Texas Short Sales

What is a Texas Short Sale?

Completing a Texas Short Sale is one of the most difficult transactions in all of Texas real estate.  It is important to know that the company and team you hire to complete this process for you have expertise in this area.

We find it beneficial to make sure our clients know what is going to happen throughout the process.

Below are the most common questions that have been asked by our clients.  If you are speaking with others and they can't answer the questions below, we recommend seeking another opinion.

What is a Short Sale?

A short sale in real estate is selling a property for less than is owned on the property.  For example:

Loan Amount:  $250,000
Market Value of Real Estate:  $200,000

In the above example, the property is upside down a minimum of $50,000.  In order to get the bank to accept an offer at $250,000, a team of experts who specialize in negotiations with banks and marketing short sale properties to the real estate community are needed. 

Common Questions

• How long does it take to complete a short sale?
• Banks can take up to 60 days to give an official approval of an offer once it is received.  This process can be improved by communication with the bank by your representation.  Open and consistent communication is what improves the process.
• Ensuring that the required paperwork by the bank is correctly filled out increases acceptance by over 45%.  Some banks will destroy an application that is even off by one item.  Our team ensures that your paperwork is completely filled out the first time so you have the greatest chance at acceptance.
  
  
• How long do I have until I have to move out?
• The bank is required to let you know when they have filed the notice of default with the county recorders office for the county you are in.  The majority of banks do this after you have become 90 days late on your mortgage or 3 consecutive mortgage payments.  From this time the earliest a sale date can be set is 90 days from that date.  So you may not have to move out until days after you have missed your third payment.
  
  
• What are the consequences of doing a short sale?
• Completing a successful short sale will mean that you will not have a foreclosure reported on your credit.  This will also mean that on lending applications where it asks if you have had a property foreclosed upon you will be able to answer, 'no'.  This is one of the single best consequences of doing a short sale.  By requesting a short sale with your lender or having a team such as us do this work for you, the number of calls you receive will be reduced by over 50%.
  
  
• What happens if it doesn't work?
• If your property does not sell as a short sale, it may end up being foreclosed upon by the bank.
• It is of the utmost importance to get the bank an offer to review so that they can decide how they can best help you and to accept the offer you have received.  It is for this reason that you need to have a real estate team who specializes in short sales present to the bank on your behalf.
  
  
• What kind of information will the bank as for?
•  Each bank has their own separate set of forms that they can ask to be filled out.  In fact, if you have two loans, the amount of information can be different between both banks.  The types of information that can be asked for as follows:
• Signed and dated hardship letter
• Copies of last 60 days pay stubs
• Copies of P&L statements (if you are self-employed)
• Completed financial worksheet  - signed and dated
• Copies of last two years tax returns
• Copies of last 60 days bank statements
• Copy of investment account statements
• Copy of Listing Agreement
• Estimated net sheet (Preliminary HUD-1)
• Identification of liens on the property
  
  
• We will guide you through all of the requirements regardless of which bank and which form that is required.
   
• What is a hardship letter?
• A hardship letter is a statement of how you and your family got behind on your payments.  Banks are people, too, and they need to know what happened in order to help you out in the best possible manner.  Events that should be included in a hardship letter are as follows:
• Loss of Job
• Loss of overtime or income from a job
• Family issues:  pending divorce, medical bills, other family issues
• This is one of the main pieces of information that the bank uses in order to make its decisions from.  It is important that it is truthful and explains what happened to the fullest extent possible.
  
  
• What if I have declared bankruptcy?
• Bankruptcy can delay a sale of your home at a trust sale.  Your bankruptcy attorney may have additional advice for you.  Our short sale specialists are proficient at communicating with your legal representation.
• If you have declared bankruptcy, please let your short sale specialist know, and please give them your attorney's information so we may be in contact with them.
  
  
• What about bankruptcy?
• Bankruptcy can delay the sale of your home.  Please refer to your legal representative for detailed questions on bankruptcy.
  
