Mortgage Relief Formula - Professional Edition

Transcription

1
Copyright © 2008 Calworth Glenford, LLC dba MortgageReliefFormula.com. All rights reserved.
Reproduction in any form without express written consent from MortgageReliefFormula.com is
prohibited. Read the disclaimer!!
 How to obtain clients for loan modifications and keep them
in their homes
 How to obtain and list a house for a distressed mortgagor
 How to obtain or create an effective BPO that convinces a
lender to accept a short sale
 How to sell the house in 9 days and before foreclosure
occurs
 How to get the lender to accept a short sale and leave the
sellers credit rating intact
“Results are not guaranteed, read the disclaimer. Use this information with
care. Some people may find some of what I have written here to be unethical
(although possibly quite effective).”
Copyright © 2007 - 2010 Calworth Glenford, LLC dba MortgageReliefFormula.com.
All rights reserved. Reproduction in any form without express written consent from
MortgageReliefFormula.com is prohibited. Any names used in this course are for illustration purposes
and are not designed to refer to real people or real organizations.
Would you like to purchase additional copies, become an affiliate or
make money when people buy this home study course, contact www.MortgageReliefFormula.com for
more information.
Disclaimer – this limits our liability – Read it!
In plain English, I did my best to create the top guide for someone who is
facing foreclosure, credit problems, and financial difficulties. I'm sure that I
left stuff out, forgot something important and made some mistakes.
Plus, I can’t know the laws of your state or the facts in your particular
situation. I’m not a lawyer nor do I play one on television. Some of this stuff
MAY NOT WORK. Or it may be ILLEGAL. Who knows.
So…
You have to take responsibility for whatever you do or don’t do after
going through my home study course. Don’t blame me!! I am not
responsible for what you do!!
If I were you, I’d find a good attorney to advise me. I’d check out whatever
it is that anyone tells you to do – me, the attorney, your mother-in-law,
whoever.
Then I’d take my chances. Life is full of risks. You could do great things
following my advice. Or you could fall on your face. Who knows, maybe some
of the stuff I suggest is illegal in your state. I don’t know. Regardless, you
can’t go after me for telling you to do something or not do it – because I am
right now disclaiming any liability. You are on your own!!
And with that out of the way, read on…
While the publisher and author have used their best efforts in preparing this
book they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book. Specifically disclaim
any implied warranties of merchantability or fitness for a particular purpose.
No warranty may be created or extended. The advice and strategies
contained herein may not be suitable for your situation. You should consult
with a professional where appropriate. Neither the publisher nor author shall
be liable for any loss of profit or any other commercial damages, including
but not limited to special, incidental, consequential or other damages.
And another important note – this one about ethics
The techniques I outline in this book – some of them anyway – may strike you
as outrageous, unethical perhaps. You may find a few techniques that you
can swear are illegal.
I don’t advocate anything illegal. I don’t want you to do anything unethical.
These techniques exist. People do them all the time. I don’t want you do be
at a disadvantage by not knowing them. So I tell you about them, no holds
barred.
I think it’s too easy to judge others when you haven’t been in their shoes.
Some people are in frightful situations and they are frankly desperate. They
need answers. I hope that if this is your circumstance, you find answers,
some of them here.
That doesn’t mean I think you ought to do things that are unethical, or that
things you choose to do are right for everyone. That is for you to decide.
Okay?
And a final important note – this one about plagiarism!
You DO NOT have permission to resell this information. You DO NOT have
permission to give it away to someone else. This information is sold under a
license that lets you read it, use it FOR YOUR OWN USE, but not give it away,
make copies, sell it or resell it.
I will pursue you to the ends of the earth if you copy my stuff. If this stuff
gets out, I can use sophisticated methods to find out where it got out. And if
it came from you, I will do my best to pursue you with every legal means at
my disposal. Trust me on that. Every copy has a unique code embedded in it.
You won’t find it, but it’s there. I will use this to track down anyone who
tries to screw me by giving away, copying, or selling this course.
If you want another copy, contact me at www.MortgageReliefFormula.com.
Thank you!
Mortgage Relief Formula – The Professional Edition
Table of Contents
Read This Important Section First ...................... 11
Here’s Why I Am Qualified to Give You This Vital Information ....... 12
I Got an Idea That Paid Off Big ............................................ 13
How I Got Out From Under In an Amazing Way ......................... 14
Plain Facts About Teasers, Loan Resets, ARMs, and Prepayment
Penalties ...................................................................... 15
A Big Misconception About Bankruptcy ................................... 17
The Effect of Bankruptcy On the Foreclosure Process ................. 19
What Bankruptcy Does to Your Client’s Credit .......................... 19
The Only Mortgage-related Reason to File for Bankruptcy ............ 20
When the Lender Won’t Accept a Dime From the Owners Until They
Get Current ................................................................... 21
What Collection Departments Don’t Want You to Know ............... 22
Deficiency Judgments Are Hard or Impossible to Obtain Anyway .... 23
Exposed: The Credit Counseling Scam .................................... 25
Loan Modifications – Rescuing Homeowners From
Loans Gone Bad or Earning Rewarding Fees in a
Distressed Market .......................................... 27
Changing Times Create New Opportunities .............................. 27
Warning: Laws for Loan Modification Differ by State .................. 28
The Business Opportunity of Loan Modifications ........................ 29
Let’s Get Started: Do Your Clients Want to Stay In Their House and
Avoid Foreclosure? ........................................................... 30
Should They Stay or Go? Wishful Thinking Doesn’t Work.
Reality Rules.................................................................. 31
How To Determine If Your Client Qualifies For a Loan Modification . 31
Why This Formula Works.................................................... 35
An Example Helps: ........................................................... 35
More About People Who Are Self-Employed and Paid Off the Books. 36
Lenders Will Sometimes Agree to a Better Interest Rate .............. 37
Your options -- when your clients can keep their house ............... 38
How Your Clients Can Keep Their Home and Get the Lender to Modify
Their Loan Should They Really Stay In Their house?.................... 39
So Here’s Your Client’s Situation: ......................................... 40
The Lender Usually Wants a “Good Faith” Down Payment On the
Workout Agreement ......................................................... 40
How Timing Affects Things – a Quick Look at the Foreclosure Process
................................................................................. 41
Why Redemption Periods Don’t Mean Much ............................. 42
Why Lenders Sometimes Prefer Foreclosure: When Your Client Has
More Than One Loan on a Property ....................................... 42
The Myth That “Lenders Hate Getting Properties Back ................ 43
How Lenders and Servicers Operate: What You Need to Know ....... 44
Don’t Make These Crucial Mistakes When You Show Your Client’s
Lender the Current Financial Situation:.................................. 45
How To Find the Right Net Worth While Sticking to the Truth ....... 46
Three Things Every Lender Wants To Know About Your Client’s
Financial Position In Order To Do a Loan Modification ................. 47
Good Sources of Cash for the Lender and Good Ways to Present Your
Client’s Situation ............................................................ 48
The Most Important Section You Will Ever Read ........................ 49
The Key To Presenting Financial Information To Your Client’s Lenders
................................................................................. 50
How to Present Assets and Liabilities to Your Client’s Lender ....... 51
How NOT To Present Your Client’s Income To the Lender (if you can
help it) ........................................................................ 53
The Right Way to Present Client’s Income Information To a Lender
(if you can) ................................................................... 54
Be Prepared To Back Up What You Say ................................... 54
The Other Element in a Successful Workout Package: Your Client’s
Hardship Letter .............................................................. 55
How To Contact the Lender and Present Your Case .................... 56
What is Possible and What is Not .......................................... 59
Here Are Your Negotiating Points ......................................... 60
Sometimes They May Ask Your Client to Sign a New Note ............. 60
How the Lender Will Agree to Your Workout Plan ...................... 61
Loan Modifications for FHA or VA loans .................................. 61
How Your Client’s Lender Can Make a Partial Claim ................... 62
From the HUD website (current as of January 2009) ................... 63
How To Get a Loan Modification For Your Client’s VA Loan .......... 68
Why This Matters ............................................................ 71
How To Obtain and Prepare a Short Sale Listing .... 72
The Biggest Problem When Their Payments Are Not Delinquent ..... 73
What You Need To Know To Get Started ................................. 75
How Your Clients Can Avoid the Five Sharks Who Are After Them ... 76
The First Thing You Need To Know About Short Sales ................. 77
There Is Some Information You Should Get From the Client Early On 78
There Are Three Important Clauses To Have In The Listing ........... 79
Building a Short Sale Package.............................................. 79
The Sale and Buy Back Question .......................................... 80
Where To Find Clients ...................................................... 80
Expired and Expiring Listings Are Your Best Friend..................... 81
The Sales Contract Addendum ............................................. 81
How To Develop an Effective BPO – My LowBo
Method™ ..................................................... 83
BPOs As a Steady Source of Income ....................................... 83
Check With Your Broker About Performing BPOs ....................... 84
Why the LowBo MethodTM – This Is Important Stuff.................... 84
Why Do a LowBO In the First Place? ...................................... 85
You Set The Tone as To What They Will Expect To Use To Value the
Property ....................................................................... 86
How the Lender Uses the BPO To Kill Your Deal – Or Say “Yes” To
Your Deal...................................................................... 86
The LowBo Formula – Set It Low, Get It Low ............................ 87
How You Should Perform the BPO Using the LowBo MethodTM ........ 87
Exactly What Is a BPO? ...................................................... 88
Pictures Are Worth Thousands of Dollars Using LowBo ................ 88
The Comparable Properties ................................................ 89
Estimated Repair Costs - Exterior/Interior .............................. 91
Neighborhood and Market Data ............................................ 91
Other Items Included In the BPO .......................................... 92
Functional and Serviceable ................................................ 93
Valuing the Short sale ....................................................... 93
Prepare For the Lender’s BPO for Favorable Results ................... 94
Lender Roaming BPOs ....................................................... 94
How To Sell a House In Nine Days Without Fix-up, and
Still Get Top Dollar, Even If It Is “Upside Down” .... 96
Lenders Do Short Sales because It’s In Their Best Interest ............ 96
What a Short Sale Does To the Seller’s Credit .......................... 97
Short Sales When Time is Short............................................ 98
Why a Short Sale Workout Specialist Is Essentially Free To the Seller
................................................................................. 99
A Short Sale Is a Lot Like a Normal Sale................................. 100
A Short Sale Approval Process Is Like the Loan Process In Reverse . 100
Dreaded IRS 1099 Kick When the Seller is Down ....................... 102
How Form 982 Is the Seller’s Ffriend – Or Why They Don’t Have To
Worry About ................................................................. 102
Tax Liability From a Short Sale ........................................... 102
Here Are the Steps To a Short Sale ...................................... 104
Getting a Commitment From the Lender? Why You Can’t and Why It
May Not Matter .............................................................. 105
And Another Advantage… Get Your Short Sale Approved ............. 106
Here’s a Quick Way To Sell the House …and Get Top Dollar, Without
Fix-up Costs!................................................................. 107
If you want to get the best price, here’s how.......................... 108
The Insider’s Secrets To the Round Robin – Unveiled Here For the
First Time .................................................................... 109
The Round Robin Has Two Big Advantages .............................. 109
A Round Robin Turns the House Sale Into a One Time Event ........ 110
Your Client Has To Sell Now But Avoid Certain Holidays ............. 110
Establish a Low Starting Price For the House........................... 111
Why Price Your House So Low??? ......................................... 112
Put Together a Written Package About the House and the Situation
................................................................................ 112
A Good Way To Introduce the Neighborhood ........................... 114
How To Create the First sheet – The Quickie Description ............ 114
How To Create a Detailed Description Sheet For the House ......... 115
Here’s How To Put Together Your Disclosures About Defects ....... 116
Here’s How To Describe the Round Robin Bidding Process ........... 117
How To Advertise the House .............................................. 117
How To Run Your Craigslist Ad ............................................ 119
Keep Your Craigslist Ad Current .......................................... 119
Get Your Title Company Rep Working For You ......................... 120
How To Get Great Results With Signs.................................... 121
How To Use Flyers and Doorknocks ...................................... 121
Why Send Post Cards To Family and Friends? .......................... 122
What To Do When People Call You In Response To the Ad ........... 122
What To Do Before the Open House Saturday and Sunday ........... 123
How To Do Very Quick But Incredibly Effective Clean-up Before the
Open House. ................................................................. 124
Getting Rid of Bad Smells – The Single Most Overlooked Part of Selling
the House .................................................................... 125
How To Run the Open House Inspection ................................ 127
How To Get People To Bid At the Open House ......................... 127
What To Do Before the Round Robin Starts, Sunday Night ........... 128
If Things Fall Through…It’s Not the End of the World ................. 130
And Some Quick Do’s and Don’ts ......................................... 130
Now It’s Time To Get the Deal Written Up Formally .................. 131
About Investors and Tenants .............................................. 131
Here’s How Simple the Short Sale Process Really Is ................... 133
How To Get the Lender To Agree
To Your Short Sale ....................................... 134
So How Do You Get a Rep At the Lender To Pay Attention To You? 134
Getting a “Yes’ From the Lender For a Short Sale Price.............. 136
How Your Short Sale Paperwork Needs To Look ....................... 136
How the Hardship Letter Should Look ................................... 137
Sample hardship letter..................................................... 140
The Short Pay-off Application ............................................ 141
How To Put Together Your Client’s Financial Statement ............. 141
Here’s How To Provide Your Client’s Financial History To the Lender
................................................................................ 141
Documentation To Put In the Package: Pay Stubs, Tax Returns and
Bank Statements ............................................................ 141
Other Documentation Such As Unemployment Benefits, Child Support
Payments..................................................................... 142
When and Why Show Copies of Medical Bills ........................... 142
Why Show a Divorce Decree............................................... 142
Give Them Copies Of Late Bills ........................................... 142
Why Give Them a Signed Copy Of the Purchase Agreement ......... 142
Perhaps the Most Important Thing You Can Do To Gget the Lender to
Say “Yes” -- Having the Right Broker Price Opinion ................... 143
Why Show the Preliminary HUD-1 Form (from your settlement agent)
................................................................................ 144
How and Why Show Repair Costs Estimates ............................ 144
Make Sure You Include Plenty Of As-Is Photographs ................... 145
If They Say No ............................................................... 145
How the Settlement Works ................................................ 149
Most Important Thing You Can Do When They Settle ................. 150
Special Considerations For Short Pays on FHA Loans .................. 150
A Brief Discussion of VA Loans ............................................ 151
And Let’s Wrap Up With Some Points On PMI Or Private Mortgage
Insurance ..................................................................... 152
Did You Like What You Learned? ......................................... 153
The 9 Day Cash System – Making It Work for You . 154
Other Resources To Help You Succeed Financially 159
Appendix A – Loan Modification Forms ............. 1600
Clients Responsibility Form ............................................... 160
Document Gathering Checklist ........................................... 161
Borrower’s Financial Statement .......................................... 162
Hardship Form ............................................................... 164
Authorization to Release Information Forms ........................... 165
Disclaimer Form............................................................. 168
Appendix B – Sources of BPO Work ................... 170
Appendix C – Detailed BPO ............................. 172
Read This Important Section First
Do you want to help clients stay in their house? Help the sellers
avoid foreclosure by selling their house at the best possible price,
even if they owe more than the existing mortgage?
This Book is For You If:
 Your client can save their home by modifying their existing
mortgage to something affordable. Or,
 Your seller wants to avoid foreclosure by selling the house.
Or,
 Your seller owes the lender more than the house is worth on
today’s market. Or,
 Your seller faces foreclosure and wants to salvage their
credit rating.
The book
gives
step-bystep
details
for
several
related
but
different
tasks
I’ve broken this book down into sections. Each section is designed
to help you with a specific job. So feel free to skip to sections
that interest you. I’ve given you a detailed table of contents to
make it easy to go to sections that interest you now.
This book provides progressive solutions beginning with how your
clients can stay in their house with a modified loan if they
qualify. Clients with more severe problems might need to sell
their house for the best price they can obtain in a falling market.
And others still might be in terrible financial trouble with an
immediate need to stave off foreclosure by selling a house for
less than they owe on the mortgage.
Solutions to all of these problems plus many more are found in
this professional edition of the Mortgage Relief FormulaTM Home
Study Course.
This book explains the step-by-step process you need to know to
qualify clients and convince their lenders to accept modified loan
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MortgageReliefFormula.com is prohibited. Read the disclaimer!!
terms so that the clients can stay in the house with a mortgage
they can afford.
Does This book explains exactly what to do in order to figure out if
your client is a suitable candidate to convince a lender to accept
your
client a short sale as full repayment of their mortgage obligation.
qualify?
Your seller doesn’t want to sell the house because they owe more
than it’s worth? This book will help by going through the steps to
convince the lender to accept less than full repayment. It gives
you everything you need to know to convince them to let the
seller do a “short sale”.
Get the
best
price for
the
house
Further, you will be able to get the lender a great price for the
house, to the extent practical, and sell it in record time.
Salvage the seller’s credit rating so they are able to buy a new
house, with little or no money down. The same tough
environment that makes it necessary for them to sell now also
makes it a great time, believe it or not, to buy!
Now, at this point you may be wondering if I am sane or not, and
how I came to get the information in this book. So let me explain.
Here’s Why I Am Qualified to Give You This Vital
Information
My name is Richard Geller and let me tell you why I have written
this book.
From 1989 to 1991, I bought and sold Southern California houses
for a living. I dealt with homeowners in foreclosure and also
developed an apartment building. I made “hard money loans” and
sold these loans to investors.
I was the king of Southern California “distressed” real estate.
Suddenly things changed.
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I was involved in a business reversal (not my real estate business,
but another business I was involved with before) that threatened
to force me into bankruptcy.
I know
real
estate
I had been involved in real estate and I had borrowed money on
our home equity. Prices in Southern California were zooming up. I
bought foreclosure houses for cash and resold them. I got the
money to buy those houses from our home equity. How smart I
was!
Until I wasn’t so smart.
You want to tell me about real estate crashes? There isn’t much
you can tell me that I haven’t been through.
House prices fell to less than half what they had been worth
in only two years.
Yet, I somehow escaped…
I Got an Idea That Paid Off Big
I was stressing out day and night. I couldn’t afford the house
payments. I couldn’t sell because I owed more than the houses
were worth.
