lender will need to know these facts in detail.

• Financial documentation. The lender will also need copies of all financial statements and proof of all income and debt. These statements will include assets, income, bank statements, credit card statements and any monetary statements available at the time of the short sale request. Financial statements that prove the homeowner is not in debt will cause the lender to instantly deny the short sale.

• Purchase agreement. The lender will want the listing agreement and purchase agreement agreed upon by the seller of the home and the buyer of the home. The lender has the right to refuse any and all payments in association with the sale of the home that are not required by law. These may include inspections of the home and home protection plans, depending upon the laws of the state.

A short sale will be highly followed by the lending institution. While this sale will certainly remove the burden of an over expensive mortgage from the homeowner, it will leave that homeowner in the hands of the lender. At any time during the short sale proceedings, the lender can choose to remove the authorization and simply foreclose on the home.

Short Sales

Dan Forbes asked:

Often times when talking with a Seller they ask, “Why would a lender agree to a short sale?” The short answer is, “It’s in the lender’s best interest.”

Whenever a borrower stops paying on a mortgage that loan becomes what the lender calls a “non-performing asset.” It’s a liability. It is money on which they are earning no interest and what’s worse is that they must now put back up to eight times that amount in reserve. This is additional monies on which they earn no interest.

Since earning money is what they are in business for, the lender stands to lose less money by accepting a short sale. Then they can put the money back into circulation to earn even more money.

A study conducted in 2002 by Craig Focardi of the Tower Group estimated the entire costs of a foreclosure to the lender was $58,759 and took 18 months. You can understand why the loss of a short sale is less than the cost of foreclosure.

If the lender takes the property through foreclosure that property becomes bank owned. You have heard properties described as REO. That stands for real estate owned. The more REO properties held by the lender the worse it looks for the lender and the more reserves they must carry.

Bank owned property is a headache for the lender. Now they have to cope with property maintenance, utilities, and HOA fees. They then must list the property with a Realtor® and pay a commission. They also must insure the property and deal with the possibility of vandalism by the previous owner or others.

If I am current with my mortgage, will the lender consider a short sale?

Most lenders will NOT accept a short sale unless the borrower is delinquent. If you are only one payment behind you may only be able to speak to customer service or the collection department.

In this declining market some lenders are considering a short sale even if the borrower is current with their payments. If the borrower can demonstrate a true hardship and show the inability to make future payments, some lenders are open to negotiation.

In my next article about short sales I’ll discuss the Hardship Test.

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Charles Emery asked:

For those of you who are new to the Short Sale arena or new to real estate investment, let’s first define what a “short sale” is and what it’s SUPPOSED to accomplish. A short sale is the process of negotiating with a Mortgage Lender to convince them to accept less than the Homeowner’s mortgage balance as payment in full for the property in order to prevent foreclosure, eliminate the nonperforming loan from the Lender’s balance sheet, and allow savvy real estate investors to profit from purchasing property below market value. A Short Sale is generally a great strategy to use when a Homeowner is behind on their payments and owes close to or more than what the property is actually worth. The state of being “Upside Down” (Debt > Equity) is the ideal situation when targeting short sale candidates and getting these deals done successfully on a consistent basis.

Negotiating a short sale is SUPPOSED to help the Lender and the Homeowner in default by preventing the foreclosure, wiping the slate clean for the Homeowner, and providing that Homeowner with an opportunity for a fresh start–and providing the investor with a substantial discount vs. Fair Market Value (FMV) to earn a reasonable profit on the immediate sale or on a fix & flip sale down the road. However, it doesn’t always work out that way. Experience has taught me that these 3 Key Factors are HUGE components of the harsh reality you can expect throughout the short sale negotiation & completion process.

KEY SHORT SALE FACTOR #1:

In spite of the reality that we’re in the midst of a tremendous foreclosure tsunami, some Lenders are still irrational and downright idiotic in their decision-making process. Case & Point: GMAC will only accept short sales that come in @ 90~100% of fair market value (FMV). So, they’ve effectively taken the “short” out of “short sale”! Now ain’t that just dandy? OK, time to whip out your calculators and see how much profit we real estate investors can bang out buying short sales @ 95% of FMV. Hello! Time for a reality check!

