Special offer

KW Realtor Career Training: SHIFT - Mastering Short Sales(PowerPoint Presentation/Notes)

By
Real Estate Broker/Owner with Keller Williams Realty

SHIFT - Mastering Short Sales

Presentation/Notes by Barbara Horan, Keller Williams Realty Temecula

INDIVIDUAL SLIDES WITH NOTES

Picture1

v Phase 1: Preforeclosure. The time line for foreclosure will vary from state to state and from lender to lender. It typically begins with the homeowner’s first missed payment. v The lender will begin adding late charges and may call or send collection letters 16–30 days after the first missed payment. v Approximately 45–60 days after the missed payment, the lender will notify the homeowner that the loan is in default. Usually, the homeowner will have 30 days to send the missed loan payments plus late fees to avoid foreclosure. v After about 90–105 days, the lender will send the homeowner a Notice of Intent to Foreclose. This notice initiates the legal proceedings of foreclosure and is usually made public. v Phase 2: Public Auction. Depending on the state, the home will be offered at auction after 150–415 days from the first missed payment. v Phase 3: Postforeclosure. Depending on the state again, after the home has been offered at auction, it may go into a redemption period. In the redemption period, the homeowner can buy back their home if they can pay the lender the entire loan plus additional fees that have amassed. Not all states have a redemption period. In states that do have a redemption period, it is typically 150–415 (or more) days after the homeowner’s first missed payment. The home becomes real estate owned (REO) by the lender if it doesn’t sell at auction

Picture1

There are numerous personal and market events which could produce significant financial challenges for a homeowner. Some possible reasons are
  1. The homeowner may have secured a subprime loan. The initial interest rate on an ARM is set below current rates. At specific time intervals, it resets to match the current interest rate. About 450,000 people per quarter through the end of 2008 will most likely see significant increases to their monthly loan payments.
  2. The homeowner may have secured an ARM with the intention of refinancing, but is unable to do so. With more rigorous lending criteria, it is more difficult for homeowners with ARMs to refinance their loans into fixed-rate mortgages.
  3. The homeowner may have secured a zero-down loan. A zero-down loan means zero equity at closing. As a result, the homeowner has no equity to fall back on.
  4. The homeowner may have lost a job or divorced a spouse. Meeting a monthly loan payment can very well be dependent on a job’s monthly inflow of cash or on the monthly inflow of cash from two incomes.
  5. A devastating event in the homeowner’s life can have serious financial repercussions, ultimately making monthly loan payments an insurmountable financial issue.
  6. Market shifts with price declines compound all of these issues. If the home is worth less, the homeowner may be unable to sell the home in order to cover the balance of their loan, especially if they have little or no equity.

Picture2

v Due to financial distress the owner may be avoiding the lender. If you encounter a homeowner who hasn’t been in communication with their lender, advise them to do so immediately. v Your good advice could lead the homeowner to much needed financial relief and a deep, heartfelt appreciation for your professionalism—which could in turn lead to referrals and future business. The other options the homeowner might be able to take advantage of include:
    1. Forbearance – the lender could agree to temporarily suspend or reduce payments.
    2. Mortgage modification – the lender could agree to permanently change the terms of the loan to reduce the monthly payments.
    3. Refinance with an FHA-backed loan – In July of 2008, Congress passed a housing bill to help homeowners avoid foreclosure. According to the provisions of the bill, homeowners facing foreclosure who are owner-occupants can refinance their loans into a lower fixed-rate, FHA-backed loan. The original lender agrees to take a loss on the loan and the homeowner agrees to share any future price appreciation with the government. This arrangement costs lenders less than a foreclosure and it saves the homeowner from foreclosure.

Picture3

v The Agent: Agents who specialize in short sales can grow their businesses and enjoy the satisfaction of knowing that they have helped people in crisis. If you develop your skills in this niche, you can be a prime person for referrals from other associates. Additionally, if you save a customer from foreclosure, you are very likely going to be their top-of-mind agent for life. v The Homeowner: The seller will be able to walk away from the growing stress of impending foreclosure and a public auction. He won’t have “foreclosure” on his credit report, though he will still take a hit for any missed mortgage payments and possibly for the short sale itself. v The Lender: Lenders see the benefits of a short sale in financial terms. It is expensive for lenders to foreclose on a home. Each foreclosure costs lenders approximately $50,000. These costs include, but are not limited to, legal fees, possible eviction costs, taxes, insurance, maintenance of the home, neighborhood dues, and selling costs. If the lender does foreclose on a home, that property (now an REO) shows up as a liability on their balance sheets. Their business is loaning, not owning.