Something else you should know about me, I’m quite the
computer guy. I have always been big into computers. So this was
back in 1994 and I was already hot and heavy involved in the
Internet (Remember this is about the time Al Gore invented the
Information Superhighway… boy that sure brings back memories).
Almost nobody knew about the Internet then, but I used it as a
research tool.
I got an idea.
It turned out that there were a lot of homeowners in financial hot
water then, primarily in Southern California, Dallas and Houston
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Texas. Now, this very moment as I type these words, problems
are everywhere in the US -- but then, the problems were
localized to only a few areas.
Two big banks had lent a large amount of mortgage money in
these areas: Wells Fargo Bank and Bank of America. I found that
both Wells and B of A were trying to work deals with homeowners
to keep from repossessing more homes and so they’d meet
regulatory guidelines.
I had a loan with one of those banks.
As I investigated my idea, I couldn’t find any flaws with it. I
couldn’t find out anything, anywhere about it. No information.
Without any information, I looked at my idea forwards and looked
at it backwards. I asked people about the idea.
Nobody had a clue.
Fortunately, I persisted. I used my extensive real estate
experience and knowledge together with my knowledge of the
Internet.
Now I’ll fast forward to the next year. Picture this like you are
watching it on your TV in fast motion…
How I Got Out From Under In an Amazing Way
My first I got The bank to agree to a short sale.
short
sale
I found a broker to list the house. The broker quickly found a
buyer. Why not? The house was being sold at a firesale price.
No credit The bank agreed not to ding my credit.
report
impact Shortly after this, my financial situation improved drastically.
Before, I was technically insolvent. Now, no more lawsuit. My
business was working out astonishingly well. That is how it is with
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feast, famine or me. At this point, I went from being broke and
ready to file bankruptcy to making very good money every month.
My family moved into an apartment and we put most of our stuff
into storage.
We started looking for something to buy.
Soon I
bought a
better
house for
a better
price
We bought a movie star type house in the hills overlooking Los
Angeles. A “jet airplane” view to die for. A pool and a full size
sauna. You could swim or soak and look out over the whole
valley.
Best of all, we bought for I think less than 3% down, and didn’t
have to get a loan. We bought the house “subject to” the existing
loan. The dream house, with virtually no money down, and
without having to qualify for a loan. How about that!
Before this, I didn't know the meaning of the term short sale or
how to negotiating with lenders.
I was quickly forced to learn.
What I
know
today
So now, fast forward to today. I am an expert in buying and
selling real estate. I have deep, intimate knowledge of the
foreclosure process, what happens before and after. I have the
knowledge to help your seller leave on the best possible terms,
and even qualify for another house.
Now let’s get started with what you need to know …..
Critical Plain Facts About Teasers, Loan Resets, ARMs, and
info that Prepayment Penalties
gets loan
ARMs and teasers and loan resets – they are all the same thing.
mods
approved They mean the seller’s payments will adjust usually UPWARDS. If
it was downwards, they wouldn’t be in such a pickle, right?
15
I hate ARMs. I have rarely had them. Although I know that
rationally, they have been a good deal for people. They offer
much lower interest rates, usually. The rub is the “usually”.
When times get tough in EconomyLand, that’s when people could
really use a fixed payment and that’s when their payment will
adjust UPWARDS.
And I don’t like teaser loans, the kind that offer you a very low
qualifying rate and then adjust upwards.
Teaser loans usually feature prepayment penalties. Blech.
These
get
lenders
in
trouble
Prepayment penalties are extra bucks borrowers have to pay to
the lender for the privilege of paying off the loan.
Some people say they’re not going to pay off the loan? Yeah, I
hear you, but what if they sell the house? The buyer will get their
own loan. Their new loan will pay back the seller’s loan, which is
a prepayment in the lender’s eyes. So they get really whacked
when they sell the house and pay back these teaser loans.
The lender figured, when they made the loan, that they’d get
this prepayment penalty. That’s why they priced the loan to be
very cheap at the beginning. They get their money on the back
end of things, so to speak.
If this is your seller’s situation, can they afford the new rate? No?
Well, we will cover some things to help them get out of the house
possibly without paying the prepayment clause (that’s possible
sometimes) and not having to face the rising interest rates.
If the seller’s teaser is at 4%, and going up to 6% or 7% or maybe
8% do they really want to keep the house?
Easy tip: You can easily figure out what the loan payment
will become. Google “loan payment calculator”. Pay no
attention to the advertising!
16
A Big Misconception About Bankruptcy
There are a lot of misconceptions about bankruptcy. The seller
will want to CONSULT AN ATTORNEY. The earlier they consult
with a bankruptcy lawyer, the better. Really, it can be a
wonderful experience.
Back around 1994, I consulted with a bankruptcy lawyer early in
the process where I was facing a mountain of business-related
litigation, along with my house troubles. I actually felt a lot
better once I had gotten the lowdown. I didn’t need to file, but it
felt good to know what was in store if I did, and what it could do
and not do.
So first, I advise them to consult a lawyer. Okay?
Meanwhile, we’ll discuss.
First of all, bankruptcy WILL NOT STOP FORECLOSURE. Get that
through their head! It WILL NOT STOP FORECLOSURE. It will
DELAY foreclosure but not necessarily by more than a month or
so.
This will
buy some
time
when
your
client
needs it
most
Filing bankruptcy can be a do-it-yourself affair. They can file a
petition with the bankruptcy court. Then call the lender and say
“I filed” and give them the case number. They’ll stop all
foreclosure efforts immediately.
It’s temporary.
They have legions of lawyers who will prepare a “motion for
relief of temporary stay”. That will hit the court and in a month
or so, the lender will be released from the effect of the
bankruptcy petition filing. They can now foreclose on the house.
Bankruptcy does not stop foreclosure, but some people use the
delay to their advantage…
Here’s how to use bankruptcy to delay a foreclosure.
17
What some people do not realize, is that you can file bankruptcy
petition after bankruptcy petition.
Each time a petition is filed, the “automatic stay” applies all over
again.
They file at the Federal courthouse and then call their lender and
say “I filed. Here is the case number." They will have to stop all
collection efforts until they file their “motion for relief of
automatic stay” and the court grants it (they always grant it).
No reputable attorney will file petition after petition. It's
unethical. It's probably illegal if they are doing it just to delay
things.
They can file their own. This is an option if you need some
additional time. I am not recommending it.
It isn’t hard to do and if they don’t care about their credit, it will
give you some extra time.
At some point, the court may say “enough is enough”. I suppose
they could get into big trouble this way. If they do it only once or
twice, it probably won’t hurt them.
When they file a petition, it should be a “barebones” petition.
Then they let things go. Don’t do anything. At some point, the
court dismisses the case for lack of follow-through.
Then they file again.
Please don’t do this. It's a tactic that some people use and it is
therefore put out here.
One more thing. When a bankruptcy is finished, it concludes with
what the court calls a discharge. That means that all remaining
debts are gone, by order of the court. You cannot get a discharge
more than about once every eight years. You can file a petition
for bankruptcy as often as you want. Go figure.
18
So the point I’m making is that if they file a petition themselves,
that doesn’t mean they can’t file for another eight years.
Homeowners in trouble can file as often as they want and they
need to. They can only get a discharge of their debts about once
every eight years.
The Effect of Bankruptcy On the Foreclosure Process
As I mentioned, bankruptcy filing stops the lender from
communicating with them. If the sale is set, the sale is
postponed. Everything stops.
Only the homeowner’s attorney (if they have one) can
communicate with the lender.
The bankruptcy has no effect on foreclosure except gumming up
the works for a short time.
Here is
the risk
you need
to know
about
The downside is this. The lender may be upset about them filing,
if the lender feels they’ve done it purely to buy time and they
might not want to negotiate a short sale. Yes, that’s right, there
are human beings there at the bank. They are just like you and
me. They have emotions. They may not be too happy with
homeowners they feel are abusing the process.
Another thing to keep in mind if they are thinking of trying this,
of course, is how it affects your credit to actually go through
bankruptcy.
What Bankruptcy Does to Your Client’s Credit
Filing for bankruptcy won’t do anything good for their credit. The
fact that they filed will appear on their credit report.
If the homeowner’s credit is already poor, perhaps it won’t get
worse, but a bankruptcy filing doesn’t look good.
It’s better to avoid bankruptcy for many reasons and credit is one
of them.
19
Now, the odd thing is this. If they do go through with a
bankruptcy to the point where they get a discharge from the
court, they will find that credit isn’t that hard to obtain. Many
They’ll people get their discharge and in a matter of weeks they have
get
credit card offers. The lenders figure you are a good risk at this
credit point – the bankruptcy discharge took care of everything so you
cards but have no more debts .
won’t be
able to
buy a
house
without
learning
my No
Credit,
No
Money,
No
Problem
MethodTM
Learn to
solve this
problem
for
clients
with the
Credit
Card
Relief
MethodTM
Some people try to keep one credit card company off their
filings, and keep paying on this credit card in the hopes that that
particular credit card company will continue to extend them
credit. This may backfire because they will owe the full amount
of any debts that haven’t been reported in the bankruptcy filings.
The credit card they are trying to keep happy may cut them off
anyway when the credit company hears about their bankruptcy.
The major advantage of bankruptcy is in the situation where they
have a lot of unsecured debts. Usually these are credit cards.
Bankruptcy will let them either get rid of them completely, or let
them pay off all or a portion over about five years. Therefore,
that is a situation where bankruptcy makes sense.
There is a home loan reason bankruptcy may make sense, too.
The Only Mortgage-related Reason to File for
Bankruptcy
If the owner’s mortgage is resetting or has reset and they can’t
afford the new payments, bankruptcy will do nothing for them
other than the delay we discussed.
If the owner got behind due to an illness or temporary
unemployment and if they can afford the payments but need
some time to pay back the late payments, bankruptcy would in
fact help.
This is the only mortgage-related reason to file for bankruptcy.
Here is an example.
20
Let’s say they got sick and had to quit work for awhile. They are
now back on their feet. In the meantime, they got behind by four
payments.
PITI is $2400, multiplied by 4, which is $9600. There are also late
charges, and attorney’s fees. In addition, a charge for “forced
coverage” for a period the homeowner couldn’t renew their
insurance, and foreclosure fees. The estimate is $12,800 in
arrears.
Quick tip: Arrears includes everything that is late.
Payments of principal and interest, together with late
charges, attorney’s fees, foreclosure fees, inspection fees,
and whatever else they throw in here.
Although they can afford the $2400 per month in PITI, they can’t
afford to pay the bank back their $12,800 in arrears.
Quick tip: Remember, I’m not a lawyer. Always consult with
a lawyer who is qualified to give an opinion and advise you.
When the Lender Won’t Accept a Dime From the
Owners Until They Get Current
Once the owner gets officially delinquent, the banks often will
not accept a dime from them except:
 All delinquent PITI paid in full.
 Using certified funds (wire transfer or cashier’s check).
 They do this to preserve their rights under the loan
paperwork.
So if they are in the jam we talked about above, with the $2400
monthly PITI, and the $12,800 in arrears, they will have to do one
of these things:
1. Lose their home in foreclosure.
2. Pay back the arrears in full.
21
3. File a bankruptcy petition.
4. Work out a loan “forbearance” with the lender.
We’ll assume they don’t have the money to pay back the arrears
in full. Meanwhile, the clock ticks and they may have a
foreclosure sale coming up. What should they do?
This is one time when bankruptcy is an option. With bankruptcy,
they will have up to five years to pay the arrears to the lender.
They still have to stay current on their regular PITI. They said
they could do that, right? So the bankruptcy can save them from
having to come up with $12,800 all at once, or losing their home
in foreclosure.
This is where bankruptcy can be very handy, for reasons of their
mortgage. There may be other reasons for filing that go beyond
this book, but that is one of only a handful of reasons to file
having anything to do with their mortgage.
There is one other reason to file for bankruptcy, a reason that is
mortgage-related. This one is good to know when the homeowner
is talking to the nasty loan collection person by phone and they
are threatening them with the specter of a “deficiency
judgment.”
What Collection Departments Don’t Want You to Know
Why
lenders
are a
toothless
tiger
So let’s say they lose the home in foreclosure. The lender gets
the house back. They take a big loss. They lent the owner, say,
$200,000, and they only got back $150,000. They are out $50,000.
So they go after the previous homeowner for the deficiency. They
hound and harass them. Right?
Not really. That’s what the collection person will tell you.
They’re wrong.
22
3 big Ifs
and they
probably
still
won’t
collect
Because even IF the lender forecloses, even IF they take a loss or
even IF they get a deficiency judgment the ex-owner can file
bankruptcy at that time. The judgment is like any other
unsecured debt. That means that the ex-owner can schedule it to
pay off over five years, and if they can’t afford that, they only
pay a portion of it over five years and the rest is forgiven,
discharged in the bankruptcy. (Remember, only one discharge
about every eight years, just reminding you).
So they have nothing to fear from this deficiency judgment
threat. It is very unlikely to happen, even if it does, well, they
can handle that.
Now you can see what a toothless tiger the lender really is.
Since we’re discussing deficiency judgments, let me also point
something out. Something that will make distressed homeowners
sleep much better at night.
Deficiency Judgments Are Hard or Impossible to Obtain
Anyway
There is
a lot of
needless
fear the
lenders
cause
home
owners
with
financial
troubles
I am giving you real inside information in this book and not a
bunch of stuff you can look up through Google.
This is another example, right here, of the amazing value of this
information.
Simply this: in most states, defaulting borrowers have NOTHING
to fear because the lender WILL NOT get a deficiency judgment.
To understand why, you need to know that foreclosure and
mortgage law varies from state to state. I will discuss California
which I understand very well. But the same thing applies in most
states. You can easily verify your state using Google.
There are two ways to buy real property and get a loan. One is a
deed of trust. Another is a mortgage. They are legally speaking a
bit different.
23
Some states use mortgages. Most states use deeds of trust.
It is easier to foreclose on a deed of trust. Quicker.
There is another side to this. If you are in a mortgage state, and
you lose your house in a forced sale at the courthouse steps,
there is usually a redemption period. There is typically no
redemption period with a deed of trust.
A redemption period means you have so many months to pay the
lender off and reclaim your house.
There is another factor, little known, that is worth ten times
what you paid for this book.
There are two types of foreclosure. One is done by the court.
That is judicial foreclosure.
A private firm, called the trustee, does the other. That
is a non-judicial foreclosure.
Generally, mortgage states have judicial foreclosure but you have
to check with the laws in your state.
In California, there is no deficiency judgment allowed IF the
house is sold through a non-judicial foreclosure. Since that is
99.999% of foreclosure processes, defaulting borrowers are SAFE
from the threat of a deficiency judgment.
Why
don’t we
ever
hear
about
this stuff
in the
news?
In most states, if you purchased your house and the original loan
is the one that is default, then the lender cannot pursue a
deficiency judgment either, regardless of whether they do a
judicial or non-judicial foreclosure.
A loan that is used to purchase a property is called, aptly enough,
a “purchase money” loan. Purchase money loans that are
foreclosed cannot result in deficiency judgments, at least in
California and I think in most states.
24
Bottom line? The threat of a deficiency judgment is usually rather
empty. And even if one were obtained, they could always file for
bankruptcy if it came to that. This discourages lenders from
pursuing them.
While we’re at it, let’s debunk this meaningless garbage known as
“credit counseling.”
Exposed: The Credit Counseling Scam
There
are much
better
ways of
dealing
with this
exposed
in my
Get
Credit
Card
Relief
MethodTM
Your seller may be desperate at this point and inundated with
credit counseling ads and direct mail pieces. It is tempting to
contact a credit counselor.
Can they help? What is the lowdown on them?
I am frustrated about the propaganda surrounding credit
counselors. What they do is extract a fee from the credit card
companies. A big fee. And what do they gain for you? Nothing.
People can work things out themselves with credit card
companies. They don’t need a credit counselor.
So often, someone starts with credit counseling and they sacrifice
and scrimp and save, and then they end up having to file for
bankruptcy.
The goal of the credit counselor is to get every last penny you can
afford. That’s how he or she gets paid.
They sell this as a way to avoid bankruptcy.
If you default on your credit card obligations and can’t pay them
in full, the bank will still negotiate without a credit counselor.
On top of this, many of these credit counselors are technically
“non-profits” by IRS standards.
Surely, they are paying someone who is doing very little work at
the top a lot of money and he’s got a bunch of these companies.
25
They kick a lot of money to their owners even though they’re
technically non-profit. Consumers believe if it’s non-profit it’s
legitimate. I know of at least one man who has a huge oceanfront
house and a lifestyle you wouldn’t believe. He is a credit
counselor.
Enough said. Now let’s move on to something much more
exciting…
26
Loan Modifications – Rescuing Homeowners From Loans Gone Bad Or
Earning Rewarding Fees in a Distressed Market
Loan Modifications – Rescuing Homeowners From
Loans Gone Bad Or Earning Rewarding Fees in a
Distressed Market
At times such as these when the country is faced with financial
challenges, there are also opportunities for people with the right
expertise to help others with their special needs. I recently had
the opportunity to meet with a professional in Los Angeles who
was helping other people modify their loans.
This is
about
earning
good
money
while
helping
others
that are
in big
trouble
I saw this as a way that individuals, such as yourself, can
accomplish two very important goals at the same time:
1. You can give owners the chance to remain in their homes
and respond positively to these challenges that today’s
market presents.
2. You have an alternative means for growing your own
business in this downturn.
In this case “modifying loans” means obtaining lower payments
from your client’s existing lender without having to reapply for a
new loan. The lender drops the interest rate, lengthens the time
the homeowner has to pay back the money, or even, in rare
cases, reduces the amount owed. The result is a lower monthly
payment for the life of the loan.
That’s what you will learn here – how to get your clients lower
monthly payments for the life of their mortgage on a singlefamily house that is owner occupied. This is not a house for
investment purposes. To make this very clear, it is not for every
owner who is delinquent on payments. It is for a select group of
people, which will be defined below.