KEY SHORT SALE FACTOR #2:

Regardless of the fact that we always include a line item on our Purchase & Sales Agreement (PSA) stating: “This offer is contingent upon Buyer arranging for [Lender] to accept $________ as full payment WITHOUT pursuit of a deficiency judgment against Seller for the mortgage that Mortgagee holds on the Property”, some Lenders completely IGNORE that contractual line item. For example, HSBC is notorious for NOT waiving deficiency judgments.

Buried among the standard jargon on HSBC’s short sale acceptance letter is “HSBC Mortgage Services will retain the note on this loan. The customer shall be responsible for any deficiency remaining on the balance. All terms of the original note shall remain in force.” Wait a minute! So, HSBC agrees to do the short sale so long as they don’t end up short? They’ll discount their lien as long as they get the whole thing!? Wow! What a deal! The bottom line is that after you’ve painstakingly negotiated to get HSBC to agree to accept a short sale you realize that you’ve been hoodwinked because the deal is contingent upon the fact that it’s NOT really a short sale at all. Welcome to Crazy World!

The slick tactic here is that HSBC is making a brazen attempt to get your clients to bind themselves contractually to pay the deficiency as part of this “short sale” (ya know, the kind where they’d still owe ‘em everything). C’mon guys! We’ve gotta stand firm and do like Nancy Reagan on this one–JUST SAY “NO”! In spite of the existence of less-than cooperative Lenders with unhealthy attitudes, this HAS to become the Golden Age of Short Sales because Lenders simply can NOT keep being idiots and stockpiling REOs in perpetuity. Something’s gotta give!

KEY FACTOR #3:

There’s one document that none of my colleagues ever seem to include in their short sale packages perhaps because I’ve never seen it on the documentation list of HOW TO DO SHORT SALE programs. Since that document didn’t exist, I just had to invent what I call the Offer Price Determination (OPD), which basically walks the Lender through the process of exactly how we’ve determined our offer price. A sample of our unique, Radiant Properties OPD is available to you for FREE on our website, with which I’ll provide you below.

For those of us who’ve endured the short sale process, we’re aware that influencing the BPO (Broker’s Price Opinion) is perhaps THE most critical aspect of getting our short sale offer accepted and closing the deal. When I personally meet the BPO Broker at the subject property, I hand her or him the BPO Packet that I’ve carefully prepared just for them. That BPO Packet generally includes:

Comps @ or near our offer price Detailed Rehab/Repair Estimate Homeowner/Seller’s Hardship Letter PSA OPD

For many of you, the mounds of required documentation is the scariest aspect of short sales. To alleviate that fear, Real Estate Profit Pro (REPP), an indispensable tool created & developed by my mentor, friend, and confidant–mega successful real Estate Investor, GERALD ROMINE is THE system that all PROFESSIONAL real estate investors should use to quickly & efficiently prepare short sale paperwork AUTOMATICALLY. So when the foreclosure glut causes the mortgage industry to implode (more acutely than it already has) as a result of the Lenders’ own greed & lack of foresight, since YOU will have access to this information and powerful tools like Real Estate Profit Pro, you’ll be fully prepared to swoop in, clean up the bloody mess, then reap your profits using REPP–your powerful secret weapon to complete massive short sale packages in just minutes!

When you’ve made the wise decision to have REPP & real estate investment superstar Gerald Romine on your side, you too will be armed & ready to locate & complete the REAL Deals with the Lenders that will eventually be FORCED to become flexible enough to work with you to help them put an end to the foreclosure glut and CREATE WINNING SITUATIONS for Homeowners, Lenders, YOU, and your real estate investment business!

Since many Lenders are still in SERIOUS denial about this foreclosure mess that THEY created, realistically, some short sales will work–others won’t. So, the idea is to be sure to have a system in place to analyze deals and make offers quickly. Since I’ve been fortunate enough to have direct access to Gerald Romine and Real Estate Profit Pro since my very first real estate investment deal, I must admit that I’ve been operating at a tremendously unfair advantage vs. my competition. The GREAT NEWS is that when you visit the Radiant Properties website, you too can access this powerful REPP unfair advantage!