Picture4

  1. Your Solutions-Based Unique Selling Proposition (USP): Build a USP that highlights solutions and professionalism. It’s a unique way of stating the benefits that you bring to your customer. Then highlight your USP in all of your prospecting and marketing.
  2. Notice of Default Lists: These are recorded with the county clerk at the county recorder’s office. You can search these records for free.
  3. Public Notices of Auction: You can look for Public Notices of Auction at the county recorder’s office as well. Alternately, you can search your local newspapers for this information, or you could look online at www.foreclosure.com. Be aware that your time to work a short sale may be foreshortened if you find a customer through a Public Notice of Auction.
  4. FSBOs: FSBOs could be financially distressed homeowners who are trying to remedy the problem by themselves.
  5. Lenders: Leverage the relationships you have with lenders by asking for referrals when someone is in preforeclosure. Lenders who market with agents can be strong business partners in many ways—this is one of them.
  6. Listing Appointments: In your listing appointments, you may find sellers who are in preforeclosure and are potential short sale customers. Dick Dillingham, dean of KWU faculty, politely asks his appointments, “Are you current on all your mortgage loans?” to open this conversation.

Picture5

  1. If the market value of the home is more than the loan amount, even if current market value is less than what the homeowner paid, the homeowner will have to list and sell their home in order to pay off the mortgage. Lenders are only interested in working with sellers when it makes business sense for them. They will not be interested in a short sale if they can recoup their loan through a typical sale.
  2. Facing foreclosure does not automatically make someone a good candidate for a short sale. If the homeowner has money or assets elsewhere, the lender will not be interested in negotiating a short sale. A short sale will usually cost the lender less than a foreclosure, but the lender is still losing money.
  3. The homeowner should be able to demonstrate a hardship that made loan payments impossible by being able to compile documentation that proves the hardship. This information will be added to the short sale proposal that will be submitted to the lender. If the homeowner’s loan rate adjusted, you’ll have to obtain copies of the loan statements. If the homeowner encountered medical issues, you’ll want to gather copies of those bills. If a spouse died, you’ll have to request a copy of the death certificate.
  4. The homeowner must be willing to cooperate with the agent, lender, and buyer. The homeowner will have to turn over private documents and be willing to wait for answers from the lender, while making nothing off of the sale.

Picture6

The following may prevent you from being able to complete a short sale, even if the homeowner meets the other qualification criteria:
  1. Bankruptcy: If the homeowner has filed for bankruptcy, the court or trustee must approve their entering into a listing agreement. Additionally, in some states, the homeowner is protected from foreclosure by bankruptcy laws. Keep in mind that bankruptcy is a legal issue. Unless you are also a lawyer, you should not dispense legal advice.
  2. PMI: PMI insures the lender against the homeowner defaulting on their loan. The lender considers short sales only when it makes business sense for them. If their potential loss from a foreclosure exceeds the insured amount, they may be willing to do a short sale. If not, they won’t be.
  3. Imminent Foreclosure Date: In some cases, lenders will forestall foreclosure if the short sale process has been initiated. If the public auction date is less than two weeks off, you can contact the lender to explore other options or to initiate the short sale process. However, if the lender will not stop the foreclosure process as a result of your communications, you should keep in mind that you may not have enough time to complete a short sale.

Picture7

v In this step, you are compiling documentation that will prove the homeowner’s financial insolvency and that they’ve experienced a hardship. You are compiling the same sort of information needed to complete a loan application, except instead of proving credit worthiness, you are proving financial insolvency. v Refer to “Short Sale Checklist–Information Gathering” in the appendix of An Agent’s Guide to Short Sales, Foreclosures, and REOs and on www.kellerwilliamsuniversity.com for a checklist of information to gather from the homeowner.

Picture8

  1. Authorization: In order to speak with the lender on the homeowner’s behalf, you’ll have to obtain and submit the homeowner’s written authorization. Oversee this process and make it happen as quickly as possible. Some lenders have forms, but in most cases a short note will suffice. Fax the authorization to the lender as quickly as possible.
  2. Communication: Then call the lender and ask for:
a) Short sale application packet. Not all lenders have one, but many will. b) The name and direct number for a decision maker in the Loss Mitigation Department. This information is important. When you are negotiating, you will want to speak to the person who can make decisions regarding the short sale. If the loan is with a servicing company, they will not be able to negotiate with you. You can ask them who actually owns the loan to begin finding the decision maker in the Loss Mitigation Department. c) Information about their policies. The more information you uncover about the lender’s policies, the more confident you can be that your efforts will result in your being paid. Ask the lender what their response time is on a complete proposal. Ask the lender what they’re looking for in a proposal. Verify that the lender does short sales!
  1. Systematize: You’re going to want to communicate with the lender regularly.
a) Make sure you record information about every communication. You may want to use the Short Sale Contact Record. It’s available in the appendix of An Agent’s Guide to Short Sales, Foreclosures, and REOs and on www.kellerwilliamsuniversity.com.

Picture9

v In the proposal, you should demonstrate concisely, yet thoroughly, why a short sale is the most financially advantageous conclusion for the lender. v The lender should be able to look at your compiled proposal and see that it is clearly their best option.
  • You should demonstrate that the homeowner will go into foreclosure if a short sale isn’t completed, and
  • That it will be difficult to sell the home for full price after foreclosure
v The proposal should be well organized and professional. Your investment of time and materials into the proposal will make it stand apart. v See the Short Sale Proposal Packet Checklist available in An Agent’s Guide to Short Sales, Foreclosures, and REOs and on www.kellerwilliamsuniversity.com for a list of items to include in the proposal.