  
• What do I do with the letters I receive from the bank?
• Read, review and get a copy of them to your short sale specialist.  These letters contain different pieces of information and it is critical to review all of them as they may have legal consequences to them.  Banks can send you letters in regards to the following:
•  Loan Modification:  They can modify your loan so that the payment is more affordable for you and your family.
• Loan Forbearance:  This is a temporary adjustment by the bank of the requirement to pay your mortgage.  They can do this for reasons such as health, job or family issues.  The amount that you do not pay is generally added to your loan balance or spread out over multiple payments.
  
  
• What do I do about people offering to buy my house if I just sign the deed over to them?
•  Unfortunately, there are many individuals out there who do not care about helping homeowners in a time of need.  They in fact only care about being able to profit from your situation.  Our recommendation is that you make sure to have a real estate professional look at anything prior to signing any offer from one of these individuals.  If the person has a legitimate offer, they will not care who reviews the offer. This being said, there are several investors out there that are good, as well.  They are in it to help people, and make a few dollars for themselves while doing that.  (in which there is nothing wrong with that)
  
  
• How do I choose someone to represent me in this transaction?  Shouldn't I just call my local Realtor who markets in the area?
• Unfortunately, 99% of real estate professionals are not trained on how to handle a property where more is owed that the property is worth.  They are not trained in negotiation and not trained on how to deal with the banks and their representatives. 
• Agents need to have specialized training in order to complete this process so as to prevent further action by the bank against you.  In addition, agents need to have a deep understanding of the process and be able to explain the value to the bank of working with the home owner.
  
  
• Are all short sales the same?
• No.  It would be great if they were, as it would make things easier for home owners.  Any short sale specialist who has helped both buyers and sellers on short sale properties will tell you that not all short sales are created equal.  Success on short sales depends on a variety of reasons:
• Uncooperative banks
• Inadequate disclosure by the seller
• Poorly prepared buyer
• Bank delays
• Poor communication by listing agent with the bank
• Buyers back out
• Seller fails to cooperate.
  
  
• Will I get a 1099 for the difference between the sale price and what I owe?
• It is possible.  Each bank is different and the vast majority of banks will 1099 you for the difference.  This is considered debt relief by the IRS and we recommend all clients speak to their tax advisor for assistance.
  
  
• Why shouldn't I just let the home go to foreclosure?
•  Your credit!  Foreclosure is one of the biggest damages to your credit that can be done.  You will have to disclose the fact that you had a foreclosure every time you try and purchase a new property in the future no matter how long it has been since you had the foreclosure.
• You will still be 1099 for the difference in the foreclosure sales price and the amount owed.  In some cases, this can increase 50% by the time the property goes to foreclosure.
  
  
• What does it cost to have you work with us on a short sale?
• We will not charge you any fees, whatsoever!
   
• Is it better or worse if I have two loans?
• It depends.  Having two different lenders is one of the hardest short sales that can be done.  It depends on how each bank has viewed the transaction and how they have both been communicated with during the entire process.
  
  
• Is communication important and do I still have to keep calling the bank?
•  Yes, communication is extremely important.  The number one reason for foreclosure is a lack of communication.  We prevent this from happening because we do the communication for you.  You have a job, but this is OUR job.  We get authorization to speak with the lender on your behalf, and make sure you stay informed of what is happening.
  
  
• How do I know what is going on?
• Your Short Sale Specialist will communicate with you regularly throughout the process. 
  
  
• Why should I use You?
• We choose you.  We choose to work with clients we believe that we can help.  Our experience and success in short sales and negotiations allows us to identify the clients we can help.  If we don't believe we can help you, we will tell you right away.
• What if I have a pre-payment penalty?
•  Let us worry about that for you so you can get back to your life.
  
  
• Can the bank come after me or do they just get my property?
• We specialize in negotiating with the bank and making sure they understand that working with us and you is in everyone's best interest.  The bank can ask for more information or seek other means to get payment if you have lied on your mortgage application and may or may not do this depending on the situation.  If you believe you may have lied on your mortgage application, please tell one o four short sale specialists.  Our goal is to make sure the bank works with us and you to resolve this stressful situation.
  
