Short Sale Killers # 1- Video and Text Versions see below

“No Cooperation”

PART 1 - SELLERS

PART 2 - BUYERS AND LENDERS

PART 3 - SUMMARY

This is the BIGGEST reason why short sales fail. Why do I know this? Because when I jumped into this game I was working on these deals ‘alone’. Yes I was working on short sales alone because no one was willing to do anything to close these deals but me. I was working with the lender, I was cutting my commission, I was calling and calling to get paperwork from sellers who would take weeks to send it, I was trying to keep the buyer on board. Man, it’s no wonder agents hate short sales. Some will not even touch them! That was the way it used to be, before I learned from one of the best short sale negotiators in my area, his name is Troy Huerta. He became instructor for the PSC certification and everything he taught I lived through with his team and it was all true. I met him when I introduced him to my short sale management software 2007 to help him manage multiple short sale transactions. He has been using it ever since to close almost 250 short sales and I was able to learn his secrets in return.

Let me break down the single greatest issue that if confronted up front will steer you away from nightmare deals. If you are going thru a short sale and you notice that these points have not been addressed don’t be surprised later on when they become an big issue.

Here we go!

SELLERS

Many times we will work with sellers that are not really committed to short selling the home, even though lenders have already proven that modifications are hardly ever successful, many sellers naturally wish that they were not having to sell. While this is understandable it makes sellers less likely to contribute to the close. Many, many times $1,000 bucks has been the difference between short sale and foreclosure. Why? Well because sometimes it is required that sellers make a cash contribution to settle their home loans. They may owe 500k, 600k even 100k and some sellers refuse to pay any settlement amount to avoid foreclosure. Sometimes lenders will even allow for non-interest promissory notes and payments of 150 bucks for 5 to 10 years. These arrangements help your credit score and help you avoid a foreclosure.

Unfortunately there are situations where some folks are completely financially devastated. Still 90% of the time they are not paying for housing so asking for a contribution of at least $1,000 or $2,500 IS reasonable to help settle a debt of hundreds of thousands of dollars. Sellers need to have a genuine effort want to settle these debts.

So # 1 Cooperative Sellers, next

BUYERS

In 2008 I had my lowest ratio for closed short sales, But I was doing everything I could. Picking my sellers carefully, reviewing the lien types. Getting offers and marketing my properties for sale. Then I would get my approval letter and with all the excitement in the world I would call the buyer’s agent and say CONGRATULATIONS! THE LENDER APPROVED YOUR OFFER! …… and then I would begin to hear. “Oh, thanks, but actually my buyer is actually in escrow for another house now and well sorry.” As all the air would escape my body I would walk to my file cabinet with my head down and pull up my software to find the next offer in line. As I would scramble to find another buyer, my approval letters were begin to expire and when I finally found that new buyer, the lender would require us to “start over”! Man short sales suck right, wrong! I just didn’t find the right buyer!

I need a cooperative and qualified buyer. I need a buyer who has skin in the game and will start working on his loan approval right away. Buyers need to know that a purchase contract whether a short sale or not needs funds in escrow in order to be a valid contract. And yes I know, short sale addendums allow for checks not to be cashed until approval but believe me, the last thing you want to do is play the extension game with short sale approvals. Once you get a short sale approval you should be ready to close in less than 20 days. Meaning that when you buy one of my short sales you have money in escrow and your loan is ready in 45 days later. Plenty of time to work out last minutes issues that do arise. We usually get short sale approvals within 45 to 90 days after being submitted so buyers should be ready to close by the time the approvals come in. Tell your short sale negotiator you can close in 10 days and they will love working with you. I have had sellers accept buyers that do not go into escrow and every time it has been a mistake that has cost everyone time and has put them in jeopardy of foreclosure.

Don’t do it! Don’t work with uncooperative buyers !!!!! No No No No No.