Changing Times Create New Opportunities
Between 2010 and the end of 2015, millions of adjustable rate
mortgages are scheduled to adjust. This does not include loans
for people who have hardships and then recover enough to
continue making payments, as long as they pay late fees and
27
penalties. Hundreds of thousands, even millions of people are
going to need help with loan modifications.
Most companies charge the cost of one month’s mortgage
payment for this loan modification service, up to $2,500. On a
$500,000 mortgage, a homeowner may be charged as much as
$2,500. Most charges fall between $999 and $2,500.
This presents a great deal of opportunity for individuals with the
right knowledge and desire to actually make money in real estate
through loan modifications. They may already be in the
profession, or they simply have decided this is something that
they would want to do.
Actually, any individuals who are interested in this venture have
three choices: They can find clients and then put the loan
modification process into place by following the information
contained here. Or, they can locate homeowners who need
professional support and then partner with an outside source to
lend a hand with the processing or lender negotiations. The third
options are to conduct classes or seminaries that teach
homeowners how to get their on loan modified.
There
are many
ways to
find
client
here are
a few
Clients can be found by marketing via vehicles such as Craigslist,
Thrifty Nickel, and Pennysaver; fliers on supermarket bulletin
boards; and talking with others in the real estate field, who will
share their leads or clients who do not want to sell.
The truth is that once you solve these horrible financial problems
for a few clients, you will quickly have more clients pounding on
your door than you can even talk to.
Warning: Laws for Loan Modification Differ by State
Throughout this chapter, you will see an important caveat about
the loan modification business: It is a clear warning that not all
states offer the same ability for loan modifications. In at least
12 states, taking advance money for loan modifying may be
28
illegal. These laws are very broadly written and may very well
apply to you. However, the laws are not applicable in some cases.
For example, if you are doing a loan modification under a state
license, such as a banking license. Once again, you are strongly
urged to pay attention to the laws that may regulate your request
to be paid upfront for loss mitigation or loan modifications. Seek
legal counsel with questions.
To find out about your own state’s laws, Google "foreclosure
rescue statutes" and your state. You will find that some states’
laws give a real estate attorney or real estate broker additional
rights. In such cases, you can team up with a real estate lawyer
and act as a subcontractor to get the work completed.
Again, read the law carefully for your state. You cannot split fees
with the lawyer, but you may be able to be paid as a marketing
consultant to find the clients or for actually doing the processing.
The Business Opportunity of Loan Modifications
You can
easily
make a
handsome
living
doing this
full time
Previously it was noted that the present situation nationwide
offers a tremendous opportunity to help other people modify
their loans. With the highest foreclosure rate ever, it is a
favorable time for someone who is interested in establishing a
business. As explained in this chapter, there is a turnkey system
to do loan modifications. There are reputable sources willing to
support people, such as yourself, who are looking for
opportunities to build their own loan modification company.
How much someone wants to put into this effort depends on
personal objectives. Interested people have to set individual
goals to determine what kind of income to generate. Based on
that number, they need to put in the necessary time and effort
that is required.
If you work with a support source, they would give you initial
training and then negotiate with the lenders while you build your
business by responding to homeowners’ calls. You would get oneon-one coaching on how to start, track, and maintain your
29
business: Which clients to find, how to explain this process to
them, how to determine the correct solution for the client, and
the best way to work with lenders to bring the desired results.
This is
where
others
have
struggled
but it’s
now all
laid out
for you
to follow
this stepby-step
process
The reason people have difficulty with the loan modification
business, as with other businesses, is that there is no system in
place. This is a very systematic, step-by-step process that needs
to be followed, with initial marketing work, many calls, and
follow-up calls, and a great deal of paperwork and negotiations.
Marketing, or finding potential clients, is very time consuming by
itself. First, you look for potential clients through several
sources, such as bankruptcy attorneys, real estate agents, loan
officers, direct mail, local advertising, and Internet ads. Then you
must set aside time to take the calls when they start coming in.
Time is also needed to negotiate with the lenders once people
start signing up.
The difficulty is handling both of these types of calls at the same
time. A plan needs to be put into place to know where to focus
each day and keep on that path. That is why some individuals
who start a loan modification business sign the people up--do the
initial leg work--and then use a larger support system to help
them with the negotiations.
Let’s Get Started: Do Your Clients Want to Stay In Their
House and Avoid Foreclosure?
This section on loan modifications is for you if:
You want to help clients stay in their house even though they are
behind in their payments. Or,
You want to negotiate with a client’s bank and work something
out, so this homeowner can make up delinquent payments. Or,
Your client is facing an interest rate increase that is impossible to
afford, but still wants to stay in the house at an affordable rate.
30
This section is further broken down into subsections. Each
subsection is designed to help you with a specific job. Feel free
to skip around to different areas. Look at the “Table of Contents”
to find the subsections that interest you most.
Should They Stay or Go? Wishful Thinking Doesn’t
Work. Reality Rules
Reality is
about
today,
not
yesterday
or what
might
happen
tomorrow
I am often asked whether a homeowner should fight to keep
ownership or look at different options. The answer usually
depends on your client’s specific loan. We’ll get into some of the
different situations shortly. Right now, you first need to ask your
client the important question, “Can you afford your mortgage,
insurance, and taxes, given your present income?”
Unfortunately, when people answer this question, they usually
have other things in mind, such as, “Of course my income in going
to go up, so I can afford the payments.” I do believe this is true:
Things normally do become increasingly better for most people.
Not in a straight line, not when someone “thinks” it should or will
happen. That is, your clients need to be realistic, especially
given today’s situation.
Their income may be limited by their circumstances, one way or
the other:
 They can’t count on lottery tickets panning out.
 They can’t expect an upcoming lawsuit or worker’s
compensation settlement.
 They can’t depend on “getting back on their feet.”
 They need to be realistic as to what they can afford now.
How to Determine If Your Client Qualifies for a Loan
Modification
This section is worth its weight in gold. It will give you a quick
way to determine if a client qualifies or not.
31
First of all, let’s go over the people you “do not” want as
clients. These are homeowners who:
 Have a record of accomplishment of being late on their
payments, even before the problems with rates and
foreclosures. The bank does not want to talk to you, or
anyone else, about these individuals.
 Bought their home about a year ago, could not afford the
house to begin with, and now cannot make the payments.
There is no solution for someone who should never have
been allowed to buy a house.
 Refinanced their home, used the money for a larger
purchase, such as a car or paying off a credit card debt, and
have no money left.
 Own a second property and show no income being
generated. There are two properties, and the owner can't
afford to make those payments. The lender is going to have
a foreclosure no matter what.
Now, let’s list those people you “do” want as clients.
These are homeowners who:
 Have been able to make their payments for at least a year,
but now with the “big bump” of the ARM strangling them,
can no longer keep up. They should be able to get back on
track by modifying their loan into a 15- or 30-year fixed
mortgage at the present rate.
 Are delinquent as a one-time occurrence, because of the
rate change. Delinquency is not a pattern.
 Realize that when their ARM adjusts in a couple of months,
their payments will be too high to afford. In this case, it
will be necessary for you to counsel them to stop paying
now; this way, they will already be delinquent for two
months when the ARM kicks in. The bank will not consider
modifying the loan while they are still making on-time
payments.
32
 Have suffered a temporary setback due to an emergency,
such as a major illness. For example, the husband lost his
job for six months and has just gone back to work. Or, the
client was in an accident, and now he’s better. He needs
some time to get back on his feet.
 Need a loan modification for second properties. This is only
occasionally done. The rules are somewhat different
because it's not the primary residence. Yet, if someone is
renting the property, there is a good chance that the loan
can be modified.
 Have an upside down mortgage. Lenders don't really want
the house when they know it's upside down. If they can get
someone to continue to pay, they're going to be very happy.
It will be important for the lender to see real estate comps
with the value of the house when it was sold and for the
same property today.
 Have two mortgages. Working with two loans takes a little
more time because you're dealing with two different banks
most of the time. You do have options. The second
mortgage is not in a position of power. Lenders are
therefore willing to work with you a little more than with
the first loan.
Let’s now discuss your role:
This is where you come in. With the following formula, you will
be able to determine if your client’s debt-to-income ratio is
acceptable to the bank.
Here’s the general formula:
This is 1. Determine the client’s monthly gross income.
what the
lenders 2. Determine roughly what the “Hoped For Mortgage
look at
Payment” will be. (This is the monthly payment the
before
client would pay today for a 30-year fixed mortgage, for
beginning
the amount due plus arrears at the market rate of
the loan
approximately 6 percent.)
mod
process 3. Add up all monthly debt payments.
33
4. Total the monthly debt bills and the “Hoped For
Mortgage Payment.”
5. Double that amount
If that doubled amount is more than the gross income, then
unfortunately the client will most likely not get the loan. If
it’s less than the gross income, you probably can move
ahead. You want to end up with a 50 percent debt-toincome ratio on gross income.
Let’s flesh this out.
Be sure
you use
gross
income
and not
the take
home
amount
The first part of the formula is to find out the gross income, or
income before taxes. Married couples add up both the husband
and wife’s income to get a total.
Is your client self-employed? In this case, pretend the business is
a separate entity. How much does this client pull out each month
from the business? That’s after paying employees and the truck or
car payment (if it is used for the business). Then you proceed
from there.
Write down that total gross income.
Second, figure out the Hoped For Mortgage Payment.
Third, add up the client’s monthly debt payments. These include
minimum payments on credit cards, car installments, department
store debts, the desired (lowered payment) mortgage, property
taxes and insurance. Do not include bills for such things as
utilities, groceries, pet food, and cable TV.
Finally, add up the client’s monthly debt payments and the
Hoped For Mortgage Payment and double that amount.
Here’s the simple test: Is the doubled amount less than your
client’s gross income?
34
If so, you can probably get a loan modification done for your
client.
If not, you probably can’t.
Why This Formula Works
To make a decision, lenders look at “Debt-To-Income Ratio,”
which is just what you did by following this formula. You went
through the exact process the lender goes through.
Lenders hate completing a whole loan modification exercise only
to discover that the borrower will default, because the new
payment is still too high.
Before they agree on a loan modification, the lenders make sure
that the borrower can honor the agreement.
Are all the monthly debt payments, including the Hoped For
Mortgage Payment and property tax and insurance over half of
the borrower’s gross income? If so, the borrower is in too deep,
and the lender won’t give the loan modification.
An Example Helps:
Your client makes $3,500 per month gross income.
The current mortgage payment is $1,950 per month. Taxes are
another $120, and the insurance is yet another $100.
In this case, the Hoped For Mortgage Payment is $1,200. I know
the client is paying $1,950, but that’s for now. This amount, it is
hoped, will be adjusted downward.
35
Their monthly bills include:
Hoped For Mortgage Payment
Visa card
Visa card (different card)
MasterCard
Car payment
Total bills
$1,200
$150
$170
$130
$300
$1,950
All you have to do is multiply this total by 2.
$1950 X 2 = $3,900
If the borrowers’ income is $4,000, it qualifies. At $3,500 per
month, they can’t qualify, and there is no use doing the loan
modification.
More About People Who Are Self-Employed and Paid Off
the Books.
If your client is self-employed, it may be difficult to document
income. Actually, some people lie about how much is made,
especially to the IRS and on loan applications.
It’s
always
about
today’s
reality
not what
might
have
been in
the past
Many of these “stated income” loans have been made in the past.
Let’s say a client tells the bank he makes $10,000 a month, but
really brings in half of that amount. What then?
In this case, we’ll stick to his line: “I can’t speak for the past, but
this is how much I make now”.
Based on my experience, lenders do not want to dredge up the
past. Many of them had aggressive brokers originating loans with
this “stated income” line that they knew was erroneous. They do
not have any interest in digging it up again!
If your client deals mainly in cash, then she needs to go to her
accountant and get a financial statement for her business that
36
covers the past six months to a year. Then submit this to the
bank. It will not be “audited” or “reviewed,” only prepared by an
accountant. Then the bank has something to use as
documentation. Even if there is no proof, this statement will
often work for someone who is self-employed and paid off the
books.
Lenders Will Sometimes Agree to a Better Interest Rate
One word of warning: Your client must be able to afford PITI with
a reasonable interest rate.
If the lender’s teaser is at 4 percent, the homeowners have to be
able to afford 6, 7, or maybe 8 percent to keep the house.
It is possible to convince your client’s lender that the reset rate is
unaffordable and to offer a different interest rate. There are
ways of doing this, and we’ll discuss them shortly.
If you are going to approach the lender for this purpose, your
client has to be prepared to pay a “market rate” given the
present credit and finances.
What rate is that?
If the borrower has consistently paid the lender late, compiled
some delinquencies, or has a poor credit history, it may be
necessary to pay 2 percent or even more above the rate than a
good credit risk. Today, that might mean 6 percent or so. I
expect rates to head upwards.
If your client has decent credit and payment history, lenders
typically will go just as low as when they started the loan. That's
why it's crucial to deal with a client who’s had the loan for some
time. If you start out with a loan of 6.7 percent, two-and-a-half
years later, it's at 9 percent. That is a decent case for loan
modification, because the loan will be at 6.7 percent.
37
This is
what you
want the
lender to
do
I’ll show you how to approach the lender and get an agreement to
fix your client’s rate, cap the reset, or change to affordable loan
terms.
I can’t stress this enough: Your clients must be able to afford a
reasonable rate of interest given their credit and situation.
Otherwise, they will have to move to another house, either
rented or purchased with “little or no money down.” (Yes, it can
be done, even with poor credit; you can learn how in the special
report How to Buy a House (or Many Houses) with No Money and
No Credit.)
Your Options -- When Your Clients Can
Keep Their House
For the remainder of this chapter, we’ll focus on your client’s
homeowner options and the phrases used to discuss them.
These  Contact the lender and work out a lower payment or some
other type of agreement that lets the homeowners catch
are the
only
up. We’ll call this a workout agreement.
options
your  Contact the lender and work out a “deed in lieu of
foreclosure” or simply deed in lieu.
clients
have
 Let their house go to the foreclosure sale – go to sale.
If you think about it, you won’t come up with any other answers.
Logic says either your clients get a payment they can afford or
move somewhere else.
We’ll explain all this step-by-step, but first we need to go over
one important thing.
Sometimes you can get your clients a new loan, but they need at
least semi-decent credit. Or they need a lot of equity. They must
be able to afford the payments.
38
If they have neither good credit nor equity, and they can’t afford
the payments, then you are wasting precious time. Who needs
additional loans with high fees and points, if they can’t afford to
make the payments?
How Your Clients Can Keep Their Home and Get the
Lender to Modify Their Loan
In this subsection, you’ll learn how to understand your client’s
workout agreement with the lender, if it is possible.
This subsection is all about keeping a house. In this case, always
assume your clients can afford a reasonable monthly PITI
payment.
Should They Really Stay in Their House?
This is There are reasons your clients wouldn’t want to stay in their
what you house, other than not being able to afford the payments. Another
need to explanation is that they owe more than the house is worth.
know if
they can Some people may just decide to move on. It depends how far
afford a
under water they are. If they owe $100,000 more than the house
lower
payment is worth, it may be tempting to just move out and let the bank
take over.
Is this wrong? I don’t know. That’s for each person to decide. In
my ethical compass, the bank makes these loans knowing full well
that they can go bad. That’s part of the business. We are all
looking after our own interests here. That’s life.
This is something the owners have to figure out. In my book, it
isn’t a good idea to strain to live somewhere. I’d rather be stressfree on rent or mortgage payments any day. I hate to live
paycheck to paycheck.
If I were pouring money into a mortgage where the amount
exceeds the value of my house, I would seriously consider letting
the property go and moving on. Enough said on that for now.
39
So Here’s Your Client’s Situation:
Let’s assume the owner has decided to stay and has arrears that
include $1,500 in attorney’s fees, which the lender has tacked
onto the loan. The lender is not accepting partial payments,
because it wants to preserve the right to foreclose.
What do you do as a workout specialist?
You are aiming for an agreement with the lender along these
lines:
 The lender won’t foreclose.
 Your client will keep making the regular PITI payments.
 Your client will pay the arrears, either over time or by
extending the term of the loan…
 With an optional fourth possibility in an ARM or reset
situation. The lender will change other loan terms,
specifically the monthly payments. The lender may tack on
a payment shortage to the principal amount of the loan or
adjust the interest rate going forward, so there is no
payment shortage.
This is the workout agreement you will learn to craft. You will be
able to negotiate this on your own, provided you have the
personal ability and time to do so.
Your client will need one more thing…
Learn
upfront if
your
client can
make a
“good
faith”
payment
The Lender Usually Wants a “Good Faith” Down
Payment On the Workout Agreement
No lender will agree to anything without both a signed workout
agreement (usually notarized), plus certified funds for some type
of down payment, good faith payment or borrower contribution.
It’s all the same, cold hard cash. A personal check is not okay.
40
How much will the owner need to pay? Alone, it may be necessary
to pay 35 to 50 percent of the arrears. With someone negotiating,
this may be a lower percentage, hopefully 15 to 30 percent.
That is because the lender wants to get the loan current as
quickly as possible, as well as to make sure that your client still
has skin in the game. Plus, it is important to reinforce that it
doesn’t pay to pay late. Otherwise, everyone would be doing it.
How Timing Affects Things – a Quick Look at the
Foreclosure Process
In most states, the foreclosure process works like this: I will use
California as the example, but it is similar in most places.
First, a client is delinquent for a month to three months.
Second, the lender files a “Notice of Default.”
Third, if after three months the owner has not “cured” the
delinquency, paid everything back to make the loan current, or
completed a formal workout agreement, the lender files a
“Notice of Trustee Sale.”
Fourth, about three to four weeks later, there is a sale of your
client’s property to the highest bidder. If nobody bids, the lender
gets the property back. All the other loans like seconds or thirds
are wiped out. Usually, the only encumbrances that remain are
unpaid property taxes and the homeowner’s association fees.
The lender will work things out with you prior to the trustee’s
sale. As things get closer to the sale, this will be less of a
possibility.
Keep this in mind as we explore how you can help your client
through this jam. Remember to check to see exactly how things
work in your own state.
41
Why Redemption Periods Don’t Mean Much
There are states with deeds of trust and other states with
mortgages.