  
• Why would a bank agree to do this?  Don't they just want my home, anyway?
• The bank doesn't want to own your home.  The foreclosure process is a very expensive process for the bank to carry out.  There are legal fees, property fees, court fees, and additional staff required by the bank to handle foreclosures for a bank.  Their goal is to prevent properties from going into foreclosure.
  
  
• Can't I just do all this myself?
• You could, but would you go to court without a lawyer if the side that was facing you had 15 lawyers?  The fact is that this is a complicated real estate transaction with a large lending organization.  This process can take 100's of hours for a trained professional to complete.  Most people do not have the time to specialize in completing this kind of transaction.  Our team is here to take the worry out of the transaction for you.
  
  
• Who is Region Realty?
• We are a team of real estate brokers, agents and other real estate personnel, who specialize in helping people get out of their properties that they can no longer afford or no longer wish to own.  Regardless of your situation, condition of your property, or how many you own, we can help you.  Everyone runs into difficulties now and then.  Our goal is to make your stressful situation go away so you can get back to your life.

In Texas, we have blessed in the fact that our state is one of the least affected by these economic hard times.  While that is the case, if you are looking to purchase a home, you should consider Dallas Short Sales or Houston Short Sales...there are some good deals out there just waiting to be found.

Rodney McNabb is a Texas Short Sale Specialist.  He is currently offering his services in the Greater Dallas, Fort Worth and Houston, TX areas.  You may contact him for a confidential interview at (972) 839-8846.

What is a Deficiency Judgment?

A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose Texas foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non recourse loan.

The fuller, statutory definition is: "the whole residue, or so much thereof as the court may determine to be just and equitable, of the debt remaining unsatisfied, after a sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgment, the amount thereof to be determined by the court as herein provided.

The plaintiff's attorney (in other words, the bank's lawyer) must make a motion to receive such a deficiency judgment. Otherwise, the amount gained from the sale shall be deemed the full amount owed, and the plaintiff has no right to collect the additional debt. However, if the parties (mortgagor and mortgagee) have already agreed in their mortgage or promissory note, then the debtor could be liable for the full amount.

A debtor who has a deficiency judgment should see an attorney for possible remedies, including bankruptcy, an exemption from creditors,an appeal, or a motion. As with all legal research sources on-line, Internet users should take caution before applying such advice to your own case, and perhaps should consult an attorney.

Example: Upon Default by the Mortgagor a lender Forecloses on the mortgage. The unpaid balance of the loan is $102,000. The property is sold at public Auction and brings $80,000. The lender then seeks a deficiency judgment against the mortgagor to recover the $22,000 shortage, plus foreclosure expenses.

Deficiency States

Legislation enacted during the Depression still restricts the availability of deficiency judgments in several states. In some jurisdictions, deficiency judgments are prescribed in certain situations, while in other states, they are limited to the amount by which the debt exceeds the fair market value of the property. Waiver, the intentional relinquishment of a known right, of the benefits conferred by anti deficiency legislation contravenes public policy and is ineffective.

In non-deficiency states like Arizona a lender is unable to pursue any type of a deficiency judgment. Concerning foreclosures non-deficiency states are advantageous to owners in foreclosure because the lender is unable to pursue the deficiency judgment.

The good news is many lenders do not pursue deficiency judgments because someone that has lost a house to foreclosure is a poor candidate to collections on a deficiency judgment.

Communicating with the Loss Mitigation Negotiator

The stronger your relationship with the loss mitigator the better your chance of getting a short sale accepted. This is a people business and you will earn more paydays by increasing your communication skills.

The loss mitigator has an interesting job. They may be working 200-300 files at any given time so time is a very limited commodity.

Next, ask yourself what type of personality is likely to be a loss mitigator? Somebody that loves to talk and is very chatty? Somebody that is very empathetic and understanding? Not likely!

Most often a loss mitigator will be direct and to the point. But don't mistake the loss mitigator for somebody that's revealing all of their cards. Many are paid on commissions so they will play hardball in the negotiations as long as possible.

