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Loss Mitigation Solutions March 2009

Selling Real Estate Using “Short Sales”. Loss Mitigation Solutions March 2009. Four Goals for Today. 1) Prove how agents can capitalize on the “pre-foreclosure” market 2) Prove how agents can make additional commissions thru short sales.

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Loss Mitigation Solutions March 2009

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  1. Selling Real Estate Using “Short Sales” Loss Mitigation Solutions March 2009

  2. Four Goals for Today 1) Prove how agents can capitalize on the “pre-foreclosure” market 2) Prove how agents can make additional commissions thru short sales. 3) Share how agents can help homeowners in foreclosure who are desperately looking for help by understanding their options. 4) Create a simple and easy to follow system to process short sale files 2

  3. What is Loss Mitigation Solution? • An OUTSOURCING, negotiation & property acquisition company • A business that does NOT subscribe to Equity Skimming • Here to assist real estate agents with short sales • Here to provide solutions and answer questions • Five years experience in short sales • Works in 35 states with investors and Realtors 3

  4. What We Will Discuss • Case Study • Foreclosures in Our Market • Short Sales: What, When and Why? • Steps in a Short Sale Process • How Short Sales Can Benefit You

  5. What is a Short Sale? • Occurs when a lender accepts less than full payoff on the mortgage(s) to allow transfer of a property to a new buyer. • Generally available for houses in pre-foreclosure status. • Can be negotiated on all mortgages plus junior liens. • Not available on bank-owned houses 5

  6. A Typical Deal • Payoffs are at or more than the value • No equity in property when closing costs and commissions are factored in • Homeowner in pre-foreclosure • Homeowner wants to get out of situation • Realtor wants to outsource the “pain” involved in short sale negotiations with lenders. 6

  7. 3384 Faulkner

  8. Dated Submitted:May 11 Date of BPO:May 23 Date Closed:October 8 Total Payoff:$ 163,976.00 Final Transfer Price$149,000 NOTE: Listed with realtor at $169,900 for 4 months with no offers NOTE: BPO completed and lender made counter offer, carpet and paint added, List price dropped to $159,000, 2 offers in 6 days 3384 Faulkner

  9. 1 out of 9 houses with a mortgage in the US is in default 1 out of 5 houses transferring via short sale The Foreclosure Crisis National Perspective 9

  10. Working the Foreclosure Market • Nobody plans on being in foreclosure. As a result they rely on information from the people they trust(who may not be the best informed) • see www.hud.gov (first place to find answers!) 10

  11. The Foreclosure CrisisLocal Perspective • Use your own research • Example – Cleveland • Top 10 Cities in US for Foreclosures • Lenders own 3% of all houses in Cuyahoga County • Hardest Hit area is near east side 11

  12. Options for Homeowners in Pre-foreclosure • Refinance • Loan Modification (Hope Program) • Forbearance / Repayment Plan • Partial Claim • Bankruptcy • Deed in Lieu (voluntary foreclosure) • Sell

  13. Stages of the Foreclosure Process (Ohio) • 3 mos. missed payment, Lender files a foreclosure lawsuit, beginning with NOD • Homeowner has 28 days to respond. If no response, the lender will continue working toward a default judgment 13

  14. Ohio, con’t • Lender will push default judgment during next 4 mos. • Once judgment issued, Sheriff gets involved • For 1 month Sheriff will appraise the property and post a formal written notice in legal news with date and time of the auction 14

  15. Ohio con’t • the time from scheduling to auction is normally two months • Day of auction, bid will be 2/3rds of appraisal • Lender usually buys property back • Mortgage company will ask to conclude the sheriff’s sale 15

  16. Ohio con’t • If court determines that the proper steps were taken, the court will order the Sheriff’s deed to the new owner • If in 2-4 weeks the homeowner hasn’t moved, the new owner may request a “Writ of Possession” to have the homeowner removed 16

  17. Ohio con’t • In Ohio, most homeowners without responding to complaint can expect 8 months before the sale of the home 17