Mortgages usually involve a redemption period and take a lot
longer to foreclose. For instance, in Minnesota there are six
months from delinquency to the sheriff’s auction. This is followed
by a six-month redemption period. So, the foreclosure process
takes one full year.
Redemption is not easy. The former owner must pay all arrears:
This
rarely All late fees, all missed payments, all miscellaneous fees, and all
happens attorney’s fees.
How often can people redeem themselves?
Not often. If the house has a lot of equity, someone would have
purchased the property at the sheriff’s sale. If there isn’t much
equity, then why would the borrower want to redeem anyway?
Further, it’s sad to say, but by the time the sale has taken place,
attorneys and foreclosure fees and miscellaneous costs have
added so much to the loan balance the equity has been eaten up.
Why Lenders Sometimes Prefer Foreclosure: When
Your Client Has More Than One Loan on a Property
Sometimes a lender has two or three loans on a property. It is
very common to have a first and second mortgage, which may be
a home equity line of credit. Sometimes people have a third
mortgage, perhaps for an already-paid home improvement.
Why the
2nd
mortgage
doesn’t
foreclose
If a lender forecloses on the first mortgage, the second and third
mortgages are wiped out. They are gone.
If the lender on the second mortgage wants to foreclose and not
be wiped out, it is necessary to make your client’s payments on
the first trust deed and then use the foreclosure process to
42
recover those amounts as well as any delinquencies on the
second.
If the borrower owes more than the house is worth, the second
and third mortgage lenders no longer have security. Thus, it is
not likely that the lender will want to keep your client’s first
mortgage current and then foreclose. Usually, the lenders will
just roll over and die.
As we shall see, there is one reason why the deed-in-lieu-offoreclosure is not an option. Deed-in-lieu does nothing to wipe
out a second or third mortgage.
A foreclosure on the first mortgage wipes out all the other junior
mortgages. The lender may get the property back, but it will
normally be “clean” of liens except for property taxes and
homeowner association fees.
The Myth That “Lenders Hate Getting Properties Back
Lenders would prefer your client continues to make payments
every month and eventually pay off the loan. They don’t want
owners to be delinquent.
They also are prepared to get properties back through
foreclosure, because the reality is as follows:
Lenders have entire departments to manage properties they have
taken back. These are called the REO department, Real Estate
Owned--that is, owned by the lender.
Mortgage
servicers
make
money by
foreclosing
Lenders are usually only servicing your client’s loan for someone
else. If managing a property and selling it is part of the deal, they
are getting compensated one way or the other.
Lenders have become adept at either selling an REO to investors
with whom they have relationships or fixing them up and listing
them with favored brokers. Owning properties has forever been
part of the lending business. This doesn’t mean lenders are good
at it; just that they do own and manage properties and aren’t
afraid of owning your client’s!
43
Thus, your client has some leverage as a borrower, but there are
limits to this leverage. This is something that is useful to
understand.
Since the lender and servicer are often different entities, it’s
helpful to know the differences and their relationship.
How Lenders and Servicers Operate: What You Need to
Know
Nowadays, the lender who makes the loan collects an “origination
fee” plus other fees, such as those for the credit check and
courier, which are called “garbage fees,” believe it or not.
The lender then sells off the loan. XYZ Capital, trustee for
Collateralized Debt Obligation Pool #42A3, may own your client’s
loan. XYZ Capital manages the pool of loans, and your client’s
loan is one of many. The terms of the pool dictate what the
servicer can or can’t do.
The servicer is whomever you have to deal with regarding your
client’s loan. Although the term “lender” is often used,
“servicer” is more appropriate. Regardless, it is doubtful
whoever made your client’s original loan still owns it (but it is
possible).
Why does it matter who owns your client’s loan? Since most
lenders are really servicing the loan for another party who
actually owns it, these lenders are working for another master.
They are working under a set of guidelines that dictate what they
can and can’t do.
One thing they won’t do…they won’t do a workout agreement
without your client putting in some cash.
They will ask your clients to demonstrate their current financial
situation.
44
Don’t Make These Crucial Mistakes When You Show
Your Client’s Lender the Current Financial Situation:
Here is where the expression “between a rock and a hard place”
Pay
attention really applies, unless you know what you are doing.
to this
Here's why.
None of us knows the future. We may keep our job we may not.
We may hit it big, or we may lose everything. Airplanes could
strike the Pentagon for all we know.
I have long had a library of about 10,000 books (down to about
4,000 these days), and I periodically go back to the library and
read some that were written a while ago and predict “the future”
(which is now the present).
They are invariably wrong. Quite wrong.
So how does this tie in with demonstrating your client’s financial
situation to the lender? Here’s how.
You have to be careful about what you present to the lender: The
future may very well change, and you don’t want to have this
information backfire on your client.
There may be a point where you want to paint a rosy enough
picture where the lender sees your client can afford a certainlevel monthly PITI.
You need
to think
about your
long-term
credibility
What happens later when the owner can’t afford this anymore?
Then your rosy picture may look too rosy and you will lose all
credibility with the lender if you are not careful. You will no
longer be believed. Remember, they are human beings too.
45
How To Find the Right Net Worth While Sticking to the
Truth
You start with the truth, but there are often ways to characterize
things that are truthful but yet put in a way with a different
slant.
There are two parts to any financial presentation:
One is income, your client’s monthly income less expenses.
The other is balance sheet, or a statement of assets minus
liabilities, to come up with net worth.
How you present these facts while sticking to the truth has a lot
to do with what you are trying to achieve.
Here’s my own personal experience. As a practice, I once filled
out an application on myself. My net worth didn’t show too high.
Then a partner pointed out that in my house I had some valuable
paintings, expensive furniture, a gun collection, and jewelry.
I started to inventory what I had as “personal property” and you
know what? It totaled hundreds of thousands of dollars.
Did that not make my net worth look a lot better?
You better believe it did.
Almost
always,
you want
to use
low but
correct
personal
property
values
Here’s the point: There are several ways to value property like
furniture, paintings, and jewelry.
“Under-the-hammer” valuations are what something is worth
when you sell it at a public auction with bargain hunters who pay
pennies on the dollar.
A “private-sale” valuation is what you get when you sell it to a
very motivated buyer in a private transaction. Let’s say I had a
year to sell one painting and didn’t care whether or not it sold.
46
Yet, I knew someone wanted it. That would be a private-sale
valuation.
When my father-in-law passed away, his daughters kept some of
his personal items. They called in someone who bought
everything else with a single check. That guy got an outstanding
bargain.
Which valuation you use depends on what you are trying to
achieve. But you don’t want to make a mistake that will backfire
on your client in the future when something uncertain comes up.
Make sense? I knew it would.
Three Things Every Lender Wants To Know About Your
Client’s Financial Position In Order To Do a Loan
Modification
In general to get a loan modification, the lender needs to know:
1. Your client can afford the regular PITI payment, including
any probable ARM adjustments and resets,
2. Also your client can offer a “good faith” down payment on
any workout agreement and usually that it is possible to pay
an extra amount each month to start lowering the arrears
(The ratio we discussed earlier in the “formula”).
3. The lender will ask your client to fill out a basic loan
application all over again. This always includes two things:
take-home income and expenses and assets minus how
much is owed.
First, the lender will expect the owner to cash in assets like
certificates of deposits and sell stocks. Your client will be
expected to even cash in pools of self-directed retirement assets
like 401(k)s.
That doesn’t mean you have to tap these. You can draw the line
at retirement funds. But, your client will be expected to pull
money out of self-directed funds, which must be disclosed.
47
Assuming your client owes more than what is owned and will not
part with anything that is available, the net worth won’t show
any readily disposable assets.
As a result, the lender now turns to your client’s income.
Remember, you must show that the client has enough take-home
income each month to cover the PITI and some additional cash
that can be contributed towards the “good faith” down payment
on any plan.
There is a trick to this, of course.
If they
don’t
have
this, the
loan mod
probably
won’t
work
Good Sources of Cash for the Lender and Good Ways to
Present Your Client’s Situation
It’s
better
they
have a
little
extra
money
each
month
than not
enough
to pay
the
mortgage
In general, you want to show that your client can make the
payments to the lender, but only by struggling. It always pays to
truthfully present your client’s financial picture in the worse
possible light. Use under-the-hammer valuations for household
items. Many things we pay a lot of money for, sadly, are
practically worthless when sold.
A good source of cash for a lender is borrowing on credit cards or
from relatives or friends. Why? This gives the lender the cash that
must be supplied. It also demonstrates the level of your client’s
financial distress. It's impossible to go back to that particular
well.
Use the most pessimistic price point you can, while sticking to
the truth.
For income, use your client’s real monthly income, take-home,
after all taxes have been paid.
If your client gets bonuses that may or may not materialize, don’t
count them. Be very pessimistic here. Things do turn out
(temporarily) worse rather than better. You don’t want to be
optimistic. You want to be pessimistic.
48
Now, this isn’t always difficult, but it can be a little tricky if your
income is quite variable, as mine is.
How to
handle
income
that
varies
each
month
Let’s say I am having a very good month. I will then present the
last quarter income and expenses to the lender. I haven’t lied. I
have been honest, completely honest, and nobody really expects
my income to change radically month to month.
If I’m having a very good quarter, I’ll show last quarter. Last
year. You get the idea.
Remember, what I am presenting is completely honest.
Completely truthful.
Did I mention not to lie? Another word on that, it can keep you
out of jail.
The Most Important Section You Will Ever Read
Don’t NEVER LIE TO YOUR Client’s LENDERS. Did you get that? NEVER
end up in NEVER NEVER lie.
prison
Also…
Never have clients give assets secretly to friends or relatives to
hold for them. This is called “parking” assets. I once had an
attorney who I fired for inadequate work. Years later, he went to
prison for parking some assets (a private plane, if I recall
correctly) and then filing bankruptcy. Somehow, somebody who
probably didn’t like him much found out about the plane. He
landed in federal prison for several years.
Never lie on any papers you give to your client’s lenders. There
are very powerful laws against this. If you lie, you can be found
out. If you are found out, you can be prosecuted and sent to
prison. Who needs this? Who needs the worry of having something
that can be held over your head like this?
Never submit false papers to a lender.
49
Be prepared to explain anything you submit to the lender as
though you were explaining it in open court. This rule will really
keep you out of trouble. If you wouldn’t want to explain it in
open court, you shouldn’t be sending it to your client’s lender.
The Key To Presenting Financial Information To Your
Client’s Lenders
Just because lenders ask for something, doesn’t mean you have
to provide it.
Follow these rules:
 You don’t want to be overly detailed. You want big picture
items. That will often suffice. Don’t give the lender more
than what is requested.
 Pick periods of income that make the most sense. They
must be recent, but they don’t have to be “today”.
 Lenders can always ask for more detail, but often they
don’t. Simpler is better. If you start out with less, they may
not want more. There is a bare minimum you must present,
but sometimes that’s all they’ll want. “Less is more” in this
case!
 They may ask you to use their form, but if you have your
own, use it. They will usually accept it. Your form will
usually have less detail than theirs and not any blank
spaces!
 We have discussed this already: Be pessimistic, but
truthful.
As the current economic disaster continues and more and more
people are in need of loan modifications, banks are getting
extremely back up processing them. As a result they
50
How to Present Assets and Liabilities to Your Client’s
Lender
On the next page is the form that the IRS uses to determine
whether a person is insolvent. Being insolvent means that a
person owes more than what is owned.
If we use under-the-hammer valuations, many of us are insolvent.
The credit card bills are very clear as to how much we owe. What
my wife’s jewelry will command is not so clear. Our furniture and
paintings – well, those are sold for pennies on the dollar when
push comes to shove.
The following is a good form for you to use to show lenders your
clients are not solvent. In other words, that they are not capable
of paying all their arrears. It isn’t overly detailed.
51
Statement of Total Assets and Liabilities
To Determine Insolvency
Name:
__________________________________
SS #:
__________________________________
Tax Year:
__________________________________
Assets as of __/__/__:
Liabilities as of__/___/__:
Home:
$________
Credit Card Debt: $________
Car:
$________
Mortgage:
$________
Bank Accounts:
$________
Loans:
$________
Personal Property: $________
Car Payments:
$________
Other:
$________
Other:
$________
Other:
$________
Other:
$________
Other:
$________
Other:
$________
TOTAL ASSETS
$________
TOTAL LIABILITIES $________
TOTAL LIABILITIES – TOTAL ASSETS = $_____________
Amount of Insolvency
52
How NOT To Present Your Client’s Income To the
Lender (if you can help it)
What you don’t want is a detailed form as the one below,
although sometimes it is required.
NET MONTHLY INCOME
MONTHLY EXPENSES
Basic Expenses Itemized
Rent or Mortgage
Homeowner Association Dues
Utilities
House/renters Insurance
Property Taxes
Food & Household goods
Clothing
Telephone
Cell Phone:
Cable TV
Internet Connection
Car Payment
Car Maintenance & Repairs
Car Insurance
Gas for Car
Other Transportation (Describe)
Child Care
Medical Care (out of pocket/co-pays)
Haircuts & Make-up
Charitable Contributions/Memberships
Monthly Credit Card & Other Debt (Other than
house & car expenses)
Cigarettes & Alcohol
Eating Out
Video Rentals
Babysitting
Hobbies
Birthday & Holiday Presents
Movies
Travel
Other (please describe)
$___________ (A)
$___________ (B)
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
$___________
DOLLARS AVAILABLE FOR LOAN REPAYMENT
(INCOME (A) - EXPENSES (B)) $____________
53
This is simply too much information. Again, sometimes lenders
will require a lot of detail, so you will have no choice.
I’ve had good luck presenting something like this:
The Right Way to Present Client’s Income Information
To a Lender (if you can)
Borrower
Total Monthly Income
$ __________
Home or Residence
Mortgage Payment
Homeowners Insurance
Property Taxes
Utilities/communication
Transportation
Upkeep and maintenance
Bank Loans and credit cards
Living expenses (groceries, etc.)
Entertainment
Other
Co-Borrower
$ __________
Borrower
$
$
$
$
$
$
$
$
$
$
TOTAL MONTHLY EXPENSES $
CoBorrower
$
$
$
$
$
$
$
$
$
$
$
See the difference?
There is a lot of room, when you aren’t terribly detailed, to stick
to the truth, but make it tilt in your favor.
Be Prepared To Back Up What You Say
Your lender may ask for your client’s pay stubs, or tax returns. Be
prepared to supply them.
Many times lenders don’t ask. But, sometimes they do.
54
Also be prepared to explain big expense items orally over the
phone and then perhaps follow up with a short note.
The Other Element in a Successful Workout Package:
Your Client’s Hardship Letter
Okay, so you made your client’s financial presentation. Now you
need your client’s hardship letter.
A hardship letter states why your client is delinquent, with a
specific but brief explanation of the reason. It states that since
this reason is no longer applicable, your client can continue
making current PITI payments. But, your client needs to work out
everything else, whether it’s paying an unaffordable interest
reset or the arrears.
The format of a hardship letter is as follows:
Include the lender’s name
Address
Your client’s loan number
Borrower’s name,
Address of the property
Open your letter by explaining that your client bought the
property or refinanced and received the loan. Then briefly
recount your client’s past (hopefully good) history of paying on
the loan. Put things in a positive light: “My client paid 25
payments on time and only was late 3 times in the past, and
never more than 30 days late.”
Explain the nature of your client’s hardship, include what
happened, when it happened, and the impact on finances. Here it
pays to be specific. “On December 4, Mr. Client fell in Ralph’s
Grocery store due to the slippery floor. He was in the hospital
with a broken femur and a concussion for two days. The accident
led to him missing 19 days of work and having to visit several
doctors. As a result, his income dropped from $2,800 per month
55
in take-home salary to $680 per month in disability income. Mr.
Client did not have enough income remaining to make loan
payments and fell behind.” Be specific and detailed.
Tell
them
exactly
what you
want – to
lower
the
interest
from 9%
to 6%. Or
tack the
arrears
onto the
end of
the loan.
Or raise
the
monthly
payment
to pay
the
arrears.
Now, explain how your client has resolved the problem. “Mr.
Client has recovered his health and is working again. Mr. Client
can make the regular payments, but help is needed to stay
current and pay the arrears at the same time.”
Now, explain the other ways your client has sacrificed and cut
back on spending. “As part of Mr. Client’s commitment to paying
back the loan, the family has cut back and only eats out at
restaurants twice a month. They have canceled their cable TV,
except for the basic plan. They no longer rent movies from
Blockbuster. They have sold one of their cars, and only have the
car that they need to get to work.” Again, here is where you
want to pour detail into the letter. Be specific and detailed.
Close by explaining that your client would be grateful if the
lender…(state whatever you want the lender to do). Be specific
here, too.
Each borrower must sign at the bottom of the letter.
How To Contact the Lender and Present Your Case
Now it’s time to contact the lender. You do this by telephoning
and getting transferred a million times.
While you are getting moved here and there, read this section. It
has some important information that can save you hours and
hours of time. Listen up.
You call the standard toll free number, get hold of a human, and
ask for the “loss mitigation department.” It may be called the
“workout department” or even “the hope department.”
56
The first person to take the call will ask what you want. You say,
“I represent a borrower, and I need to speak to someone who has
authority to do a workout agreement. Who would that be?”
This puts the person on the spot. This individual knows that you
mean business and most likely will not mislead you. You have
reached the wrong person, but ask for this employee’s name
before being transferred. Also say: “Before you transfer me, in
the event I am disconnected, how can I reach the right person?
What number should I dial, and what extension should I press?”
Now, you take out a piece of paper and keep it by your phone.
You write notes:
 The date and time of the call.
 The name of the person who took the call.
 This person’s phone number and extension.
 The outcome of the call – what is supposed to happen next,
and when it is supposed to happen?
For instance, here is a sample of notes:
Date/time Spoke to Phone/Ext
10-2-09
Joan
800-55510:07 am Davis
1212, ext
2303
10-4-09
9:08 am
Faxed
income
info
10-7-09
3:18 pm
Joan
Davis
800-5551212, ext
2303
Outcome
She’s the loss
mitigation clerk.
Said to submit
income info and
then follow up with
her
She got the fax. She
is discussing case
with her supervisor
Loren Siegel on
Next follow up
10-4-09 Must fax
her income info.