In the initial call with the loss mitigator I will be very pleasant and easy going. My goal is to establish rapport and find out their preferred way to communicate. I'll ask "Do you prefer to communicate by phone, fax or email?" All have their advantages and disadvantages.

Phone: Get their direct number and that of their supervisor in case they are out for any reason. The phone is very efficient if you can get through to the person directly without going through a prolonged messaging service and pushing 100 buttons.

FAX: Hands down the best way to communicate with loss mitigators. Lenders keep a log of faxes so be sure to log the number and time of your call. If faxing to a department fax expect 24-48 hours for a response. Always ask if the loss mitigator has a direct fax number. If so you are golden.

eMail: Personally this is my favorite way to communicate in the modern day world. Fast. Decisive. Available anytime. Some loss mitigators like to communicate through email and it can be very efficient. Always ask if the loss mitigator has an email address. However, do not rely on emails for short sale communications. 1) the email may not go through. 2) If the loss mitigator changes positions in the company the address could be terminated and you'll be left wondering what happened. Email are great... but if you use them be sure to also use the phone and fax so there are records of your communication.

Beware of Texas Foreclosure Rescue Scams

• Beware of anyone who asks you to pay a fee in exchange for a counseling service or modification of a delinquent loan.
• Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes. Recognize and avoid common scams.     
• Assistance from a HUD-approved housing counselor is FREE.
• Beware of people who pressure you to sign papers immediately, or who try to convince you that they can “save” your home if you sign or transfer over the deed to your house.
• Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
• Never make a mortgage payment to anyone other than your mortgage company without their approval.

Private Mortgage Insurance (PMI) and the Texas Short Sale

PMI is known as the acronym for private mortgage insurance.  Private Mortgage Insurance is used when a borrower has less than 20% for a down payment. Private mortgage insurance protects mortgage lenders against potential losses in the event of borrower default.  The insurance company, collects a monthly premium from the borrower (based on risk analysis) and agrees to pay the lender a certain amount of money if the loan defaults (usually 17-25% of the loan amount).  It's model was based on FHA loans and their mortgage insurance premium (called MIP, probably to confuse you).  FHA and VA offer guarantees to the lender equal to as much as 25% of the mortgage balance.

If a borrower defaults on his conventional mortgage (goes 90 days late on a payment), the lender files the state-specific foreclosure notice and sends in a claim to the insurance company to recover as much as 20% of the mortgage balance.  This, in turn, gives the lender a smaller risk when the lender sells the property to recover their losses.

Let's assume we have a $300,000 loan for a property that was purchased last year for $317,000.  It may be selling for as little as $260,000 today. Assume it costs about 9% to sell the property.   You should know two things:

How much will the lender receive from the insurance company if the borrower defaults? 

$300,000 times .20= $60,000

What price must the lender sell for to not have a loss?  

Well, the lender's exposure has been limited to $240,000 now that they received $60,000 from the mortgage insurance company.  We take $240,000 divided by 91% (remember that it costs 9% to sell so the 91% represents the net proceeds).       $240,000/.91= $263,736.

Why is this so important to Dallas Realtors?  When negotiating an offer for a property that would result in a short payoff to a lender, you need to remember this fact:  PMI claims will mitigate some of that loss.  If you know that a seller has PMI on their mortgage, you have that much more wiggle room when negotiating a short sale with the lender.  Lenders have been known to attack Realtor's commissions as much as 50% when a short sale exists.

Knowing your numbers and how PMI affects a lender will help you defend your commission. If you understand the net effect the sale will have on a lender, your short sales will go much more smoothly.

HAFA | Home Affordable Foreclosure Alternatives with Freddie Mac

As a component of the Making Home Affordable Program (MHA), the Home Affordable Foreclosure Alternatives (HAFA) initiative offers eligible borrowers who did not qualify for or complete a permanent modification under the Home Affordable Modification program (HAMP) or another home retention option to avoid foreclosure. HAFA solutions help stabilize communities by limiting foreclosures in surrounding neighborhoods and allow affected borrowers to transition into more affordable housing.

