Several weeks ago I had participated in a class held by Ron Ricard of IPX 1031. The emphasis was placed on short sales and foreclosures and how to manage your portfolio more efficiently. This man is very knowledgeable on 1031 exchanges and any chance I get to attend one of his informative sessions, I don't hesitate.
Due to the detailed nature of the class, this post will be a brief account of what was discussed. It is to be used merely as a guideline when working with sellers or buyers in position to short sale on their home or to purchase a short sale/REO property.
S/S Listing --> pre-qualify your sellers
1: Test their commitment level by setting up an appointment to meet at the office rather than their home. If this is a problem, question their commitment to you and to the process.
2: Discuss their payment schedule. How far behind are they on their payments? Based on their answer, you will be able to decipher whether there is in fact time to sell the property. If they just received the NOD, there is time. If they are going to auction TOMORROW... let them go.
3: Check to see whose name is on title and bank note. i.e. if the mother co-signed the loan for her daughter and the mother's name is on the note but the daughter's name is on the title... the bank will not distinguish between the two and will treat both individuals equally. The name on the note is slightly more important than the name on the title report.
4: Find the number of liens on the property. This information should be available on the title report and the type of lien will determine the fluidity of the transaction. i.e. mechanic liens are difficult; however, IRS liens are much easier to work with.
S/S Addendum --> have the following information in writing
1: There are no guarantees.
2: Seller will receive no money at the end of the transaction.
3: Credit will be damaged. The extent of the damage depends largely on how it was reported to the credit agency, how late the payments are and any other debts the seller may have incurred during this process. Usually when sellers stop making payments on their mortgage, this carries over to other debts damaging their credit even further.
4: S/S --> credit can be repaired within a 24 month period. Deed in lieu of foreclosure --> credit can be repaired in a 4 year period. Foreclosure on a primary residence --> credit can be repaired in a 5 year period. foreclosure on an investment property --> credit can be repaired in a 7 year period.
5: There will be tax liabilities due to the cancellation of debt income. The important thing to understand about this is if the original loan still exists on a primary residence, there will be a non-recourse loan which counters the cancellation of debt income. If the home has been refinanced or HELOC or was an investment property, there will be a recourse loan.
6: For liability purposes, realtors should at all time recommend their sellers to speak with a lender about a loan modification program.
What Is Needed:
1: Copies of last mortgage payment.
2: Prelim report. Confirm NOD and see who is on title and note. Get the updated report occasionally in the event of any changes.
3: Authorization to release information to speak to the bank on the client's behalf.
4: List of lien holders.
5: S/S package. Put the loan # of each page.
6: Hardship letter.
7: Tax returns, payments, records of assets ect. Keep only the copies and give the originals back to the owners. Make several copies and give the bank only the copy because it is guaranteed the forms at some point will be lost.
Questions To Ask Bank:
1: Do you own this loan or are you servicing this loan?
2: Is your authority delegated? Can they make immediate decisions themselves, or must they speak with the lender?
3: Where are you located? This is important for time difference purposes. Make all calls to the bank at 9 AM when the rep is in a better mood and will be the most helpful.
S/S Listing:
1: Come up with price. Conduct your own BPO and take the high end of that BPO and reduce the price 3% every 10-14 days.
2: The bank will also conduct their own BPO and/or appraisal in the coming weeks. Be there when they do it and walk them through the property so they understand the rational behind your numbers. Bank will often give the realtor an "approval" price, not the BPO. This price is typically 5-10% higher and will need to be negotiated.
3: Cash for cooperation. Slightly different then cash for keys. The seller will continue to stay in the property, maintain it ect and when they leave, the bank agrees to pay up to 1% of the sale price.
Additional Terms:
1: Short pay. Some properties are on the brink of a short sale depending on what the home actually sells for. If it sells for less then the loan amount, say by $10k, the sellers can pay the difference or go through the short sale process.
2: Full settlement language. The sellers will be able to walk away once the deal is closed lien holders cannot come after them for money after the fact.
Important Information For Buyers:
1: This is a long process, lasting anywhere from 3-6 months on average, so stay patient.
2: Make sure the loan amount on the approval letter from the lender matches your offer price.
3: Some banks may at times ask the buyer for additional money to close the deal. Depending on the source, the realtor must get permission from the first mortgage holder to do this.