When you arrive at the Radiant Properties website, just look on the left menu, then click on the link to check it out. While you’re there, you can also click on the menu link to get your FREE sample of our unique, proprietary Offer Price Determination document that will MAKE YOU MONEY by giving you an unfair advantage over your competitors within the short sale investment arena. When you apply this new knowledge and Real Estate Profit Pro to your real estate investment business, you’ll certainly notice the difference in your bottom line soon enough. Since we intend to include the OPD worksheet in an upcoming short sale system that will soon be FOR SALE, the OPD Sample will only be available for FREE on our site for a VERY limited timeframe. So you’d be wise to hurry!

Finally, now that you’re fully aware of these 3 Key Factors Gurus NEVER Tell You About HOW TO DO SHORT SALES, just visit our Radiant Properties website listed below, get the REPP and FREE OPD info you need, then go negotiate & CLOSE a PROFITABLE short sale deal! Short sales aren’t easy, but you can successfully close these deals on a consistent basis–when you have the right tools…

Caffeinated Content

Chris Prefontaine asked:

As an investor and a coach I am getting more and more questions concerning short sales with banks. I get as many questions as a realtor by regular clients as well.

There’s a lot of confusion out there regarding the bank’s decision to take a discount or not and then – if they do – how much will they take?

The market in most areas has simply sunk below what is due on many home owners’ loans. As a result, there are a number of variables that go into a lender’s decision about whether to discount a loan and then, of course, how much discount they’ll take. Now, I know most of us think – heck, why won’t they take simply what the home is worth and be happy with that rather than having to foreclose on the property to eventually get to that point anyway?

Whether you are an investor or a home owner, please understand that there is some basic preparation you can and should do before the lender will even discuss a short sale with you.

• A signed purchase agreement

• A letter of permission from the seller allowing the bank to discuss the loan with you as investor or realtor.

• Make sure that you’re talking to the right person at the right bank-sometimes the place that the seller is sending his payments is not the lender at all, but just a loan servicer. On top of that, if it is the bank, the person answering the phone for your payment typically has no decision authority. There’s typically one person within a given bank or lending entity who has the authority to take offers, so discussing your offer with anyone else is could prove to be a total waste of time.

• The attorney handling the foreclosure – if in fact it made it that far – has nothing to do with this short sale typically so don’t waste your time there.

• On that note above, where is the loan in the foreclosure process. If the borrower is just a few months behind-or if the auction is happening in 3 days-the bank might not be terribly motivated to take a major discount. They may assume, for example, that they can work out a payoff with the owner and if not, they may have already invested a great deal of money in legal fees, and may feel that it’s better to take their chances on getting the property back and reselling it on the open market. I know to most that doesn’t make sense due to the market being in what I call a trailing downtrend, but that’s reality.

• What condition is the property in? Most lenders are hesitant to take back a property that needs major work or that has code violations. I always tell clients, the uglier it is, the better the chance that the lender will entertain your offer

• The lender’s position as creditor is very important. Are they in 1st, 2nd or 3rd. The latter two are usually much more willing to discount-and discount much more than a 1st mortgagor would. Think about it: the seller may have no equity thanks to a 80% 1st mortgage and a 15% 2nd, but the 1st mortgagor has 20% equity if he or she has to take the property back.

• The requirements of the lender’s private mortgage insurance company or of FHA and VA insurance can also influence its decision.

• How is the housing market at the point in time you’re dealing with this deal?

• Rules and regulations by state – make sure you speak with a competent attorney in this area.

• Number of bad loans the bank is dealing with already.

• What is the likelihood that the owner will declare bankruptcy

Now, what if you get through all this and do all this investigatory work and the bank still says NO.

Please go into this deal or client relationship realizing that you’re only going to get about 60%-75% of your short sales accepted. Don’t take any of this personally. It’s simply a numbers game and if you know that going in you won’t be frustrated when 6 or 7 out of 10 go through and the others fall apart.

The bank may say no for several reasons: high BPO, an inexperienced loss mitigation rep, or possibly a foreclosure sale date that is just days away. One of the most common reasons the bank will say no is because the BPO came in too high and the bank feels the property is worth more than it actually is.