Picture10

v Develop a pricing strategy for the home. List the home at the full market value or just below initially. The lender will want to see that you tried to get as much out of the property as you could. Develop a systemized plan to aggressively lower the price on the home until you receive offers. v Educate the seller on your strategy, and enter into an agreement on the strategy in advance.
  • For the sake of clarity, you may want to specify in your listing agreement with the seller that you are going to list the home at a price lower than their estimated payoff.
  • You may also want to include a sentence that says you will present any offers to the seller before you submit them to the bank.
v Considerations:
  • Lenders are very unlikely to negotiate repairs, and your homeowner may be unable to make them.
  • If it’s optional in your MLS, enter “Short Sale” in the agent remarks to draw agents who have customers well suited to short sale purchases.
  • If necessary and appropriate, you may have to be flexible on the commission. You can build good will with the buyer’s agent by splitting the commission fifty-fifty with them.

Picture11

v Lenders often have requirements they will not reveal until there is an offer. If you have a network of investors available, you may turn to them in order to initiate the negotiations.
  • Be careful! If the lender accepts, the buyer should be ready to follow through.
v Don’t send the lender all of your offers. When you know what the requirements are, ask potential buyers for their highest and best offers. v Send the lender the best of the lot. v Any negotiations between the buyer and the seller should occur before you submit the offer to the lender. v The lender will order a BPO. If possible, be present during the BPO. v Educate the buyer on what a short sale entails even before the offer!
  • Time for lender to approve (at least 30 days)
  • Buyer may have to close within 30 days of approval
  • You may want to develop a disclosure that details the peculiarities of a short sale and then obtain both the buyer’s and seller’s signatures on it. (Find an example in the appendix of An Agent’s Guide to Short Sales, Foreclosures, and REOs, and on www.kellerwilliamsuniversity.com.)

Picture12

v Once you have an offer, add it to the proposal packet you created. v Then, send it by registered mail to all of the appropriate contacts. In Step 2, you opened communications and asked for the name of the decision maker in the Loss Mitigation Department. You’ll now send your proposal to that contact. Also, be sure to send your proposal to the officer or collection clerk who was assigned to the case.
  • Each loan should have its own proposal. Send out additional proposals for secondary loans as applicable.
v Follow up on your submission, and confirm with the lender that they have your proposal. v Be persistent! Make sure the people who must make decisions about it are looking at it. Stay on top of communication with the lender.

Picture13

v If you are working with more than one loan, begin negotiating with both the first and the second lenders at the same time. If one of the lenders agrees to your proposal, rush a copy of the acceptance letter over to the other lender right away. v Don’t call the lender and then wait for a return call. Create a system for when you call, and always record a note about your call, its topic, and the outcome. You may want to use the Short Sale Contact Record available in the Appendix of An Agent’s Guide to Short Sales, Foreclosures, and REOs and on www.kellerwilliamsuniversity.com. v Negotiating a short sale can be a time-consuming process. In order to maintain focus on their businesses, some top agents leverage help in the negotiations:
  • Services are available to help negotiate short sales. They either take a percentage of the commission or they are paid by the lender.
  • Some agents say that their markets don’t justify the systems necessary to work short sales, and they refer short sales to agents who specialize in them.

Picture14

v Typically, the deal must close within thirty days of the lender’s acceptance. As such, the buyer has to be ready with cash or funding. v Remember that the seller most likely is not in a position to bring cash to the closing. If you had the seller and buyer sign a short sale disclosure, everybody should understand that the seller is not going to be able to pay any of the buyer’s closing costs.
  • Your preparation in Step 1: Gathering information should help you to ensure there are no additional liens on the house.
  • As a courtesy, alert the closing company that this deal is a short sale, and offer to answer any questions they have. Some closing companies may be unfamiliar with short sales.

Picture15

v The benchmarks, or estimates, used in this short sale math example are based on a model provided by America’s Home Rescue, LLC, a leading short sale services vendor to real estate brokers. v The numbers in this example are assumptions simply to illustrate the thought process and math needed to arrive at a short sale list price.

Picture16

v Referrals from your seller are a tremendous opportunity after the short sale. You’ve just saved your seller from foreclosure. You’ve probably just made a fan for life. v After you complete the short sale …
  • ask the seller for a testimonial and add that testimonial to all of your short sale materials, including your website;
  • put the seller in your Met Database; and
  • put the seller on a 33 Touch marketing campaign that emphasizes your professionalism and problem-solving abilities.
v After a couple of years, your seller may be ready to buy again. And when they are, who are they going to think of first? Even if they aren’t ready to buy soon, if they hear someone mention a need for a real estate agent, who are they going to think of? They’re going to think of you, the person who worked wonders for them!

More PowerPoints From KW Family Reunion 2009:

Priced To Sell – Delivering Effective CMA’s

SHIFT: Catch People in Your Web:

PRESOLD – The Power of a Prelisting Package

Marketing: Reach More People in Less Time

Master The Language of Sales

Grow Your Profit Share Tree and Amplify Your Life!

KW Family Reunion 2010 in New Orleans!

Read The Dozen Secrets Every Real Estate Agent Should Know

Comments (0)