Her fax number is
800-555-2222 and
write “attention
Joan #23” on the
cover sheet
Call Joan Davis
back on 10-7-09
to make sure she
received the fax
10-14-09 Follow
up with Joan to
see if she spoke
to her supervisor
57
Friday and
suggested I call her
next week
and what the
next step is
Here are the rules to use when following up. If you use these
rules you will have a relatively good experience, if anything can
be done:
Talk to Always get the name, phone number and extension of the person
the right on the phone.
person
Keep very good, careful notes.
When you finally speak to the right person, tell him or her you
have some things to fax.
Then fax your client’s hardship letter and financial information.
That is really what is needed to make the decision.
You will also probably need a letter from the borrowers
authorizing you to be their representative.
Keep following up. Never let things just sit. Call every few days,
if necessary.
When you send something to the lender, always fax it; keep this
fax along with your notes, and CALL BACK to make sure it was
received.
Keep calling, calling, calling. Expect to be on hold a long time
It’s not
difficult but and to be transferred from one person to the other. That is how
it takes
this works. Just hang in there.
persistence
Maintain your cool. Don’t get verbally abusive. Be nice but gently
persistent. Never lose your temper. Never express disrespect for
the lender or anyone working there. People react better towards
you and will want to help if you are likable. They get defensive if
58
you attack them, so don’t! Remember, they didn’t borrow the
money, your client did. It isn’t their fault.
A lot depends upon your persistence and your resolve.
What is Possible and What is Not
The lender may say, “We can’t do anything,” but that doesn’t
mean this is actually the case. Sometimes, something can be
done, but the lender does not initially admit it.
This is where I like to say, “I understand…and still…” or
“I know that is not normally what you do. And still…”
For instance:
“I understand that you generally don’t do this. Yet, I still
need to make some sort of workout arrangement. Who
would I speak to about that?”
You always want to keep things moving forward on a positive
basis. The person speaking may not have the authority. Then who
does?
If you
don’t ask
for what
you
want,
you will
get less
than you
could
have
Here’s a major point. Always suggest what you want the lender to
do. If you want something, then ask.
“My client will borrow money from his mother and pay $1,000 in
certified funds towards the $12,800 in arrears. He will continue
making his regular principal interest taxes and insurance
payments. In return, you will extend the arrears that remain by
making the loan term longer by that much so his payments remain
the same.”
If you make specific proposals, it is easy for them to say “yes” or
“no.”
And be very pessimistic about what you are proposing. You want
many months or years to work things out. Your client can’t count
59
on winning the lottery, getting a promotion, or things turning
around.
Here Are Your Negotiating Points
Always make suggestions as to what you want. These are all
desirable outcomes:
The
more you
deliver,
the more
clients
you’ll
have
seeking
your
services
 Tack on the arrears to the term of the loan and keep the
client’s payments the same.
 Set a new interest rate. Everything else remains the
same.
 Set up a payment plan for the arrears while keeping
current with payments.
 Offer a minimal “good faith” down payment.
 Give more time to pay the arrears. Many months, even
many years.
Sometimes They May Ask Your Client to
Sign a New Note
Especially if your client’s original loan was done with private
mortgage insurance, the lender may ask for a promissory note to
be signed for any arrears.
If asked, your client may have to do it.
But then try to get these concessions:
 The note is non-interest bearing.
 No payments are due on the note until maturity.
 The note does not need to be honored unless the underlying
mortgage is paid in full.
 In effect, such a promissory note only has to be paid when
the client sells the house or refinances. It isn’t the end of
the world.
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Private Mortgage Insurance companies do it this way, because
they give funds to the lender and want a note in return for the
amount of their advance to the lender. Can’t blame them, can
you?
How the Lender Will Agree to Your Workout Plan
You might just end up with a verbal agreement. Generally, the
lender then prepares documentation and faxes it to you.
Your client generally will need to sign and often notarize the
agreement. Then overnight it to the lender. Your client will have
to pay the good faith “down payment” via a wire transfer or
certified funds sent via Western Union.
Then it’s done.
Note: Before moving on it’s important to mention that
examples of the forms you will need for Loan
Modifications can be found in Appendix A.
Loan Modifications for FHA or VA loans
Federal Housing Administration loans are made by lenders, but
insured by the FHA. That means your client’s lender can turn to
the FHA to make up any losses. It’s a pretty sweet deal.
VA loans are even sweeter. The VA uses its own funds, so the
lender is at very little (or no) risk.
This can be good and bad for your client, the homeowner. Good,
because your client’s lender may let the loan stay in a delinquent
state a lot longer than with a private loan. Bad, because your
client’s lender isn’t always as motivated to work things out with
you.
To get around this, the FHA has a “partial claim” provision. This
is something you will want to know about if you are trying for a
workout agreement with your client’s lender on an FHA loan.
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How Your Client’s Lender Can Make a Partial Claim
In a partial claim scenario, your client’s lender gets some money
from the Department of Housing and Urban Development (HUD)
that takes care of your client’s delinquency. Your client can get
back to normal status and continue making regular PITI payments.
The lender has been “made whole” and is not complaining,
either.
Here is what your client needs to qualify:
 Be at least 4 months behind, but never more than 12
months.
 Capable of beginning to make full mortgage payments.
 Has resolved the hardship that caused the problem.
 May or may not be in foreclosure. It doesn’t matter as far as
a partial claim is concerned.
 Has enough financial stability in the future to convince the
lender that things will work out over the long haul. In other
words, the client is financially stable, so the lender can
expect that PITI payments will be made for a long time to
come, once the delinquency is over.
 Lacks the money or resources to repay the arrears, even
through a loan modification.
 Living in the house; in other words, the house is owneroccupied.
 Approved by the bankruptcy court for the partial claim, if a
petition for bankruptcy was filed.
 HUD will make your client sign a note for the amount of the
claim and put a new mortgage on the property to secure the
note.
The good news is that the note is non-interest bearing. Your
client will become current immediately and only have to pay off
the note when the property is sold or refinanced.
62
Your client can even get a refund of mortgage insurance if the
note is paid off!
From the HUD website (current as of January 2010)
Helpful tip: Note that the “mortgagor” is your client, the
borrower. Mortgagee is the lender.
Under the Partial Claim option, a mortgagee will advance funds on
behalf of a mortgagor in an amount necessary to reinstate a
delinquent loan (not to exceed the equivalent of 12 months PITI).
The mortgagor will execute a promissory note and subordinate
mortgage payable to HUD. Currently, these promissory or "Partial
Claim" notes assess no interest and are not due and payable until
the mortgagor either pays off the first mortgage or no longer owns
the property.
Question 1: In utilizing the Partial Claim option to bring an asset
current, can the mortgagee include all fees and corporate
advances?
Answer: Mortgagee Letter 2008-21, states in part, that legal fees
and related foreclosure costs for work actually completed and
applicable to the current default episode may be included in the
Partial Claim amount.
Question 2: A Loan Modification was completed; the mortgagor
then defaults again and has different circumstances; it's been less
than 12 months since the Loan Modification was completed; can
the mortgagee consider a Partial Claim?
Answer: Yes, if the mortgagor meets the qualifying criteria for
usage, the mortgagee can consider using a Partial Claim to assist
the mortgagor in avoiding foreclosure. The mortgagee should
ensure there is a valid documented reason for the default that
meets the criteria reflected in Mortgagee Letter 2003-19, page 6,
Paragraph N, Limitations on Use. It is up to the mortgagee to fully
63
document the servicing file with the reason a Partial Claim is
needed.
Question 3: Can a mortgagee include late charges in the Partial
Claim?
Answer: Mortgagee Letter 2008-21 states that the mortgagee
should waive the accrued late charges at the time of the Partial
Claim.
Question 4: Must a Partial Claim be deducted from the Net
Proceeds of a Preforeclosure Sale?
Answer: Yes, when using the Preforeclosure Sale Program after a
Partial Claim was provided on an earlier default, the mortgagee
must include the amount of the Partial Claim when calculating
total indebtedness for the purpose of a Preforeclosure Sale and to
meet the 63% negative equity ratio calculation. In order to be in
compliance, mortgagees must include the unpaid principal
balance, accrued interest, and the Partial Claim amount to
correctly calculate the total outstanding mortgage indebtedness.
HUD must net a minimum 82% of the sales proceeds from the
Preforeclosure Sale. Refer to Mortgagee Letter 2003-19, dated
November 20, 2003.
Question 5: Can the mortgagee collect administrative fees and
costs associated with the preparation of the Partial Claim
Subordinate Note and Mortgage?
Answer: No. Mortgagee Letter 2003-19, Page 6, Paragraph L,
"Mortgagee Incentives" states the following: "...The mortgagor may
not be charged any additional costs for receiving this loss
mitigation workout option, however, it is acceptable that legal
costs and fees related to a canceled foreclosure action may be
collected directly from the mortgagor..."
64
Question 6: A Partial Claim was executed two years ago, now the
mortgagor has re-defaulted on the loan, will HUD subordinate the
Partial Claim so the mortgagee can complete a Loan Modification?
Answer: Yes, HUD will subordinate the Partial Claim so the
mortgagee can complete the Loan Modification. The mortgagee
should contact HUD's contractor at (866) 377-8667 to ascertain all
language requirements and terms that must be evident within the
subordination document.
Question 7: Regarding the five (5) business day submittal for
recordation and the 60-days from date of execution for filing the
claim criteria stipulated in Mortgagee Letter 2003-19. What are
the procedures for those Partial Claim properties in jurisdictions
that require execution of the subordinate agreement by a HUD
official and is there any situation where it would be appropriate
for a mortgagee to exceed the five (5) business day requirement?
Answer: Mortgagee Letter 2003-19, dated November 20, 2003,
states:
"O. Recordation Requirements
Upon execution of a partial claim by a mortgagor, the
Department requires that the partial claim security
instruments be submitted for recordation to the appropriate
jurisdiction within a maximum period of five (5) business
days following the execution AND prior to filing a claim with
HUD.
The responsibility for servicing of the Partial Claim remains
with the mortgagee until the security interests are legally
recorded in the appropriate jurisdiction."
The above paragraph is threefold; (1) execution of documents by
mortgagor (mortgagee should specify "deadline date" for mortgagor
to return), (2) mortgagee receives the executed documents back;
therefore, (3) asset is eligible for filing of claim and sending
65
executed documents for recordation (Block 9 of Insurance Benefit
Claim is the date that the mortgagee mails documents for
recordation).
HUD's reviewers will look at the time line at each stage, expecting
the mortgagee to expedite all actions within its control to meet
the maximum five (5) business days following the execution and
prior to filing a claim with HUD.
For the Partial Claims that require HUD Official Signature, the
following applies - (a.) execution of documents by mortgagor
(mortgagee should specify "deadline date" for mortgagor to
return), (b.) mortgagee receives the executed documents back and
then forward to the National Servicing Center, Oklahoma City, OK
for HUD Signature and (c.) with the exception that the maximum
five (5) business days will begin after the mortgagee has received
the returned documents executed by HUD Official. As of this
writing, these states include Louisiana, Oklahoma, Maryland, and
three counties in California.
Question 8: What is the collection process on a Partial Claim that
is not collected from the mortgagor at the time the mortgagor
pays off their FHA first mortgage?
Answer: The collection process on a Partial Claim that is left
unpaid at the time the mortgagor pays off their FHA first mortgage
is the Department bills the mortgagor directly. The Partial Claim
debt will not be forgiven and the mortgagor is required to make a
lump sum payoff.
Question 9: At what point does the mortgagee's responsibility for a
Partial Claim end?
Answer: The Mortgagee's responsibility for a Partial Claim ends
when the following two events occur: (a.) HUD receives the
executed subordinate mortgage and (b.) When any requests for
payoff of the first lien occur, the mortgagee is obligated to notify
66
HUD to obtain full payoff amount of the Partial Claim and supply
that information to the mortgagor.
Question 10: Will a mortgagor qualify for a Partial Claim when the
FHA asset is less than 12 months old?
Answer: Yes, if the financial analysis reflects the mortgagor has
the ability to support the normal monthly payment, and the
mortgagor is an owner-occupant committed to continuing
occupancy of the property as a primary residence. However, in no
case may a Partial Claim be used if the mortgagor's surplus income
percentage is 0% or less.
Question 11: What percent of surplus is considered sufficient to
approve a Partial Claim?
Answer: Mortgagee Letter 2003-19, Paragraph D. Financial
Analysis, page 3., states in part: "…In no case may a partial claim
be used if the mortgagor's surplus income percentage is 0% or less
than 0%. If the mortgagor has low surplus income (<5%),
mortgagees are encouraged to combine a partial claim with a
special forbearance plan allowing the mortgagor to demonstrate
the ability to make regular payments for a period of three (3) or
more months prior to origination of the partial claim note."
Question 12: Can a Partial Claim be used if the mortgagor is 14
months delinquent?
Answer: Per Mortgagee Letter 2003-19, under Definition and
Existing Guidance, a mortgagee will advance funds on behalf of a
mortgagor in an amount necessary to reinstate a delinquent loan
(not to exceed the equivalent of 12 months worth of principal,
interest, taxes, and insurance (PITI)). Therefore, the mortgagor
would have to have sufficient funds to pay towards the arrearage,
so that it is no more than 12 months delinquent.
67
How To Get a Loan Modification For
Your Client’s VA Loan
The VA will let the lender who services your client’s loan do a
loan modification. This includes a “re-amortization,” where the
lender tacks on the delinquent amounts to your client’s loan and
makes the loan go longer and keeping the payments the same. Or
sometimes, the payments may raise a small amount and the loan
period remains the same, but the client is paying the delinquent
amount back over the rest of the loan.
The VA requires a specific form. The form is reproduced on the
next page. It is a good form to use if necessary.
A difference with the VA is that it can buy the loan from your
client’s lender. This is called refunding. If it buys your client’s
loan, you may be dealing with a different loan servicer, and it
could go on and on for months or years. The foreclosure process
can be very slow, even if your client doesn’t make payments.
Otherwise, the process is really the same. You now have the steps
for helping clients modify a home loan, so they can stay in their
house with affordable payments.
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69
70
Why This Matters
The unconscionable lending that occurred over the past many
years has devastated many hard-working and responsible
homeowners. Many of these people are working on their own or
with groups of like-affected borrowers to have their loans
modified. Individuals, who cannot do it on their own, because
they do not have the time or experience, need help or they will
soon be losing their homes.
In the past, this was only used when a borrower was delinquent
and suffered a hardship such as a job loss, divorce, or illness.
Although that is still the case, these individuals are now joined
by hundreds of thousands of borrowers who cannot pay high rate
adjustments from the ARM.
If you have the interest and inclination because your experience
in this field to build a loan modification business, you could
benefit hundreds of people by allowing them to hold onto one of
the most important things in their lives. At the same time, you
could grow your own business and your personal satisfaction
knowing you are helping others.
Next… Beginning the short sale process
71
How To Obtain and Prepare a Short Sale Listing
Real estate agents don’t need to shy away from homeowners in
foreclosure or wanting to get out of a home they owe more for
than the mortgage is costing. The way the economy is today there
are going to be a lot of people in this position. You might as well
make the best of it and learn how to prepare and conduct a short
sale.
Short sales
are not
limited to
realtors,
many
others can
benefit
knowing
how to
complete
them
Real estate investors and other real estate professionals have
good reasons to become short sale specialists as well.
Maybe a potential client calls you and they already know they
owe more than their home is worth or are being foreclosed on.
They want to know if you can help them get out of the jamb they
are in. The answer should be that you can. Or maybe, a new
client asks for a market analysis before listing the home. You
learn they are upside down in the mortgage but can offer a
solution…painful maybe, but still a solution.
At times such as these, when the country is faced with terrible
financial challenges, there are also opportunities for people with
the right knowledge to help others with their special needs.
Today, many people find themselves in a dire situation where
they need to sell their house but find themselves with a mortgage
that is for more than the house will sell for on the current
market.
Rarely is this because the owners did something wrong. More
likely uncontrollable circumstances have brought them to the
brink of financial disaster.
All across the country the market price for homes has fallen
sharply from the high prices that people were barely able to
qualify for one or two years ago.
72
Yet, everyday life circumstances dictate that people must leave
their current house for another:
There are 
many

many
reasons
for a

short
sale?
Career transfers to another geographical location
Health problems that leave people unable to work and
unable to continue making the high mortgage payments
Losing a job as headlines scream more layoffs every day
across the country
 Needing to relocate and care for elderly or ill parents
 Facing an interest rate jump that will make your mortgage
payments impossible to pay each month
 And many more ….
I’ve been asked many times if a transfer or relocation will qualify
for a short sale even if the homeowner is not behind in their
payments and there is no hardship such as a job loss.
The answer is “yes” this does qualify for a short sale. The
transfer itself is a hardship. When you get to the hardship letter
section of this report, just substitute the words in the example
with appropriate words describing how their transfer is a
hardship.
It’s not your client’s fault the housing market is in the gutter
when they were transferred. They need to keep their good job
when the economy is down and that means moving to where the
company needs them.
The Biggest Problem When Their Payments
Are Not Delinquent
If the economy was strong and your clients had equity in the
house, they might just decide to forego the transfer, find another
good job right there and stay in the house.
73
On the other hand, they could sell the house for a nice little
profit and buy another house where they are moving. But neither
of these options exists today.
The biggest problem you face is getting the attention of the
lenders loss mitigation department when your clients’ mortgage
payments are current. The lenders loss litigation department is so
swamped there is no way for them to find the time to work with
someone that is current on the payments.
You’ll learn the entire process soon but basically, you contact
them and try to get a short sale packet sent to you, next find a
willing buyer, and then submit the packet with the buyer’s offer.
That will normally get them to begin talking to you.
There are many reasons a short sale is the right or only answer.
Contrary to what other so-called experts might say, you do not
have to be behind in payments or on the verge of the foreclosure
sale to get the lender to agree to a short sale.
How to
help
others
while
helping
yourself
I saw this as a way that individuals, such as yourself, can
accomplish a very important goal: by helping others sell their
over-mortgaged house and get out from under an unbearable
mortgage even in today’s difficult real estate market and without
damaging your clients’ credit rating with a foreclosure.