Before we go further, let’s define what BPO is? It means “Broker’s Price Opinion.” When a short sale package is submitted, the bank will send a real estate agent or Broker to the property to judge its value. When I was an active agent, I would get these requests. Many times the BPO is simply a drive by. To insure a low BPO – an accurate BPO, I strongly urge you to meet the agent at the property with your own comparables and a complete short sale package. In addition to comps for the agent, give copies of pictures, list of repairs documented by a contractor on their letter head, and walk the agent through the house room-by-room. Usually, agents and appraisers are asked to value properties at the high end of the scale. Most homeowners trying to purchase a home need top value in order to qualify for the loan. Therefore, it is unusual to ask for low numbers. This is why I like to meet the agent at the property; without doing that it’s very tough to expect them to see the true picture.

If the bank said no because of the BPO, your first step is to challenge it and request a second opinion. My suggested script for you with the loss mitigation department would sound like this: “My friend (or “I am”, or “An appraiser said…”)is an agent that works specifically in this neighborhood. I think your BPO might be sending you in the wrong direction. It would be a shame for your bank to take the property at auction, only to lose money. Why don’t we do the right thing and schedule a second BPO. I’m sure if you choose someone who actually works this neighborhood, that person will agree with me that the property is only worth what I’m finding out to be it’s true value. Your bank is not in the business of losing money, is it? I didn’t think so. When is the best time to schedule another BPO, today or tomorrow at 5:00?”

Your bottom line goal here is to insert doubt in the mind of the loss mitigator and the fear that they may be wrong in their company’s eyes if they don’t reconsider. Once you schedule a second BPO, run through the above steps again.

If, after a second BPO, you still can’t get the bank to see it your way, what should you do? PASS and take pleasure in saying NEXT. I tell investors in our training program (www.R-E-A-N.com) the same thing I tell realtors I train: put enough deals in the funnel and you won’t be attached to any of them.

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Dave Peeples
asked:

Of course they do. The real question that people facing this question really want to know is, “How bad do short sales hurt your credit?” The answer to that question is not simple. It depends on a wide variety of influencing factors to include, number of missed payments, credit score before mortgage delinquency, lender policy, and other credit factors. To be comprehensive, this article will focus on the two real issues that borrowers facing foreclosure should be concerned with: their credit score and their ability to get a home mortgage in the future. These are two completely separate issues that are commonly confused when this discussion occurs.

With regards to credit scoring, their are two main factors that affect a delinquent borrower’s credit score. The first factor is the accumulation of missed mortgage payments. Credit agencies do not view missed mortgage payments in favorable light. After a payment is 30 days passed its’ “due” date, it gets reported as a 30 day late. After the payment is 60 days late, it becomes a 60 day late, and so on. The more delinquent the payment, the more is hurts the credit score. Here is the part that most people do not realize, a 120 day late payment gets factored the same as a foreclosure. Yep, you read that correctly. I will write it one more time, a 120 day late payment is scored the same as a foreclosure. It gets recorded as a Score Reasoning Code 22, serious late or delinquent account. There is no specific reason coding for foreclosures, short sales, deeds in lieu of foreclosure, etc…They are all treated the same. The reasoning is that a late payment is considered a default because it has not been paid as agreed.

A corresponding but separate issue for challenged borrowers to consider is their future ability to get a new loan. The majority of loans are written in order to comply with Fannie Mae guide lines. This allows the new loans to be sold to investors, and thus makes them “liquid”. Historically, Fannie Mae did not differentiate between foreclosures and short sales. They were both considered situations in which the borrower did not repay the loan as agreed. Therefore, Fannie Mae required borrowers with a foreclosure or short sale in their history to have these closed accounts “seasoned” for four years before becoming eligible for a new loan. In other words, in addition to repairing their credit the borrowers were sent into a type of mortgage “time out” for four years until they could get a new loan.

In June of 2008, Fannie Mae issued new guide-lines which formally recognized that short sales are in fact different than foreclosures. The new rules stipulated that those with a foreclosure in their past had to wait five years before getting a new loan, while those with a short sale have to wait two years before getting a loan. This measure will go to great lengths to incentify borrowers to seek an agreeable solution to foreclosure with their lenders.

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