To discuss any of these items in more detail, please visit my website at www.stephanieleehomes.com for contact information.
Due to the detailed nature of the class, this post will be a brief account of what was discussed. It is to be used merely as a guideline when working with sellers or buyers in position to short sale on their home or to purchase a short sale/REO property.
S/S Listing --> pre-qualify your sellers
1: Test their commitment level by setting up an appointment to meet at the office rather than their home. If this is a problem, question their commitment to you and to the process.
2: Discuss their payment schedule. How far behind are they on their payments? Based on their answer, you will be able to decipher whether there is in fact time to sell the property. If they just received the NOD, there is time. If they are going to auction TOMORROW... let them go.
3: Check to see whose name is on title and bank note. i.e. if the mother co-signed the loan for her daughter and the mother's name is on the note but the daughter's name is on the title... the bank will not distinguish between the two and will treat both individuals equally. The name on the note is slightly more important than the name on the title report.
4: Find the number of liens on the property. This information should be available on the title report and the type of lien will determine the fluidity of the transaction. i.e. mechanic liens are difficult; however, IRS liens are much easier to work with.
S/S Addendum --> have the following information in writing
1: There are no guarantees.
2: Seller will receive no money at the end of the transaction.
3: Credit will be damaged. The extent of the damage depends largely on how it was reported to the credit agency, how late the payments are and any other debts the seller may have incurred during this process. Usually when sellers stop making payments on their mortgage, this carries over to other debts damaging their credit even further.
4: S/S --> credit can be repaired within a 24 month period. Deed in lieu of foreclosure --> credit can be repaired in a 4 year period. Foreclosure on a primary residence --> credit can be repaired in a 5 year period. foreclosure on an investment property --> credit can be repaired in a 7 year period.
5: There will be tax liabilities due to the cancellation of debt income. The important thing to understand about this is if the original loan still exists on a primary residence, there will be a non-recourse loan which counters the cancellation of debt income. If the home has been refinanced or HELOC or was an investment property, there will be a recourse loan.
6: For liability purposes, realtors should at all time recommend their sellers to speak with a lender about a loan modification program.
What Is Needed:
1: Copies of last mortgage payment.
2: Prelim report. Confirm NOD and see who is on title and note. Get the updated report occasionally in the event of any changes.
3: Authorization to release information to speak to the bank on the client's behalf.
4: List of lien holders.
5: S/S package. Put the loan # of each page.
6: Hardship letter.
7: Tax returns, payments, records of assets ect. Keep only the copies and give the originals back to the owners. Make several copies and give the bank only the copy because it is guaranteed the forms at some point will be lost.
Questions To Ask Bank:
1: Do you own this loan or are you servicing this loan?
2: Is your authority delegated? Can they make immediate decisions themselves, or must they speak with the lender?
3: Where are you located? This is important for time difference purposes. Make all calls to the bank at 9 AM when the rep is in a better mood and will be the most helpful.
S/S Listing:
1: Come up with price. Conduct your own BPO and take the high end of that BPO and reduce the price 3% every 10-14 days.
2: The bank will also conduct their own BPO and/or appraisal in the coming weeks. Be there when they do it and walk them through the property so they understand the rational behind your numbers. Bank will often give the realtor an "approval" price, not the BPO. This price is typically 5-10% higher and will need to be negotiated.
3: Cash for cooperation. Slightly different then cash for keys. The seller will continue to stay in the property, maintain it ect and when they leave, the bank agrees to pay up to 1% of the sale price.
Additional Terms:
1: Short pay. Some properties are on the brink of a short sale depending on what the home actually sells for. If it sells for less then the loan amount, say by $10k, the sellers can pay the difference or go through the short sale process.
2: Full settlement language. The sellers will be able to walk away once the deal is closed lien holders cannot come after them for money after the fact.
Important Information For Buyers:
1: This is a long process, lasting anywhere from 3-6 months on average, so stay patient.
2: Make sure the loan amount on the approval letter from the lender matches your offer price.
3: Some banks may at times ask the buyer for additional money to close the deal. Depending on the source, the realtor must get permission from the first mortgage holder to do this.
To discuss any of these items in more detail, please visit my website at www.stephanieleehomes.com for contact information.
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