The timing couldn’t be better. Every month comes the
announcement of a new peak record of banks foreclosing on
peoples homes.
What are Not only are good people being evicted from their homes but a
short foreclosure does enormous damage to their credit score.
sales? Wouldn’t it be better if you could sell the house for market
value and get the lender to accept that as full payment even if
it is less than the current mortgage balance, without your
clients going through the foreclosure process?
74
That’s what a short sale is about. Getting as much for the house
as the market will allow and getting the bank to accept it as full
repayment of the loan. In most cases, the bank will agree to this
and your clients wouldn’t be hit with that nasty foreclosure on
their credit history.
Keep reading if you want to learn:
 How can you sell houses when buyers are as scarce as hen's
teeth?
 How you can sell any house in almost any area (maybe not a
blighted downtown area, but almost everywhere else…) You
just can't do things the way they're usually done.
 Why in the midst of this unusual market, your clients’
houses will never sell if you don’t know what you are doing.
 When a short sale is do-able and when it isn't.
 How to get your clients’ lenders to say "YES" to a short sale.
 Why the Broker's Price Opinion (BPO) is critical to getting
the lender to say yes and how my LowBo MethodTM assures
this happens.
Clients
will
stampede
your
office
when you
show
them
how you
can do
this
That’s what you will learn here – how to sell a house with a
$250,000 (or more) mortgage for $175,000 without your client's
owing the remaining $75,000 and leaving their credit history
intact.
What You Need To Know To Get Started
Before we jump all the way into this important information, you
need to know that sellers considering short sales are usually
frightened. One of their biggest fears is that they will be
swindled.
Part of your strategy should be explaining where the dangers to
them are lurking.
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I want to let you know about some well meaning and not so well
meaning people out there that are going to offer bad advice to
your clients.
How Your Clients Can Avoid the Five Sharks Who Are
After Them
There are what I call the five sharks who come after people who
are in a tough situation:
1. People out to steal their house,
2. Well meaning but mislead realtors,
3. Well meaning bankruptcy lawyers,
4. Well meaning loan brokers, and
5. Experts who don’t know anything and will take your money.
People
that say
they want
to help
People out to steal your client’s house are people who advertise
“I buy houses for cash.” Many of these are fine people, but some
are not. They will take the deed and your clients move out. They
do not pay off the loan. They put renters into your client’s house
and they don’t make the house payments.
If your client has no equity, or owes more than their house is
worth, they shouldn’t bother with these people. If they do have
equity, they can sell to one of them if you want, but be sure your
client is aware that they may not pay off the loan.
Danger!
Even if they sell their house to someone, they are still on the
hook for the loan unless the loan gets paid off. Make sure your
client’s keep that in mind.
Traditional Next, are real estate agents who will list a house and then not
methods sell it. Agents listed many of the houses I used to buy in
don’t work foreclosure. The agents didn’t sell the house though. And the
homeowners who waited around for the agents to sell their house
would lose out.
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What they need is a savvy realtor like you. One that understands
with the change in times, those conventional real estate sales
methods just don’t work anymore.
Bankruptcy
is seldom a
good
answer
Similarly, there is a role for bankruptcy lawyers but often they
will file bankruptcy for people who shouldn’t be filing
bankruptcy. Most of these lawyers are well meaning. But
bankruptcy doesn’t stop foreclosure. It delays it somewhat. It is
very bad for your client’s credit. And it is costly. It can be a good
idea if your client consults with a bankruptcy lawyer but they
need to be very careful before letting him or her file bankruptcy.
MRF shows
you how
to do it if
it is the
right
solution
for your
clients
Loan brokers can sometimes get your client a new loan, as you
just learned about in the previous chapter. But your client has to
have at least semi-decent credit. Or they need a lot of equity.
And they must be able to afford the payments.
If your client has neither good credit nor equity, and they can’t
afford the payments, then the loan brokers are wasting precious
time. And who needs additional loans with high fees and points if
your client’s can’t afford to make the payments?
Scam alert Lastly, your clients need to avoid experts who profess to help
them and will take their money and disappear into the night.
There are a lot of those around.
The First Thing You Need To Know About Short Sales
Convincing your client’s lender that a short sale is the best
answer is not difficult but few realtors know the most effective
way to do this.
1. You need to convince the lender of two things:
2. Convince the lender that the house can never be sold on the
current real estate market for the amount of the existing
mortgage.
77
Convince the lender that your client’s can’t continue paying on
the current mortgage and therefore the house has to be sold on
the current market.
Now, lets get down to the business of conducting a successful
short sale…..
There Is Some Information You Should Get From the
Client Early On:
 Find out how much they owe on the property?
 How many mortgages are on the property?
 Who are the mortgages with and how much is each one?
 Are the mortgages current?
 If not, how much are the arrears (late fees and other
delinquent charges)?
 Has the foreclosure process started?
 If the mortgage is current, do they need to sell the house
now?
 Do they have a hardship like loss of a job or medical
problems?
 Are their any other surprises like judgments or tax liens
against the property?
Be up
front
about the
fact they
will not
get any
money out
of the
short sale
- none
You can be compassionate with them but you need to honestly
tell the homeowner they will not financially benefit from a short
sale. At best they get to walk away from a bad situation with
their credit intact or reasonably intact. More on this later.
They will take no money out of the house with a short sale. They
might have to pay federal and state taxes on debt forgiveness if
the bank files a 1099C with the IRS.
On the non-financial side the negotiations with the bank can be
difficult, frustrating and drawn out but that is the reason they
need a professional like you. Promise to perform to the best of
78
your ability but don’t make promises that you cannot keep.
Finally, make sure they understand to never sign away the deed
to the property without also being relieved of their obligations.
There Are Three Important Clauses To Have
In The Listing
This is not 1. That the listing is for an indeterminate price.
a standard 2. The listing agent shall attempt to sell using the nine day
listing
house sale method and
3. The price is subject to approval by Buyer and by Lender.
Building a Short Sale Package
Get
started
understanding
the
lenders
specific
paperwork
right away
Contact the bank(s) that you will be working with and request
their short sale package. Each bank is a little different and uses
different paperwork. If there is a second mortgage on the home
be sure to get both packages.
Next, you will develop a BPO (broker provided opinion). Another
section of the course goes into the details about this. It is a very
important part of the preparation to convince the bank to accept
a short sale.
Review the banks short sell package and begin gathering the
needed paperwork. At a minimum from the homeowners you will
need:
1. A letter of authorization to conduct a short sale. Include any
liens or judgments that you know about. Have it signed by
everyone who’s name appears on the title.
2. 1-2 or more bank statements
3. Two years of tax returns
4. A hardship letter
5. Pay stubs
6. Medical bills if they are applicable
Once you have the listing and short sale authorization letter, go
ahead and list the home for sale. Contact the bank and send in
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the authorization letter along with copies of the other paperwork
you have collected. Ask the bank to assign a negotiator but they
probably won’t until you have a buyer.
When you get to this point, it is time to begin the 9 day house
sale. This is a big part of closing the sale and an entire section
covers it later in the course.
The Sale and Buy Back Question
People often ask, can I sell to my father or cousin or friend, and
still live here, and maybe buy it back at the lower price?
The answer is no. They cannot. Of course, lenders do not
approach you after the sale has been completed and check on
this, but the lenders do not allow your clients to have any
financial benefit whatsoever.
That means your clients cannot be doing a straw transaction, or a
sweetheart deal. Don’t be a part of this.
Your clients will take no money out of the house with a short
sale. They cannot sell and lease it back or buy it back.
They might have to pay federal and state taxes on debt
forgiveness if the bank files a 1099C with the IRS.
Where To Find Clients
After you save a few clients from foreclosure or financial distress,
word of mouth will bring plenty of clients to your door steps.
Other places you can promote your services are the credit
counseling classes that are required before filing bankruptcy.
Google foreclosures in your local region and you will find plenty
of resources to contact. Also, tap into any lists of ARMs resetting
in the near future that you have access to.
80
Expired and Expiring Listings Are Your Best Friend
If all you do is watch expiring listings and contact the
homeowners, you will be very successful.
In addition, once you do some nine day house sales, you will find
a lot of buyers and sellers who want to work with you then. It’s
pretty easy. In fact, you can have the best and greatest income
this year and just start with expired and expiring listings.
The Sales Contract Addendum
After completing the 9 day sales method you will have a buyer for
the home. They will already be aware that this is a short sale and
contingent on the bank's approval. Still, you need an addendum
to the sales contract.
What follows is a standard sales contract addendum that the
buyer and seller can sign.
Now that you have the hang of listing a short sale property, let’s
move on to the BPO.
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SHORT SALE - BUYER ACKNOWLEDGEMENT
ADDENDUM TO REAL ESTATE PURCHASE AGREEMENT
Property Address (“Property”)
Buyer(s)_________________________ (“Buyer”)
Buyer(s) Agent____________________
Seller(s)________________________ (“Seller”)
Seller(s) Agent___________________
THIS IS ADDENDUM is made a part of that REAL ESTATE PURCHASE AGREEMENT (“Purchase
Agreement”) dated ______________________20__, including all prior addenda and counteroffers,
between Buyers and Sellers, regarding the Property.
1. ACKNOWLEDGEMENT OF SHORT SALE. Buyer is hereby made aware that the proposed
purchase price of the Property is less than the amount(s) owed to individual entities (“Third Parties”)
that hold security interests against the Property. Third Parties may include but are not limited to
institutional lenders, mortgage insurers, bankruptcy trustees, federal, state and local tax authorities
and private
parties.
2. THIRD PARTY APPROVAL OF THE SHORT SALE. Buyer is hereby made aware that this
Purchase Agreement is subject to the written approval and cooperation of the Third Parties. Seller
shall submit the Purchase Agreement to all Third Parties together with any additional documentation
required by the Third Parties, for review and approval, but Seller cannot guarantee the approval nor
the timeliness of rejection or acceptance by Third Parties.
3. CLOSE OF ESCROW REQUIRES COOPERATION. Buyer acknowledges that Third Parties’
written participation is required at close of escrow in order for clear title to transfer and although Third
Parties may have given prior written approval of the Short Sale escrow may be delayed by Third
Parties at no fault of Seller. Buyer holds Seller harmless for delays caused by Third Parties.
4. THIRD PARTY CONDITIONS. If one or more of the Third Parties requests modifications to the
proposed Purchase Agreement (“Third Party Conditions”) Seller (after Seller’s receipt of the Third
Party Conditions) shall provide a counter offer to Buyer with the Third Party. Upon acceptance by
Buyer’s written consent these Third Party Conditions shall become terms and conditions of the
Purchase Agreement.
5. SELLER’S RIGHT TO ACCEPT ADDITIONAL OFFERS. Buyer agrees that at any time prior to
Third Parties’ accepting the terms of Buyer and Seller’s Purchase Agreement, Seller may: (a) continue
to market the property and advertise it through the Greater Las Vegas Association of REALTORS®
MLS as “C” (Contingent) status for sale; (b) accept additional offers for purchase of the property; and
(c) at Seller’s option, forward any such additional offers to the Third Parties for review and approval.
6. BUYER’S RIGHT TO CANCEL PROPOSED RESIDENTIAL PURCHASE AGREEMENT. At any
time prior to Third Parties’ accepting the terms of Buyer and Seller’s Purchase Agreement as provided
herein Buyer may cancel the proposed Purchase Agreement for any reason without penalty,
whereupon any Earnest Money shall be directed by Seller to be returned to Buyer, unless otherwise
agreed by Buyer
and Seller in writing.
All other terms of the proposed Residential Purchase Agreement, including all prior addenda and
counteroffers, not modified by this addendum shall remain the same.
Seller Signature:___________________________ Date:_____________ Time:_________
Seller Signature:___________________________ Date:_____________ Time:_________
Buyer(s) hereby accept(s) the terms of this addendum.
Buyer Signature:___________________________ Date:_____________ Time:_________
Buyer Signature:___________________________ Date:_____________ Time:_________
Seller Initials ____ ____
Buyer’s Initials: ____ ____
Page 1 of 1
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How To Develop an Effective BPO – My LowBo Method™
How To Develop an Effective BPO – My LowBo
Method™
This important chapter of the course will teach you what can be
done to quickly and effectively convince the lender that the
mortgage is upside down in today’s real estate market.
Not only does it do that but it also sets the price that they can
reasonably expect to receive for the house if they take it in
foreclosure….and the lender still has the hassle and costs of
selling it themselves.
The most Perhaps the most important thing you can do to get the lender to
important say “yes” -- use the right broker price opinion.
thing to
get the The BPO is so important I have developed a few honest and
lender to
valuable tricks that can get you a low BPO. I call this my LowBo
say “yes”
TM
Method for getting an ultra low BPO that will convince the
lender to accept a realistic offer that otherwise they may think is
too low.
BPOs As a Steady Source of Income
There are plenty of sources available for obtaining BPO work. You
could spend hours searching the internet for companies needing
BPOs completed on a regular basis, but I have include a resource
list in Appendix B. This will enable you to start working right
away.
Banks, mortgage loan companies, and asset management
companies for a number of reasons order bPOs. Common reasons
are:
 Home purchase
 Home loan refinance
 Bank owned property sale of a foreclosed property
 Property value estimate
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You can
specialize
in BPOs
and make
a killing
in today’s
market
Companies will order a BPO to be completed on a property that
they are handling for a variety of reasons. The company may be
either refinancing the home, loaning money for a home purchase,
or have foreclosed on a property and need to know the value of
the home on the open market to resell it.
Many of these companies outsource their BPO needs to an REO
Management company or to a Valuation Service company. Much of
your BPO work will come from the Valuation Service companies
but you can also get it directly from asset management
companies. You will be providing a BPO to the Valuation Service
company in exchange for a payment and they then forward the
BPO to their client.
Check With Your Broker About Performing BPOs
BPO work is normally covered by your Broker’s E&O insurance.
You will want to check with your broker for their permission
before completing any BPOs. You can make money performing
BPOs and since your work is insured under your Broker’s E&O
insurance and license, they have the right to request a portion of
the money you make.
Due to the nature of the work and the small amount of money per
BPO that is made, it’s rare that a broker will require a portion of
this money. However, they have a right to require a portion.
This is important stuff – worth the price of the course in itself.
Why the LowBo MethodTM – This Is Important Stuff
The lender will depend upon a broker price opinion (BPO) as
much or more than any other factor in deciding to approve the
short sale. The lender will almost certainly obtain their own BPO.
However, this step is so important that you should seriously
consider specializing in writing BPOs specifically for short sale
situations. This can become a lucrative side line for you.
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A broker price opinion is like an appraisal except the broker does
it rather than an appraiser. The lender may have an appraiser do
a drive-by appraisal also. But it is the BPO that really counts.
When a You want the lowest BPO possible. This is key. The lowest BPO
low selling possible will raise the chances over anything else that your
price is client's property will sell AND that the lenders will say “yes” to
good
the short sale.
If you do not follow the LowBo MethodTM, you may be kissing
tens or hundreds of thousands of dollars goodbye that the
lender would have otherwise written off in the short sale. It is
that important!!
You have
a critical
role in
this
Fortunately if following this simple method, you have the powers
to influence the BPO. If you know what you are doing, you can
sway the short sale in your favor. And if you mess this step up,
you could lose out altogether.
Like an appraisal, your BPO depends upon a list of comparable
properties, either dates they last sold, and how they are
different, better or worse, than your client’s property. But in
addition, subjective factors are much more powerful for a BPO
than an appraisal. The broker’s opinion, in other words.
Not sold on the LowBo BPO yet? Let me explain a bit more.
Why Do a LowBO In the First Place?
The lenders will always do their own BPO. And this is one you
should work very hard to influence.
In fact, by doing your own BPO and submitting it with the short
sale package, you are making the lender’s broker’s life much
easier. He or she will now use your BPO to do theirs.
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You Set The Tone as To What They Will Expect To Use
To Value the Property
You will
influence
the short
sale price
If you do not do a BPO, or if you do not follow the LowBo
MethodTM, chances are the lender’s broker will come in too high.
That will kill the deal for you. You could work very hard in
bringing in a buyer, and the lender says “no” if the BPO is too
high.
How the Lender Uses the BPO To Kill Your Deal – Or Say
“Yes” To Your Deal
The lender will take your BPO and look at the offer you have
brought in and submitted in your short sale package.
They will always accept an offer below the BPO. But how far
below?
What determines this is how distressed your area is.
We’re talking lots of abandoned houses up and down the street,
nothing selling, lots of REOs (real estate owned by the bank) and
no volume. In January 1010, a CNBC report 1 of every 94 houses
in Nevada is in foreclosure, 1 out of 132 for Arizona, and 1 out of
every 158 for Florida.
They may
go as low as
50% of the
BPO to
avoid
owning the
property in
foreclosure
In a very distressed area like that, they may accept an offer as
low as 50% of the BPO.
In a pretty distressed area, with a number of REOs and short
sales, but few or no abandoned houses, they may accept an offer
as low as 75% of the BPO.
In other areas, they will go 85% of the BPO.
They will say “no” to your deal if it comes in below these
percentages.
All that work for nothing.
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It doesn’t have to be this way. Follow the LowBo Method™ and
get a low BPO. Then fight tooth and nail with the lender’s
appraiser or broker and deals will often be done that won’t be
done if you hadn’t bought this course.
The LowBo Formula – Set It Low, Get It Low
Opinions can be influenced more easily than facts. But even facts
are highly subjective.
So let’s see how you want to use this to your advantage.
Keep
these in
mind
when
doing your
BPO
1. Do an interior BPO.
2. Be extremely thorough.
3. Ask for comps that work to your advantage.
4. Make sure you note *all* the factors that diminish the
property’s value.
5. Use pending sales or even listings that show the market is
getting worse. Make big adjustments in what you
assume the properties listed will sell for. Don’t make
the mistake of looking at last year’s sales because
even sales of a few months ago can be questionable
when prices are falling and volume is low.
Be sure
it’s an
interior
BPO
6. When the lender does their BPO, make sure you tell the
lender’s loss mitigation department that they should do
an interior BPO. “The house is unusual,” you want to tell
them, “and an interior inspection is needed so they can
appreciate it, in order to give you a proper BPO.”