So number # 2, Cooperative Buyers, next

LENDERS

Thinking that Jr Lien holders (2nd or 3rd loans) have to cooperate with you because they will get wiped out in a foreclosure if they don’t is a mistake that will cost you a foreclosure. Sometimes after 180 days of not paying on your second loan, investors will sell these loans to companies like GC Credit Services and Old Republic Credit Services. If this happens you can pretty much cut the chances of a successful short sale in half. Their motto according to an employee I spoke to is “everybody has to lose in order for us to approve the short sale” WOW! Companies like these do not care if your home goes into foreclose. If they do not collect a certain % of money from all parties involved they will not help, they even have "allegedly" been known to try and have agents pay them a % of commissions which is NOT legal since they are not licensed brokers in the transaction. In recent news stories, companies like these have "allegedly" been known to ask agents to pay money out of escrow to “approve” the short sale. A request that constitutes mortgage fraud and should never done, but still they"allegedly" try.

So can you close the short sale if you are working with a jr lien like this? Maybe, but they will lower the % of probability and should be avoided if possible. Unless you have large reserve of cash or have a buyer who is willing to pay the settlement amount, you will probably not get these type of companies to release the lien causing your home to go into foreclosure. This goes back to buyer/seller cooperation. If the buyer and seller cooperate then the probability goes way up. But if both parties are unable to settle jr lien demands then the chances are slim.

Another common short sale killer is a second loan insured by mortgage insurance. Mortgage insurance protects second mortgages for up to 20% to 25% of the loan amount. If your home is severely “underwater” you are probably not going to be able to pay the second what the insurance could and therefore there is no incentive for the second to cooperate at all. Why would they accept $3,000 if the insurance will pay them $25,000? So have your Realtor check this out for you BEFORE getting involved.

So # 3, Cooperative Lenders, can you begin to see the light here??

Whether you are a buyer, seller, or agent for that matter, knowing this information will help you assess whether you should buy, sell or list a certain property.

So let’s give three examples here and with what you have learned tell me if you think you should be part of the deal.

EXAMPLE # 1 (pretend you are the agent representing the seller)

The home is worth $200,000, the seller owes $480,000 and the lender has both loans. The seller will contribute $1,000 and may sign a prom note for a max of $5,000. The buyer does not want to open escrow and work on loan approval until after the short sale is approved. The home is already in foreclosure and the foreclosure auction is in 60 days.

EXAMPLE # 2 (pretend you are the agent representing the seller)

The home is worth $200,000, the seller owes $480,000 and the lender has both loans. The seller will contribute $1,000 and may sign a prom note for no more than $5,000. The buyer opens escrow and will work on loan approval and do home inspections so they are ready for the approval letter. Once they get approval they will be able to close in 10 days. The home is already in foreclosure and the foreclosure auction is in 60 days.

EXAMPLE # 3 (pretend you are the agent representing the seller)

The home is worth $200,000, the seller owes $480,000 and the lender has both loans. The seller will contribute $1,000 only. The buyer opens escrow and will work on loan approval and do home inspections so they are ready for the approval. Once they get approval they will be able to close in 10 days. The second lien was charged off and sent to a collection attorney, they will want $20,000 to release the lien. This is 2 times more than they would get on a normal short sale and 100% more than they would get if the home foreclosed. The home is already in foreclosure and the foreclosure auction is in 60 days.

Which would you choose? I would chose #2 and only proceed with #3 if the buyer was willing to pitch in some $$$ to settle the second loan.

Knowing these details begin to open your eyes to what short sales are, yes they can be a pain when you are swimming against the current. This is a tough market for everyone just look at the these other transaction types and there issues.

BANK OWNED PROPERTIES: ISSUES GETTING OUTBID, DEALING WITH AGENTS WHO NEVER CALL BACK, PAYING HIGHER THAN LIST, LOOKING AND SENDING OFFERS FOR MONTHS, ISSUES WITH THE PROPERTY THAT ARE UNKNOWN ECT ECT!

NEW HOMES: APPRAISAL ISSUES, WAITING FOR YOU HOME TO BE BUILT (MONTHS), BUILDER GOING BANKRUPT, UPGRADE COSTS ECT ECT.

There isn't a "better" option, there is only an educated approach to buying and selling homes.

If you are in this situation and need a FREE CONSULTATION CALL US and we will be happy to tell you the truth about your situation. No BS just what will help you achieve your goals and what challenges we can help you overcome and what needs to be done.

Stay tuned as we spend more time on JR LIENS tomorrow. We will try and have TROY HUERTA on our blog to share some of his insight to dealing with JR Liens. And how you can avoid most common issues with JR liens.