Program Eligibility

• The initiative strives to help borrowers who do not qualify for or complete a HAMP permanent modification, or other Freddie Mac foreclosure alternatives, transition into more affordable housing and avoid foreclosure.

• Servicers must proactively offer a HAFA Short Sale to eligible borrowers and use standard documents and tools.

• All potentially eligible borrowers must be considered for HAFA before the mortgage is referred to foreclosure or a pending foreclosure sale is conducted.

• Borrowers cannot make cash contributions or promissory note obligations to satisfy either the first lien or subordinate liens, and upon completion of the HAFA Short Sale or HAFA Deed-in-Lieu all mortgage debts are extinguished.

• Borrowers and Servicers may receive incentives for successfully closing a HAFA Short Sale or HAFA Deed-in-Lieu, subject to certain requirements.

• The initiative is mandatory August 1, 2010, for first-lien mortgages owned, guaranteed, or securitized by Freddie Mac that were originated on or before January 1, 2009, and it will expire December 31, 2012.

• Eligible properties are single-family 1-4 unit primary residences, including condos, Single-Family Seller/Servicer Guide (Guide)-eligible manufactured homes, and negotiated conforming jumbos.

• Servicers must verify that the borrower is occupying the property as a primary residence, and it is not abandoned, condemned, or vacant (without an applicable exception).

• Borrowers must meet the basic eligibility criteria for HAMP, but not qualify for or complete a HAMP modification or other Freddie Mac home retention solutions.

• Borrowers must be more than 60 days delinquent and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment.

• Borrowers who may be in foreclosure, in pending litigation involving the mortgage, or who are in active bankruptcy may be eligible for this initiative.

• Borrowers must be able to convey a clear, marketable title to the mortgaged property.

Key Features

• The initiative strives to help borrowers who do not qualify for or complete a HAMP permanent modification, or other Freddie Mac foreclosure alternatives, transition into more affordable housing and avoid foreclosure.

• Servicers must proactively offer a HAFA Short Sale to eligible borrowers and use standard documents and tools.

• All potentially eligible borrowers must be considered for HAFA before the mortgage is referred to foreclosure or a pending foreclosure sale is conducted.

• Borrowers cannot make cash contributions or promissory note obligations to satisfy either the first lien or subordinate liens, and upon completion of the HAFA Short Sale or HAFA Deed-in-Lieu all mortgage debts are extinguished.

HAFA | Freddie Mac Mortgage and Borrower Eligibility

The following mortgages are eligible for HAFA:

• First-lien mortgages, owned, guaranteed, or securitized by Freddie Mac that were originated on or before January 1, 2009.
• Eligible properties are single-family 1-4 unit primary residences, including condos, Guide-eligible manufactured homes, and negotiated conforming jumbos.
• Mortgaged property is not abandoned, condemned, or vacant (without an applicable exception).

Borrowers may be eligible for this initiative if they meet the following requirements:

• Borrowers must be more than 60 days delinquent and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment.
• Borrowers must have first been considered for a HAMP modification and then for other Freddie Mac home retention options under Guide Chapter B65, but was either ineligible, did not complete, or declined the modification.
• Borrowers may be in foreclosure, in pending litigation involving the mortgage, or in active bankruptcy.
• Borrowers must be able to convey a clear, marketable title to the mortgaged property.

Making a Texas Short Sale Offer

Although some of your initial offers will be accepted, you must also be prepared if the lender rejects your offer. Just because your first offer is denied does not mean that the deal is dead. This is now the perfect opportunity to learn precisely what you have to do in order to close the short sale.

The first thing you will want to do before making another offer is find out from the lender exactly why the first offer was rejected. Here are several key factors that may result in your offer being rejected.

• They will not net the required amount needed to justify accepting your short sale offer. Simply speaking, your offer was too low!



• The lender is adamant that they can do better waiting for a better offer or foreclosing on the property.



• They do not agree with the terms of your contract or net sheet.