You want this because you want to show them all the deficiencies
possible. Do a thorough BPO establishing clear justification for a
very low valuation. And get the lender to do an interior BPO.
How You Should Perform the BPO Using the
LowBo MethodTM
A licensed real estate agent is already a qualified individual,
authorized to complete BPO work. Keep in mind that I can’t be
87
Check the sure of all the rules and laws in every state, so check out things
laws in in your state before you do anything.
your state
If you’re located in a state other than California, please check
with a broker or Real Estate Commission to make sure that there
are no real estate laws prohibiting a realtor from completing
BPOs under their real estate sales license. A few states may
require a licensed Appraiser or Broker. Check, don’t break the
law.
Some realtors engage in BPO work regularly, especially when real
estate sales are slow.
Exactly What Is a BPO?
Rather than a traditional home appraisal, broker price opinions
provide a professional opinion of real estate value. It is important
that it be delivered in a timely and cost effective manner.
Because of their knowledge and expertise of local markets, real
estate brokers, agents, and appraisers are employed as
independent contractors for valuation purposes.
A BPO report includes comments about local market conditions,
the neighborhood characteristics, condition of the property under
consideration, as well as, a comparative analysis of three current
listings and three recent sales of comparable properties. The final
analysis results in the agent’s conclusion of a suggested list and
sale price.
There are two typical BPOs, the Drive by or exterior BPO and the
Interior BPO. We will focus on the Interior BPO. It is the more
comprehensive of the two.
This is not Pictures Are Worth Thousands of Dollars Using LowBo
the time At a minimum you will take a photo of the outside of the home,
to put one looking down the street and one that shows the house
your best address on the front of the house or the curb.
face
forward
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Also, make sure photos are taken of anything clearly in
disrepair or that otherwise decreases the property value. The
main purpose of doing an interior BPO is to include photos that
include oddities and disrepair of the interior. Be sure to get
outside photos of any defects.
You want to make the house show terribly for the BPO. Don’t
clean up a thing. Make it as messy as possible. Close the blinds
and make it dark. Smells can reduce the BPO very significantly.
Make sure bad smells are noted in the narrative. If you can boil
some cabbage that will smell up the house pretty well. Don’t air
things out. Don’t clean up. Don’t dump the trash. In fact, if you
can accumulate the trash, so much the better.
None of this is illegal. It’s just putting your worst foot forward in
This is
how you order to get the best deal. You should take advantage of every
influence legal trick you can, because the lender sure will!
the BPO
Remember the overall goal of a BPO… “to determine the market
value” of a piece of property the lender will consider for a short
sale. A lot of information about comparable properties will be
gathered. It’s very important that you produce high quality work
if you wish to convince the lender the property is accurately
valued.
The Comparable Properties
You will look up the properties on MLS. You will determine when
the properties were most recently sold and for how much.
Next, look up the tax records for the property. This will give
detailed information about the property description, square
footage, lot size, age, etc.
Here is how you want to conduct the BPO.
3 sales
and 3
current
listings
Most BPO’s require information about 3 comparable property
sales and 3 comparable listings. This may sound more
complicated than it actually is. Once you have the information
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about your property, they simply search the MLS for similar
properties within the same zip code or city.
Do not be afraid to use listings and pending sales. Don’t ever use
old sales. Even a few months ago, the sales environment was a lot
better than it is today.
Include deals that are “in escrow” or “under contract” if you can
get facts on these. Agents in a large office, or agents who are
particularly plugged in, often know what a house is selling for
even before the deal closes.
Always
show
recent
declines…
the lender
should
expect the
price to
continue
to fall and
want to
get what
they can
right now
This is crucial. Throw out any comps that don’t show the
market’s sharp decline. And use those deals that are under
contract because often those will be for a much lower price than
the older comps, which don’t reflect the market’s recent sharp
decline.
Provide
plenty of
comments
to explain
how you
arrived at
the low
BPO
Keep in mind you’re looking for comps with similar square
footage. It’s good to keep your comparables within 3 miles of the
subject property (this rule of thumb applies to suburban areas) if
possible and try to keep the date range within the last 6 months
(preferably much less time). Extend the criteria when needed to
locate proper comps. Most BPO forms have a “comments”
section. It’s important to use this section whenever you need to
explain a comp that you’ve used.
You will not always find 3 comparable sold properties and 3
comparable listings that closely match your distressed property.
If you cannot find 3 of each that you’re satisfied with, you can
simply expand the search to the entire city by removing the zip
code requirement on the MLS search. Expanding your search to
beyond 1 zip code, but within the same city will generally bring a
good result.
Here’s an example: “Listing comparable #1 is located 11 miles
from the subject property. This was the closest comparable
located within the same city.”
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Estimated Repair Costs - Exterior/Interior
No one is
going to
repair a
house
with an
upside
down
mortgage
Realtors can estimate the cost for repairs, but remember your
property is already overvalued. Do you really think your client or
the lender wants to invest more? List $0 for repair costs and note
in the comments section that repairs will be more expensive than
anything they can add to the selling price.
List every little thing that is wrong with the property. You want
to drive the price down. Everything from the 10 year old carpet
to the small crack in the bathroom window.... everything.
Neighborhood and Market Data
Location: Suburban, Rural, etc.
Local economy over the last 6 months: stable, increased, or
decreased. The economy is mostly in the toilet across the nation.
Mention it promptly if you are one of the worst hit.
Always detail,
detail,
detail in
the BPO
Something very important that you are doing here is educating
the lender in a far off state how bad the house and the economy
is in your neighborhood. They've never seen the house and will
assume it is pristine condition unless you paint the right picture.
The US economy is struggling in general. Be sure to note if your
region is suffering more than the national average. Never assume
that the lender knows what is going on in your neck of the woods.
Market for this type of property: stable, increased, decreased.
This one is important, short sales are often the result of a major
decrease in the local property market. Expand beyond the basics
and describe reality.
Normal marketing time: <30, 30-60, 60-90, 120+ (Just take the
average of days your sold comps were on the market). If you have
it, you can include information about houses taken off the market
without selling over an extended period. You certainly don’t want
it to appear the market is moving fast. This is ultra important.
91
The lender needs to know, from you, that things are moving
s – l – o – w – l – y here!
Include all
adverse
information
that you
can find
Neighborhood comments: Anything informative and descriptive
you can write about the immediate neighborhood where the
property is located. Is it generally run down? Abandoned cars in
yards?
For condominiums and community properties you will need to
include homeowner association fees. Also ask about adverse
assessments and controversies with the HOA. These should go into
the notes. Many associations have some terrible problem that
they are fighting about and that diminishes marketability. Make
sure to find out and explain.
Other Items Included In the BPO
Determining the distance between your short sale property and
the comparable properties is straight forward. On the Internet
open one of the mapping websites like MapQuest or Googlemaps.
Using the “get directions” feature enter your property address as
the starting point and the comparable as the destination. At the
end of the driving instructions, you will find the distance between
the two.
The MLS listing for the short sale property should have a button
that links to tax records. Here you can find above grade (excludes
the basement) room count and square footage. This is the total
room count, not just bedrooms and bathrooms. Room count and
square footage of the basement should be recorded separately
and then the total for the entire house.
Also, record the architectural style of the house as tutor,
colonial, bungalow, contemporary, etc.
While you’re in the tax records you need to get the last assessed
tax value or current assessed tax value of the land. Keep in mind
that you will also need some tax record information for the
comps.
92
You want to record if the comps are inferior, superior, or similar
to the short sale. A house with several hundred more square feet
is considered superior. Also take into consideration the ages of
the houses. Include anything that needs to be repaired such as
broken balcony railings or rotting stairways. If you have difficulty
finding comps, and included one with an extraordinary valley
view that yours does not have, it should be included in the
comments or notes section of the report.
Functional and Serviceable
Example
of why
you want
an interior
BPO
This is another important section that can influence the lender
that a short sale is the best decision. If the home is an older
rundown house where a new development of upscale houses was
recently built, be sure to point this out. Point out things like a
bedroom that is the size of a closet or a 1960’s era house that has
never been remodeled. Maybe it is a five bedroom house with
only one bathroom, a big deterrent to being marketable.
Valuing the Short sale
Most banks want the house value from several different
perspectives. The as-is value should be your honest low-end
assessment taking into consideration all marketing factors and
the comps you pulled. The repaired assessment assumes no
repairs can be afforded in a house with less value than the
existing mortgage. It should be the same as the as-is value.
Price goes
lower and
lower and
lower as
time
passes
Banks might want values for the house on the market after 30,
60, 90, and 120 days. A realtor knows that the price will need to
be lowered to encourage a sale as time passes. Be sure to include
further deterioration of the real estate market if that is a factor.
In a worst case scenario the house might lose another 15 -20% of
the value if it stays on the market 120 days or more.
There you have it, all the important information to write a BPO
that will convince the bank that a short sale is the best solution
and it's not your client’s fault that the house is worth less today
than when it was purchased.
93
Use this to
convince
the lender
it’s better
to take a
smaller
lose now
than an
even
bigger one
in 4
months
If you do a BPO using the LowBo MethodTM and make it this
detailed, how much work will the lender’s broker or appraiser
have to do? Not much. And how far from yours will they end up
price wise? Not far.
So now, using LowBo, you have got a low BPO. The lowest
defensible BPO possible. Congratulations! One more thing…
Prepare For the Lender’s BPO for Favorable Results
Remember I said to request an interior BPO? Here’s why and what
you need to do when they show up.
You want you to make friends with the lender’s broker or agent.
Listen. My wife made friends with the appraiser and guess what –
years later they are still good friends!
You don’t have to make them your BFF (best friends forever – ask
your kids if you haven’t heard this before). But you do want to
employ psychological factors to your advantage.
Make the
lenders
agent
understand
what a
terrible
situation
your
client is in
Tell your clients to:
Make friends with the broker and shed some tears. Pour their
heart out. Now is the time for a bit of theater. You want to tug
on the heartstrings of the man or woman who is in the house.
That can reduce their BPO by $20,000 or more. There is a reason
it is called a sob story. If the broker likes you and feels sorry for
your client, the BPO is going to come in much lower, chances are.
This, together with the bad smells and hovel-like appearance will
get the broker to want to get out of your house and submit a low
BPO.
Lender Roaming BPOs
This is a Short sales are seeing such a flurry of activity recently that some
real sign lenders are not doing their own BPO on every house being
of the considered.
times
The good news here is that they will rely even more on your BPO.
94
The bad news is they have come up with a technique that can
harm you if you were not aware of it. That’s the Roaming BPO.
In some of the most heavily distressed parts of the country, these
lenders are doing infrequent random BPOs. If they have a house
similar to yours and in the same region, they might try to apply a
random BPO to your deal.
Don’t t let Be wary. Be sure it is very current and the properties are truly
them rely similar. A BPO done just 3 months ago can be very out of date.
on an old
BPO
In many areas, brokers are routinely dropping the prices of
listings 1% or more every month on the market without
consideration of a new BPO or appraisal.
If the lender doesn’t order their own BPO, learn what they are
basing their decision on and try insisting on a new BPO if possible.
So that’s the lowdown, the LowBo MethodTM, for low BPOs and
that means a much more successful short sale.
I have provided an example of a well detailed BPO in Appendix C.
Next, we look at the 9 day sales method and how to pull excited
potential buyers out of the woodwork.
95
How To Sell a House In Nine Days Without Fix-up, and Still Get Top Dollar,
Even If It Is “Upside Down”
How To Sell a House In Nine Days Without Fixup, and Still Get Top Dollar, Even If It Is
“Upside Down”
A short sale involves your helping to sell the house to a buyer
who pays less than what the owner owes. The lender agrees to
accept what the buyer pays, less closing costs, as payment in
full for your loan.
9-day
house
sales can
work with
short sales
The seller walks away. The lender doesn’t pursue them for a
deficiency judgment. And the new owner takes possession of
the house.
So why should the lender do a short sale anyway?
Lenders Do Short Sales because It’s In
Their Best Interest
If the seller owes more than the house is worth, they could
walk away and the lender will be stuck with the house.
1. They will have to go through foreclosure.
2. They will have to get the owner out.
3. If the owner is a nasty bad person, the place could be
trashed.
4. They have to clean up the house and fix it up.
5. They have to get the house up to code.
6. They still have to list the house with a real estate broker.
7. They have to wait until someone buys the house.
8. They still have to go through the closing process including
paying the broker, paying closing costs, and so forth.
How much will this all cost the lender? Estimates range as high
as $60,000 per foreclosure. Do you think that’s realistic? I don’t
know. I do know that it costs a lender potentially tens of
96
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MortgageReliefFormula.com. All rights reserved. Reproduction in any form
without express written consent from MortgageReliefFormula.com is prohibited.
Read the disclaimer!!
thousands of dollars to foreclose and go through the entire
cycle.
Now, contrast this with a short sale:
1. They don’t have to go through foreclosure.
2. They have the seller’s cooperation so the property
doesn’t get trashed.
3. The seller helps line up a buyer with you. Both you and
the seller will be cooperative and proactive.
4. You’ll help make sure the deal closes.
5. They don’t ever have to own the house or deal with fixing
it up, holding it, listing it themselves, etc.
A short sale makes tons of sense to a lender. Does it make
sense for the seller to consider?
What a Short Sale Does To the Seller’s Credit
A short sale involves you negotiating with the lender. You find
a buyer, the buyer closes on the house, the lender forgives the
seller whatever shortfall there is between the amount required
to pay off the loan and the amount cleared from the buyer at
the closing.
There is a lot of negotiation involved in a short sale.
The seller’s credit and what the lender reports to the credit
agencies is one such negotiation item.
Your
client’s
credit
rating can
drop 300
to 350
points
A foreclosure can damage the seller’s FICO credit score to the
tune of 300 or 350 points. It’s a huge hit.
A short sale doesn’t need to hit the seller’s credit at all.
When I did my short sale years ago, I negotiated with the
lender. They reported the mortgage “PAID – SETTLED” which
was a small ding to my credit but it didn’t affect our ability to
97
get credit cards or a new mortgage. We had to pay a little
more but it was no big deal. That was in the day when there
wasn’t the frenzy to loan subprime. You had to have pretty
good credit to get a mortgage. We were able to qualify because
this didn’t count against us much.
The lender could have reported it PAID but they wouldn’t and I
didn’t feel I could negotiate on that.
A “PAID – SETTLED” statement will stay on your credit report
for 7 years. Not as bad as a bankruptcy, which is on there for
10 years. But not perfect either.
If you have either on your credit report, there are things you
can do to quickly improve your score. You might want to learn
about credit report improvement techniques in my Special
Report: From Terrible to Great - Raise Your Credit Score Up to
200 Points in 60 Days.
For the
seller it is
always
worth
pursuing a
short sale
instead of
going to
foreclosure
The upshot is that a short sale is FAR better than a foreclosure
for the seller’s credit. It didn’t hurt me and I was able to get
other mortgages pretty quickly. (And there are other secrets to
repairing these little credit blemishes anyway…)
So let’s examine what is required for a short sale. First, let’s
talk about timing.
Short Sales When Time is Short
Lenders typically take 60 days to complete a short sale, or
longer. They may take 6 months. I am sorry to report this but it
is true. Some lenders have to go back to the owner of the loan
and get the owner’s permission to do the short sale. Other
lenders have an arduous process. It seems like the Chief
Executive Officer has to sign off or something.
That said, it can be done and it is being done every day. I
highly suggest you become a specialist in short sales. There are
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Two
primary
tasks to
completing
a short
sale
two aspects to the short sale. One is getting the house sold.
The other is getting the lender to approve.
The skills required to sell a house are different from the skills
needed to get the lender’s approval. One requires
salesmanship. The other requires a detail oriented person.
Doing the short sale work involves details, paperwork, and tons
of back and forth calls over days, weeks, and sometimes
months with the lender’s people.
That isn’t something all brokers are good at. They don’t do this
well.
Old
methods
don’t
work in
today’s
upsidedown
market
For that matter, most brokers list a house and then don’t do
much else other than rely upon a network of agents to bring
buyers in. Distressed sellers may not have that kind of time.
As a short sale specialist in today’s upside down real estate
market you will have people pounding on your door for your
expertise.
Why a Short Sale Workout Specialist is Essentially
Free To the Seller
A good short sale workout specialist will get paid out of the
proceeds from the buyer. That means the sellers don’t have to
pay out of their own pocket. Some specialists may charge a
modest fee, say $100, that the seller must pay, but mainly you
get paid when the deal closes out of the proceeds.
Why you
don’t
need to
worry if
the seller
can pay
you
So there is no reason a seller should not use a short sale
specialist, and every reason to use one that has experience.
Specialists who negotiate the short sales can get a fee paid
from the HUD-1 at closing from funds the buyer brings in.
$3,000 is common.
A real estate agent may want to fold it all in as part of their
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service and not bill extra. What they do gain is a steady stream
of listings where they earn both the listing and selling
commission by using the 9 day sales method.
Lenders often won’t pay more than 5 or sometimes 6 percent
between the negotiator fee and the realtor commissions.
Won’t it A Short Sale Is a Lot Like a Normal Sale
be nice to So as you can see, a short sale is like a regular sale except:
work with
1. The seller doesn’t care that much about how much you
sellers
get for the property. They won’t see any cash anyway.
that don’t
car about
They are ethically and morally obligated to make sure
the selling
they do their part, but how much the lender gets isn’t
price?
really a matter they care all that much about.
2. A short sale can attract more motivated buyers because
they can buy below market value.
3. The lender has to be somewhat cooperative. Many times
they agree, but then they back out. They don’t approve
the sale. The property goes to trustee sale or sheriff’s
sale. Some short sales fail for that reason. Nothing you
can do about that.
4. There are some differences. They relate mainly to
convincing the lender to approve the short sale. This is a
selling job…
A Short Sale Approval Process Is Like the
Loan Process In Reverse
You want to keep good records, know who you talk to, be
patient and nice, etc. during what might well be a long drawn
out process negotiating with the lender
Some lenders now have a short sale department. So you may be
dealing with someone there. Realize that the lender needs to
be “sold” on the idea of a short sale, and selling the lender is
like selling the lender on making a loan, but in reverse.