  18. When Will a Lender Consider a Short Sale? • Mostly on loans in default, or where default is imminent. • When a lender receives an offer that is higher than what it expects to net by foreclosing. • When the offer meets servicer/investor guidelines. 18

  19. Why Would a Lender Consider a Short Sale? • Lenders are in the business of loaning money, not managing and selling real estate. • Non-performing loans reduce what can be loaned by 2-8X the amount of bad debt. • Lenders have Loss Mitigation Departments responsible for mitigating, or minimizing, losses from defaulted mortgage loans. 19

  20. Tradition Approach to Short Sales • List property “For Sale” with agent on MLS. • Price at FMV (30 day quick-sale price to attract buyers). • Start high and lower every two weeks if necessary. • Receive offers

  21. Tradition Approach • Negotiate the best possible contract and include concessions and commissions • Secure buyer • Send offer to lender with short sale package • Negotiate short sale over next 4 months 21

  22. Tradition Approach • Lender orders BPO • Agents spends lots of time and energy on phone negotiating • If approval is received, set closing for 30 days after contract is finalized • Buyer typically won’t wait this long 22

  23. Should be Easy . . .? • Waste time and energy on listings when an acceptable discount could not be negotiated. • Upset agents and brokers when they lose a buyer because the process took too long or the commission was reduced by the lender. • Unable to find a buyer in time. • Negotiate a discount and have the buyer not close.

  24. Pit Falls of Traditional Approach • The offer will cause a BPO & agent typically doesn’t show up to validate offer • Often, the BPO is not an accurate representation of FMV • If the offer is not high enough, the chances of completing the sale is remote. 24

  25. Pit Falls of Traditional Approach • Takes 3-4 months to negotiate accepted offer • The house will most often become an REO 25

  26. Real Estate Agent Mistakes • Send P&S agreement to lender with no hardship package • Short Sale / Hardship package incomplete • Approach short sale lenders with no buyer • Do not understand the importance of Interior BPOs

  27. Real Estate Agent Mistakes • Think process completed overnight • Waiting for Hardship Package from lender • Listing property above market value to cover full payoff

  28. Top 5 Obstacles to Agent’s Short Sale Success 1) Commissions are discounted by lenders 2) Need an written offer to send to the banks and there are no current offers 3) Send the short sale package to the foreclosing lender without an offer and the lender doesn’t want it 4) Find a buyer but the short sale process takes too long so the buyer “walks” 5)Waste their time negotiating with the lenders when they should be promoting their properties and/or themselves 28

  29. Top 5 Solutions to Short Sale Success 1) Commissions are discounted by Lender • LMS can guarantee a full commission on every deal that closes • LMS pays a 3% commission PLUS a 10% bonus commission if “the spread” is over 10k • Agent markets the property to find the end buyer • Listing agent and buyers agent receive 3% commission each • Agent who refers the property eligible for 10% bonus 29

  30. 2) Need a written offer to send to the banks and there are no current offers • LMS will make an offer on every single short sale property the agent has listed as long as the property meet our criteria • Property must be in our “sweet spot” • South and West Suburbs • Over 100k Fair Market Value • Decent selling condition • Offers are simply to start the short sale process • Better to start low – we can always come up • Once the BPO is completed LMS will negotiate with the lenders and raise the offer price thru lender negotiations 30

  31. 3) Send the short sale package to the foreclosing lender without an offer and the lender doesn’t want the package unless there’s an offer • LMS will make an offer on every single short sale property the agent has listed • As long as the property is in our “sweet spot” • Offers will be near the low end of the value simply to start the short sale process • Short sale process and BPO can be completed 31

  32. 4) Find a buyer but the short sale process takes too long so the buyer “walks” • The short sale process will already be started and BPO completed • LMS will coordinate with the agent on when an offer can be accepted • L MS will coordinate with the agent on the listing price depending on negotiations • Once buyer makes an offer it can be accepted or countered immediately • This ensures that when a buyer writes a qualified offer that is accepted the transaction can close in a timely fashion (30- 45 days) • Closing takes 15-60 days instead of 3-4 months because the package has already been submitted and the BPO already completed 32