• The loan is government insured and therefore they are protected against a foreclosure.



• The investors of the loan are asking for more money to close out the loan.



• You tick the loss mitigation rep off so bad that the last thing they want to do is help you.



• The hardship was not proven enough to persuade the lender to accept a short sale.



• The lender would like to explore alternative payment options with the homeowner instead of doing a short sale.



• Your offer was much lower than what the BPO assessed the house for. This is another example of your offer being too low.

These are just some of the reasons you may get from the lender for your short sale being rejected but the main thing to remember is that you must at least probe and find the exact reason why. I can confidently say that the main reason your short sale offer will be rejected will be because the offer is too low. Remember, the lender’s number one priority when doing a short sale is how much money they will net. The best way to find out how much the lender needs to net is to just ask! Once you identify the right loss mitigation rep you can simply ask:

"How much do you need to net if we agreed to a reasonable short sale offer?” Will the lender tell you how much? That is to be determined after you ask the question. The point is that you will never find out unless you throw it out there. Even if you don’t find out initially, the next best time to ask is prior to the counteroffer. You want to start and maintain a constructive dialogue with the loss mitigation rep where you are constantly probing for information that will determine what your best offer will be.

When I do short sales, I mainly develop my initial offer based on how much equity or profit I want to make with each deal. However, from time to time when I’m preparing a counteroffer I use a formula to help me come up with the most accurate guess on what I think the lender is willing to accept. If used correctly, this formula alone will more than pay for the price of this course 1000 fold.

Here it is…

Step 1: I take the estimated or actual BPO amount or the value of the house, based on the comps then multiply that number by 85%.

Example:

$175,000 (Estimated BPO value) X 85% = $148.750


Step 2: I then take the number I got and multiply it by 92%

Example:
$148,750 X 92% = $136,850

If this were an actual deal, I would use this final number or something close to give me my counteroffer amount. Although I have reason to believe that the lenders use a similar formula when they determine the amount they are willing to accept on a short sale, I cannot say that this is exactly it.

I do know that this formula does two things.

It gives me a calculated number to use for my initial offer or counteroffer.

It allows me to breakdown to the lender how I came up with my offer.

Be resilient yet realistic when making your counteroffers. Understand that it may not stop with the first counteroffer. You may have to counteroffer a 3rd or 4th time just to get the amount down to where the lender feels comfortable to accept. At times it may only be hundreds of dollars that you are negotiating. If you are game for a strategic a methodical approach to negotiating your offers you can always use my 3 step approach to getting your offer accepted.

Step 1: The first offer will be used to get the number that you and the lender are negotiating down to tens of thousands.

Step 2: The first counteroffer will be used to either close the deal or get the number that you and the lender are negotiating within thousands.

Step 3: The second counteroffer will be used to either close the deal or get the number that you and the lender are negotiating within hundreds. Usually at this point, the lender is the most flexible and the loss is obviously not as great.

Another thing to consider when determining your counteroffer is if in fact it even makes sense to offer one. Sometimes the lender is non-negotiable and will only accept what they will accept. Period! If this is the case does it make sense to continue trying to persuade someone who is not willing to work with you? You have to make that decision on a case by case basis. The most important thing to remember when making your counteroffer is that the deal has to make sense for you. I’ve seen investors get their short sale accepted but fail to agree to an amount that is highly profitable.

Like I mentioned, I cannot determine the value of your time and effort. That is something that you must decide, but I can say that short sales are big money deals and if you are making offers that do not put a lot of money in your pocket you are probably leaving it on the table for someone else to enjoy.

Texas Short Sale Exit Strategies

I know what you are thinking... "The title of this blog does not make sense. How can you leave a place before you ever even arrive?" Please allow me to take the next few moments to discuss how exiting before entering is not only possible but should be considered as the single most important aspect of a short sale transaction.

The motivation to write this article came from the countless amount of feedback that we have received from readers regarding Short Sale Exit Strategies. I will soon make available more detailed information on specific exit strategies. These will be methods that I strongly suggest you follow depending on your individual geographical market and more importantly your realistic goals and expectations.

