Short Sale Investors Want to Know What to Tell The Bank
By John Occhi, Hemet - San Jacinto Valley CA REALTOR
Hemet-San Jacinto Valley, CA Real Estate

The real estate market in the Hemet San Jacinto valley should be heating up with the triple digit temperatures we are experiencing in the Hemet CA area.  Unfortunately, it seems like the only segment of the Hemet CA Real Estate market that is heating up is the Short Sales, Pre-Foreclosures and REO properties.

Ouch - this can't be good for the overall economy, can it?  I don't think so.  However, as a Real Estate investor you have the opportunity to help your country and stimulate sales of real estate in Hemet, San Jacinto, Riverside county, the Inland Empire, southern California - heck the whole darn country needs your help right about now.

Ok, for this article, let's assume you have done your due diligence and you found a short sale property in Hemet, CA that you really want to buy.   You know all about short sales, because you have read my previous articles and other resources here on ActiveRain. You know it is a great Hemet property for sale and you could make a nice profit if you could only convince the bank to let you have it for below fair market value.

You just are not real sure what to say to the bank - after all, if you say the wrong thing, they might turn you down in a New York Minute!

Your objective is to prove to the mortgage bank that the distressed property is more trouble than it's worth.  In order to due this, you must first do your homework so you can have an intelligent conversation with the bank.  Having command knowledge of the situation will make the banks job easier and more likely that they will want to work with you.  You will definitely be better off if you can position the banks way of thinking to mirror yours from the very beginning.

1.  Market Analysis
First you must know what the Hemet real estate is worth in today's market.  The fact that the loan balance is so high really means very little.  The key factor is what is the home worth on the open market today.  The mortgage bank will order a Broker Price Opinion - or BPO.

A BPO is an unbiased opinion of the real estate from a local real estate broker.  Most BPO's are drive-by only and never take the interior into consideration until the investor brings the condition into play - then the lender will typically order a second BPO, this time asking for a full interior analysis - complete with pictures of every room.

The good news is the mortgage bank is not looking for the potential the home has - that's your job as an investor.  The bank is looking to see what it will bring in its current condition on the market today.  Let's say a Hemet home has $300,000 in outstanding loans.    Because of the current neglected condition, the home today is only worth $230,000 - tops.  The bank is not looking at the $300,000 in debt - they are looking at what they can liquidate for today - and that's the $230,000 max.  Your job is to drive that price down even further, so you can walk away with instant equity.

2.  Get  Specific
What you need to do is go through the property and find every conceivable flaw there is and figure out how to present it in it's worst possible light.  This is the opportunity to make mountains over mole hills.  This is not the time to be optimistic - no it is time to let your inner pessimist roar.

Point out everything you can that is wrong.  The landscape is overgrown.  Then the home needs anew coat of paint - inside and out.  Walls are damaged ad need repair.  Find flaws in the flooring. This is the time to let them know of the ugly hole the homeowner dug for themselves and that they will never be able to get out on their own - but you are here on your Whitehorse looking to save both the distressed homeowner as well as the mortgage bank that made the home loan in the first place.

3.  What Will it Cost?
The next step follows along with the previous.  Once you have identified the actual problems it would definitely be worth your time to have a local contractor come through and write a estimate to bring the home back up to habitable condition.

Perhaps you have the same contractor you work with on a regular basis or you can contact a contractor in the local area of the home you are working on.  Many contractors will do this for free - but be careful not to abuse the relationship.

A contractor's estimate adds a great deal of credibility to your presentation.  It is solid evidence of the damage and lets the bank know that you are not trying to game them in some fashion.

This will not only let the bank know that they will have to chase good money after bad if they take the property back, but it will be valuable information for you in your due diligence, so you will have an idea of what will be involved in the rehab.  Of course, you should be able to get it done for less, especially if you do some of the work yourself.

4. Know the Market
You should definitely become a student of both the local real estate market and economy as well as the national economy.  It is true that overall bad times are not necessarily bad times for everyone.  As a Real Estate Investor, you are in a position to take advantage of what some may perceive as a negative situation.  Your job is to make lemonade out of the lemons.

You should familiarize yourself with the local unemployment rate, crime rate, the quality of the school system - everything that contributes to the overall value of a Hemet home.

Don't be afraid to reference news articles and other public data sources as a reference point.  This will lend credibility to you and help paint the bleakest possible picture you can.

Your objective is to shoes the bank that the market is not on the banks side.  With a well put together presentation, the mortgage bank will realize that the market is not on their side and taking a portion of the money they are due is much better off then taking the property back  Banks will end up losing a lot of money if they have to start selling homes in Hemet or any market.  The big factor to keep in mind is that selling a home takes nothing but time - time between the bank and their money!

5. Show me the Money
The final step in the process is having a good offer for the property.  There are way to many ways to structure a deal to address here, but lets just say that it is imperative that you can prove to the bank that you and the homeowner are not just trying to pull a fast one on the bank.  The mortgage bank needs to see a serious commitment.

Find the model that works best for you and write the contract in those terms.  By presenting it to the bank early in the negotiation, you stand a much better chance of having the deal accepted on your terms.

6.  Be a Good Investor - Avoid Temptation
As an investor in the short sale market you will undoubtedly find there are many ways to do a deal that are less than scrupulous.  I am not an attorney and cannot say what is legal or not - but I can tell you that if it feels wrong - it probably is.  I have heard of investors throwing a blue tarp on the roof - suggesting there is a roof leak.  I have heard of others strategically placing a urine saturated rag in the ventilation system, so the whole house reeked of a foul odor.  I have heard of investors purposefully knocking holes in the walls.

It doesn't take the Pope to know the difference between right and wrong.  You don't want to answer to the law for mortgage fraud - so don't do it.

Remember, that you have not created the problem that the people ar e in who are losing their homes.  Nor did you make the bad loans for the bank - so neither set of problems is your problem.  You are here to make the best of a bad situation for everyone, for which you should and will be fairly paid.

Now Have a Blessed Day,

John Occhi, Hemet - San Jacinto Valley REALTOR
Mission Grove Realty
TheHouseSeller@GMail.Com
(951) 443-6259

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