  33. 5) Waste their time negotiating with the lenders when they should be promoting their properties and/or themselves • RE agent gathers the paperwork from the seller • LMS handles all the negotiations • LMS will perform and complete the BPO with the BPO agent • LMS will sit in hold ‘ALL DAY” if that’s what it takes • RE agent can check the case notes in Realeflow to obtain daily updates • RE agent spends time doing what they do best – marketing and promoting themselves and their houses • Agents can continue to find more listing and buying opportunities • LMS does what it does best which is BPO’s and Negotiations 33

  34. What if you could…….? • Receive a full commission on every short sale property that closes? • Obtain a offer immediately on every short sale property you list • Close with end buyers in 15 -45 days • Outsource the time consuming negotiations • Check “case” status online 24/7? • Pay no fees (seller, buyer or agent)? • It’s All About Timing

  35. Loss Mitigation Solution The Alternative Plan 35

  36. Step 1 – Gather Info • Agent gathers short sale package from homeowner • hardship letter • FDMC financial form • 2 years tax returns • 2 months bank statements • last two pay stubs • copies of mortgage statement(s) 36

  37. Step 2 – Initial Offer • Add LMS purchase & sales agreement to package at 60% of FMV • Initial offer simply to start negotiations 37

  38. Step 3 – Initiate Negotiations • LMS will negotiate the short sale file from Start and Finish • Fax the authorization to release • Send to customer service department • Draft preliminary HUD1 • Order payoffs from each lender 38

  39. Step 4 – Send Package • Send package to lender (fax) • Fax cover letter, atr, cover letter, contract with short sale package • Include pre-approval letter for investor/buyer 39

  40. Step 5 – File Assigned • The file will be assigned to a loss mitigator (time will vary) • The file will be reviewed and an interior BPO will be ordered 40

  41. Step 6- The BPO • Most crucial step in short sale process • BPO needs to come in near the offer • LMS will validate the offer with BPO agent • LMS will bring P&S, supporting comps, CMA, repair estimate, listing history, and hardship letter

  42. Step 7- Negotiations • LMS has file after BPO and will finalize all negotiations with all mortgages and liens • LMS communicates acceptable listing price with agent based on negotiations 42

  43. Step 8 – List Property for Sale at Quick Sale Price • BPO has been completed • Know range or prices that are acceptable to lender(s) • Agent lists at 15 days quick sale price • Agent uses marketing expertise to find buyer(s) 43

  44. Step 9- Buyer • Agent ties down retail buyer at FMV • Negotiate best possible offer with quick closing • Accept best offer

  45. Fiduciary Responsibility • Don’t get trapped by traditional approaches • Your objective isn’t to get the highest offer, but to create the best possible outcome for the homeowner • Most short sales are approved as a settlement 45

  46. Step 12 – Finalize Approval • LMS Obtains final approval on LMS offer 46

  47. Step 13 – Closing • LMS coordinates closing with pre-approved title company • Buyer closes within 30 days of their offer being accepted • Agent receives full 6% commission 47

  48. Risks for Sellers • The lender may choose to either: • Seek a deficiency judgment against the seller for the shortfall (HSBC) • Send an IRS Form 1099C for the shortfall, creating a tax liability for the seller. • Foreclosure! 48

  49. Benefit to Homeowners • Homeowners don’t pay for anything. • Sellers avoid a foreclosure on their credit report. • Most lenders will waive their right to a deficiency judgmentas part of settlement. • Short sales minimize the loss, and therefore any shortfall reflected on a 1099C. • Homeowners can often avoid paying income tax on the shortfall when professionally advised. • Allows sellers to get on with their lives! 49

  50. Rewards to Agents • Allows properties with no equity to be sold at attractive prices in a short time. • There is less competition among agents for properties that have little or no equity. • Allows you to earn full commissions on sales that would have been lost without a short sale. • Provides a way to help people in financial difficulty who couldn’t otherwise be helped. 50

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