For now, what I'm about to share is focused on the importance of making sure that your exit strategy is formulated before you begin the negotiation process. It is counter-productive to do it any other way. Let me explain.

1. The main reason is although your goal is to make a profit, you should always consider the fact that the homeowner is putting a part of their well being in your hands. You do have a moral requirement when doing short sales. The last thing you want to do is put an individual or family in a risky or uncompromising position. Suppose you don't close the deal? Who does it affect more? Therefore, it's extremely essential that you have a game plan before you assume that type of responsibility.

2. The next reason is that once you have the acceptance letter in your hands you will be working with a limited amount of time. You will want to spend your time working on your next deal or preparing the house for sale or rent, not putting together your exit strategy. Be proactive not reactive.

3. Lastly, if you determine what your exit strategy will be ahead of time and begin putting it together you are more likely to close your deal for maximum profit within a timely fashion (45 days max.). It's always possible that the deal falls through your hands because of lack of preparation.

All three of these reasons help to justify the importance of a well thought out plan. What's the purpose of getting the acceptance letter if you can't close?

I also want to remind you that you are not allowed to assign a short sale. So if you expect to negotiate the deal and then pass it on to another investor don't waste your time. It will always be stated on your acceptance that the agreement is not transferable or assignable, therefore you must come up with another option if you want to do a quick sale of the property. I've shared a few creative ideas related to quick sales or flips that has worked for a select few individual investors. I'll also be sharing these ideas with you in the near future.

Too many times investors make the mistake of going through the entire negotiating process without even considering what the possible options are for the property. I emphasize the "s" because one of the major benefits of exiting before entering is that you will often come up with multiple exit strategies. You increase the chances of having more than one way to profit from your hard work.

I personally feel that it gives me more of an edge as I begin my discussions with the lender. I also gain a better understanding of my earning potential because I've taken the time to estimate the numbers based on what exit strategy I'm using. All exit strategies do not breed the same amount of return. Consequently, you may find that although it is possible for you to negotiate the short sale it may not be a deal worth pursuing. There may not be enough profit on the table once you exit or the deal is just too risky for you to invest in.

Short Selling Second Mortgages

Many of the properties that you come across will have two mortgages with two separate banks. If you are just getting started, I strongly recommend that you target properties with single mortgages. Negotiating one mortgage is always easier because a second mortgage means that you are now responsible for negotiating two short sales instead of one. However, if finding homeowners who only have a single mortgage is not a realistic option, you must be prepared to successfully discount two properties.

The first thing you will need to know is that in the event of a foreclosure, the bank who holds the 1st mortgage is considered the primary lien holder and will always receive the proceeds from the sale. If there is a second or third mortgage on the property these banks are considered secondary lien holders and will not receive anything from the sale.

With that being said, your negotiating power is much greater when attempting a short sale on a second mortgage. If the secondary lien holder is made aware of an upcoming foreclosure and you make it clear to them that the primary lien holder has already accepted a short sale the ball is now in their court to decide whether they are willing to accept a discounted payoff to salvage something from the mortgage instead of possibly receiving nothing. The reason I say “possibly receiving nothing” is because it is also possible that once the secondary lien holder realizes that the primary lien holder has accepted a short sale they may attempt to go behind your back and negotiate their own deal with the primary and cut you out of the transaction. To help avoid any unethical business practices do not reveal who the other mortgage company is, just provide the necessary proof that a short sale has been accepted by the primary lien holder and begin your negotiating from that point.

The second thing you need to do is compile a list of all of the reasons why the lender may consider your discounted offer. You will want to particularly make a note of any repairs, decrease in property value, other foreclosures in the area, crime and vandalism, and slow or no market activity. At this time you can also prepare a hardship letter for the homeowner to help justify the short sale.

Next make copies of the homeowners W-2, tax returns, bank statements, and pay stubs. There is a chance that the lender will not ask for these documents since they are the secondary lien holder. However, they may ask for a copy of your acceptance letter that you received from the 1st lien holder along with a sales agreement and net sheet. If you have an acceptance letter from the 1st lien holder you can fax it to the 2nd lien holder as proof but be sure to white out the name of the lender, the discount amount, and any other information throughout the document that may disclose who the 1st mortgage holder is and how much was accepted. Although the 2nd lien holder will request and often demand to know the exact payoff, do your best to keep this information confidential. Let the lien holder know that you respect the homeowner and the 1st lien holder and it would be unethical to disclose personal information. The lender often will understand and appreciate your business ethics and not push the issue. Other times they will be very firm on their requests and it will be your job to be creative enough to give them what they want and still not put yourself in a compromising position by sharing the wrong information.

If you have not received your acceptance letter from the 1st lien holder, prepare an alternate letter stating that you have verbally received acceptance of the short sale along with the estimated date that the deal will be closed. Sometimes a letter like this will be sufficient but if it doesn’t you may be forced to come up with an actual acceptance letter.

Even if you have an acceptance letter it is still a good idea to send a personalized offer letter along with you proposal.

Lastly, you will now need to prepare your sales contract and net sheet. You will write up the contract the same way you did for the first mortgage the only difference is that the total percentage of your discount will be significantly higher. With the first mortgage you will want to discount the mortgage 30-50%. However, with the second mortgage you will only want to offer a small percentage of what is owed. For example, if the second mortgage has a total balance of $35,000 you will only want to offer $1,000. As a rule I start my offer around 3% of the total balance and work my way up from there if necessary. A large percentage of my deals with second mortgages are accepted on the first offer. If the bank rejects my offer I counter by increasing my original offer by 1-2%.

Example:
$40,000 (second mortgage balance) X 3% = $1,200 initial offer
$40,000 (second mortgage balance) X 5% = $2,000 counteroffer offer

It is possible that both the 1st and 2nd mortgage can have similar balances. If this is the case the same strategy will apply. The only difference will be the amount that each lien holder receives from the short sale.

At first it may be hard to grasp the concept that the 2nd lien holder would accept such a small amount to release their mortgage. The reason they are typically open to making a deal is because being in a secondary lien holder position is always risky. Since a foreclosure basically assures that they will get nothing, the lender is usually motivated to try and salvage something out of their investment and will strongly consider accepting a short sale.

Negotiating a Successful Texas Short Sale

Anyone who has ever profited from doing a short sale has also without a doubt had one or two rejected at some point. Guess what? It is just the nature of the beast…As with all types of sales you’re playing a numbers game.

There are very few investors who truly know how to successfully negotiate a Short Sale. We find that most investors have the perception that all that is necessary is to submit an offer and wait for the bank to give you an answer. If all goes well the offer will be accepted but in many cases it’s not that simple. That’s why a strategic plan is necessary. A strategic plan means making the deal go your way by persuading the lender to agree with your offer.

There are several steps that will ensure your success when negotiating with lenders:

First of all, you must be able to determine if you indeed have a short sale opportunity on your hands. Many investors are under the misconception that every homeowner facing foreclosure is a good short sale candidate. This could not be any further from the truth. One of the most common mistakes made by investors is attempting to fit a square peg into a round hole. Not all deals are good short sale opportunities. You must know the difference between a good and a bad deal. Period! You’ll have to analyze the deal and develop an excellent plan of attack if you want to truly master the art of the Short Sale.

Second, you must not take no for an answer. No can never be the final chapter to your negotiation. If the lender says no you must ask yourself why. There must be a reason. Why did they say no? Is there anyone else I can speak with? Was my offer to low? How does the lender determine their bottom dollar? What else can I do? What was the BPO amount? These are just a few of the questions that need to be addressed each time you are met with some resistance from the lender.

Remember, the next time you are putting together a short sale offer, be prepared and take control of the deal. Never take NO for an answer. Be proactive not reactive. Don’t just submit offers without having a game plan. Do yourself a favor and take advantage of the opportunity to make lots of money in an industry where great deals are hard to come by. We hope that you have learned something and are on your way to much success.