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1. When a buyer tries to get a mortgage approved, they try
to show how much money they make and how good a risk
they are. When you try to convince the lender to approve
a short sale, you want to show them what a bad risk the
seller is and how poor their prospects are, while staying
honest of course.
2. When the seller got their mortgage, they had to get an
appraisal that showed good value. When you do a short
sale, you want to show the worst appraisal possible while
staying strictly honest.
The process is very similar to a loan application where you
want to show that they shouldn’t give the seller the loan. That
convinces the lender that your client is a good prospect for a
short sale.
They look at your client, and they look at the property. What
they like to see is the following:
Here is 1. Your client has poor prospects financially for the future.
the
2. They aren’t going to get back on their feet any time soon.
formula
The ideal scenario is a medical problem or long-term
for a
unemployment or psychological problem that stops them
successful
from succeeding in a financial sense.
short sale
3. They have the will but can’t help themselves. In other
words, your client isn’t just being a deadbeat in order to
screw the lender. They have good intentions.
4. The property is worth less than the loan amount.
That is the perfect setup for a short sale. You may not have all
the prerequisites.
Here is Now in reality, the seller doesn’t need to fit all those criteria.
But you must have the following in place, the minimum
the
minimum requirements:
you need
1. The property is worth less than the loan amount.
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2. Your client wants out.
In most states, that is all that is required. The lender must
foreclose on the seller if they stop paying. The lender can do
things through the short sale mechanism, with the seller’s
cooperation. Which they do depends on how convincing you are
to the lender.
Now, the lender may not see things that way. They may say
“the seller can pay the payment. We aren’t going to let them
off the hook even though they want out”.
They may threaten the seller with the dreaded deficiency
judgment. Remember that toothless tiger? We spoke about that
already.
Now, the big bugaboo with a short sale is supposed to be the…
Dreaded IRS 1099 Kick When the Seller is Down
You need A 1099 is the report that a lender sends to the IRS to show the
to inform amount of the loan that has been “forgiven.”
your seller
about this
So if the loan was $200,000, but the short sale only yielded
$150,000 to the lender, then the seller has a $50,000 “tax
gain” as a result of the forgiven debt and the lender may or
may not file a 1099C with the IRS.
The lender doesn’t always “1099” the IRS. Many times they
don’t. With my short sale, they didn’t.
I have excellent news for you though. Super news that you
won’t find in too many other places.
And tell
the seller
the good
news
How Form 982 Is the Seller’s Ffriend – Or
Why They Don’t Have To Worry About
Tax Liability From a Short Sale
The IRS code says that if you are “insolvent” at the time of
loan forgiveness, you don’t have a tax liability.
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Remember: insolvency means you owe more than you have.
You can use Form 982 to calculate insolvency for IRS purposes.
Form 982 is what the seller fills out to show that they were
insolvent when the debt was forgiven.
Chances are the seller was insolvent when you did the short
sale. So they are free from tax liability. Isn’t that cool?
And tell
them to
get tax
advise
from a pro
Have them talk to their accountant or tax lawyer about this,
get that form 982 filled out, and send it in.
They won’t owe tax for the amount of forgiven debt so long as
they were technically insolvent, including the amount owed on
the house, and this handy form proves it to the IRS.
Tax law is complex and each state has its own tax provisions.
Because of the complexity of each state, and the fact that
even the term “insolvency” isn’t easy to define within the tax
code of the different states, I can’t speak for your state.
I imagine many, most, or perhaps all states have similar
provisions in their tax code. It will depend upon how aggressive
they want to be and they will need to consult a tax professional
and decide on what they are comfortable with.
It is possible that they will have tax liability to your state even
if they were insolvent within the IRS definition and have no
federal tax liability for the forgiven debt.
Basically, this 1099 tax liability issue is another toothless tiger
because your lenders often don’t send in a 1099C and even if
they do, since the seller was insolvent, they don’t owe taxes
anyway.
And more
good news Further, congress recently clarified this although the tax code
about not already was pretty clear. President Bush signed a new law on
owing a
20-December 2007. The new law says that you no longer have
tax
liability
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to prove insolvency in order to have cancellation of debt and
NOT have a federal tax liability.
1. It must be your principal residence. Sorry, if you are an
investor, the new law doesn't help you...better look again
at the details on "insolvency" because that's your
loophole.
2. Limited to $2 million (well that won't hurt too many of
us).
Bottom line: nobody can threaten you with this huge tax kick
below the belt. Now that you know the truth. Although this
applies to federal income tax and you may still have a state
income tax liability…
So now let’s explore what you need for a short sale to work,
this “loan process in reverse.”
Here Are the Steps To a Short Sale
1. Contact the lender and get a contact there for the short
sale. Get a short-sale payoff application that you can fill
out.
2. Sell the house.
3. By using the 9 day method you will sell the house faster in
many cases. Don’t worry, I’ll give you two methods to do
so.
4. Make sure you include a key provision in the listing
agreement (which we’ll learn about in a moment.) Find a
buyer and enter into a contract that is contingent upon
lender approval.
5. Get a purchase agreement signed.
6. Assemble your paperwork and submit it to the lender.
7. Close the deal.
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Getting a Commitment From the Lender? Why You
Can’t and Why It May Not Matter
Everyone wants to get their lender to say “yes” to the idea of a
short sale, before they go to all the effort of finding a buyer.
They want to know “yes you will allow me to short sell this
property” in advance.
It usually won’t happen. The lender may give the seller an
extension on the foreclosure period, or they may not. They may
say “yes we will look at all options including a short sale,” but
often you will only get an informal agreement, which may be
all you are going to get from them.
You need
to
prequalify
buyers so
this
doesn’t
happen
You could very well go to the trouble and time of arranging a
short sale, only to have the lender balk. Or more likely, they
will delay and delay and your buyer will get exhausted and
move on, you will lose the sale after putting in a lot of work
and your client will lose the house any way.
However, pursuing a short sale is to your advantage. Short sales
fail for several reasons:
1. The paperwork you submit to your lender is incomplete.
If you know what they need, you can spend a few hours
putting it together and there is no reason for them to get
This
an incomplete package. So you are way ahead of most of
course
the short sale submissions they see, already.
makes you
an expert 2. You are selling too far below market value. If you use the
by
method I outline here, the round robin method, you can
avoiding
expose your house to 100 or 150 buyers, and get multiple
all of
offers. You can show the lender that you did this and that
these
they are not letting someone steal the house.
common
obstacles 3. The Broker’s Price Opinion (BPO) is too high. You already
learned what a BPO is and how to create a BPO in your
favor, a bit earlier in this course.
You can sometimes arrange a short sale very quickly. Then you
submit a complete short sale package to the lender.
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When the lender is presented with the short sale package,
including the offer from the buyer, prepared the way I suggest,
you will vastly increase the chances that they will say “yes” to
you – and do so in a timely manner.
And Another Advantage… Get Your Short Sale
Approved
If you are
looking for
clients,
run ads in
the same
places as
these “I
buy your
house for
cash”
people do
Nowadays, lenders are buried in short sale requests. Many
requests are made by sellers who have gone to those “I buy
your house for cash” investors who want to steal the house for
50% or 60% of the market value.
The loss mitigation people are in such demand that they
reportedly have to work 1000 or 1500 loans at one time.
Therefore, when they see a package that is not perfect, they
simply put it at the bottom of the pile and it never gets
approved.
The game today is to make sure your package is perfect. One
of the key areas, besides submitting a complete package with
all the paperwork, is valuation.
You are
about to
learn my
proven
method
for
exposing
the house
to the
market so
the lender
knows
they are
getting
top dollar
Because if the loss mitigation specialist doesn’t think that your
buyer is paying a fair price, where do you think your proposal
will end up?
You must convince the loss mitigation specialist that you have
exposed the house to the market. If you have done so, and
the market has spoken, you are far more likely to get your
short sale approved, even at a sharp loss for the lender.
That is why it is essential that you prove that you have had 50,
100, or 200 people look at the house and that you have
solicited offers rather than just picked up the phone and got a
fast-talking “investor” to make a ridiculous lowball offer.
And that’s what this section of our formula is all about…
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Here’s a Quick Way To Sell the House …and Get Top
Dollar, Without Fix-up Costs!
You want to get a sale, and you want to do so by exposing the
house to the market. You don’t want to wait months. Your
client can’t afford that. And they don’t want to fix anything
up.
So yes, if you do want to sell the house quickly, you can Google
“foreclosures” and you will find people who say they will buy
the house. Some of them specialize in buying for “all cash”.
They will often be lowball offers that the lender may not
accept.
I have a client who does buy these houses. My client has
remarkable honesty and ethics. Many other people in this
business do not have such high standards.
You can contact me by email and I may know someone who can
make an offer.
People such as the investors that I know act very quickly.
They do a quick appraisal using public records and driving by
the property.
They check title using a title company that responds in minutes
rather than days.
They figure out an offer that is below market value but not so
far below as to be a steal. They want the lender to say “yes”,
This is
and they know that if the price is too low, the lender won’t
selling at agree to it anyhow. Nobody wants to waste their time.
wholesale
but I have
a way you
can do
much
better
You would be surprised how easy it is to sell a house. The
reason is you are selling it wholesale, rather than retail. There
are professional buyers who buy wholesale. They know what
they are doing.
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I would suggest you consider an alternative. An alternative that
is likely to pass muster with your lender. After all, when you do
a short sale, your seller won’t see a dime. It’s all going to your
lender. So the lender wants to make sure that they are getting
as much as they can for the house, given the situation.
I know of no better method of satisfying the lender, getting top
dollar, and selling your home in nine days, than the round
robin.
That’s why I’m disclosing this to you here for the first time.
If you want to get the best price, here’s how
If you have a month or so before the foreclosure sale date, you
can use a better method than selling the house wholesale.
The advantage of selling it this other way is that you will get a
better price for the lender. You may end up with little or no
deficiency at all. You won’t be depending upon a professional
wholesale buyer who may back out at the last minute.
The round
robin gets
maximum
market
exposure
and the
best price
Everything is better about the deal. It’s faster. Best of all, the
lender can often get a higher price, because a round robin
assures the lender that the house has been exposed to the
market and that they can’t get a better price. That makes a
short sale a much higher probability.
You can imagine how many short sales fail because the lenders
balk at selling the house at an unrealistically low price. I’ve
said it again and again: lenders are people too. They don’t like
to feel like an asset is being stolen from them. Not to mention
that they are servicing the loan for real people and there is a
lot of pressure, especially these days, to get the highest
possible price.
This method I’m going to share with you is called the “round
robin” in my professional circles. And a round robin exposes the
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house to the marketplace and gives a lender reassurance that
they are getting the highest possible price.
The Insider’s Secrets To the Round Robin – Unveiled
Here For the First Time
A round robin is very little known. It has been used secretly for
years.
Now that’s
market
exposure
when
most
houses
languish
for
months
without a
single
viewer
Very few agents know about the round robin. A round robin
gets 30 – 50 buyers to come out and look at the house in a
single weekend and often results in multiple offers. Here’s how
it works.
You start the round robin process on Wednesday. You sell the
house by Sunday.
That’s right, this is a five day process.
You may not sell it on Sunday. You’ll know whether or not it
will sell, by Friday. If things don’t work out by Friday, then you
abandon the round robin. Perhaps you try a wholesale buyer.
Or perhaps the house goes to sheriff’s or trustee sale.
The Round Robin Has Two Big Advantages
First, in today’s market, it is difficult to know what the true
value of a house really is. Prices may be dropping quickly. The
last sales may be distress sales. Comparables may be hard to
get.
A round
robin uses
cold hard
facts to
convince
the lender
what
today’s
value for
the house
really is
A round robin exposes the house to a large number of bidders
and determines the true value of the house better than
anything else.
The second advantage is timing. You can find a buyer in 5 days.
You can submit the short sale package to the lender and have
the buyer lined up. You can use the round robin process to
convince the lender with cold, hard facts what the house is
really worth.
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So the lender is more likely to accept a short sale.
A Round Robin Turns the House Sale Into a
One Time Event
Everyone loves events. Grand openings. Movie openings. One
time only sales. Events are the secret to selling a lot of things.
Why not make an event out of selling a house? That’s what the
A one
time only round robin does. It makes selling the house an event.
offer
The key is to attract a lot of prospective buyers to look at the
house. You are exposing the house to a large number of
prospective buyers. That is because you are turning what is
normally a long term, boring, and drudge process, into an
exciting one weekend sale.
The goal is to find 2, 3, or 4 really sincere, interested and
quality buyers who can act now. Out of all the prospective
buyers you will see in the weekend, you will end up with 2, 3,
or 4 who are serious, ready and able to buy.
A round robin increases the chances that you will find these
buyers and gets them to act now rather than later, when it will
be too late.
Some of these prospective buyers may be wholesalers and some
may be people intending on living in the house.
Your Client Has To Sell Now But
Avoid Certain Holidays
I’m
sharing
every
trick I
know
Avoid the national holiday weekends such as Labor Day,
Memorial Day, and President’s Day etc.
Also, avoid quasi holidays like Mother’s Day, Valentine’s Day,
and Father’s Day, even Saint Patrick’s Day if it falls on a
weekend.
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Avoid the week of Thanksgiving, the Fourth of July, and avoid
the last two weeks of the year and the first week of the New
Year.
I realize you won’t always have a choice, but you are very wise
if you can follow these rules.
Also, avoid bad weather if you see some coming. A hurricane
forecast means this is not a good week. A record-setting cold
spell – not good. Record heat – same thing.
My 90/40 There’s a 90/40 rule that works in most places. Try to avoid
rule for weekends when the weather will be above 90 degrees or below
weather 40. Now this is just a rule of thumb. If you’re in North Dakota
or Minnesota, I don’t think you’ll have much trouble getting
people out on a 40 degree day if they are used to sub zero
temperatures during the winter. Use a little common sense
applied to your location.
Finally, pay attention to a religious or ethnic group, if you're
selling to them don't make around their holiday. You don’t
want to sell around Yom Kippur if you are selling to Jewish
people, for instance.
Establish a Low Starting Price For the House
The key here is starting low. You can’t start too low.
A low
starting
price is As you’ll see shortly, you will be driving up the bids anyway.
essential But you won’t get bids at all unless people smell an
extraordinary deal.
Here’s how you establish a starting price:
1. Look around your comparable prices of similar homes.
Price it 2. Price the home 40% - 50% below the lowest comparable
home. Really!
low – real
low
3. Use prices like this:
a. $24,500
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b.
c.
d.
e.
f.
g.
h.
i.
j.
$49,500
$74,500
$99,500
$147,500
$197,500
$224,500
$249,500
$274,500
$297,500
And so forth.
Those are magic numbers with psychology strongly in their
favor.
So, if the house is really worth, say, $250,000, price it at
$147,500.
If the house is worth $60,000, price it at $24,500.
If the house is worth $800,000, price it at $447,500.
Why Price Your House So Low???
You want your phone to ring off the hook. You want 20 – 40
phone calls by Friday night, assuming you started to market on
Wednesday.
Important tip: the price you start out at is not the price
you will finish at. But it will get the buyers’ attention! It
will be honest. Don’t worry, you’ll understand in a
moment.
Put Together a Written Package About the
House and the Situation
You will be putting this package together and making copies.
First sheet of paper describes the house quickly. This should be
on WHITE paper.
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Second sheet (or two sheets) provides details. These sheets
should be on YELLOW paper and should be stapled together. If
the details run three pages, you’ll have separate three pages
collated and stapled YELLOW packets.
Third sheet (or two) provides details on ALL deficiencies and
problems that you know about. Details should be on PINK paper
and stapled as well.
Provide another sheet with bidding method and rules for
closing the deal. This will be a single sheet and it should be on
GREEN paper.
Put together a bid sheet like this and put it on a clipboard:
Address: _________________________________________
Bid #1
Name____________________________________________
Phone number ____________________________________
$______________
$______________
$_____________
Bid #2
Name____________________________________________
Phone number ____________________________________
$______________
$______________
$______________
Bid #3
Name____________________________________________
Phone number ____________________________________
$______________
$______________
$_____________
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And so on.
A Good Way To Introduce the Neighborhood
Another useful tool is a picture book that buyers can look
through during the inspection. This quickly introduces buyers to
the neighborhood. Whatever is important can be included.
A few suggestions are:
 Schools including - pictures, addresses, map, summary
 Day care
 Nearby parks
 Entertainment venues
 Public services – bus lines, utility services, libraries, etc.
 Conveniences like grocery stores, gas stations, freeway
access, etc.
 Anything that makes the house an ideal location to live
A typical picture book runs anywhere from 10 – 20 pages. It is
placed in a conspicuous place in the house that makes it easy
for buyers to find but is out of the main traffic pattern so they
can comfortably browse through it.
Providing a summary sheet of the picture book that they can
take away with them can also be a good idea. Something that
they can refer back to during the round robin process on
Sunday night.
How To Create the First sheet – The Quickie
Description
General
1. Address.
information
2. Location in respect to public schools, shopping, public
transportation, major highways and freeways.
3. Bedrooms and baths.
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4. Outstanding features (fireplace, wood floors, whatever is
neat about the house.)
5. Water, sewer, gas, electric, etc.
6. Annual property taxes and homeowner association fees
and dues.
7. Starting price.
8. Statement that the house will be sold to the highest
bidder on Sunday night.
9. Directions to the house.
How To Create a Detailed Description Sheet
For the House
Detailed This is several sheets where you describe everything you can
information about the house, being very specific. Here are examples of
what I would put in the detailed description:
1. Year built, type of overall construction, brief history
including remodeling, major work that has been done
2. Heating, ventilation and air conditioning type, history and
age
3. Exterior type, history and age
4. Electrical system and electrical service type, history and
age
5. Floors and carpets including type, history and age if you
have them
6. Roof -- type, history, and age.
7. Dimensions of the rooms, if you have them
8. Appliances and fixtures that your client is taking with
them or leaving
9. Etc.
115
Here’s How To Put Together Your
Disclosures About Defects
Write all of them down.
All of them.
Every last one.
1. The dog that barks incessantly next door
2. The nasty neighbor two doors down
3. The dripping faucet in the master bathroom
4. The heating system that needs a new furnace
5. The back lawn that needs weeding. The way the water
pools up near the window of the basement when it rains
6. The city plan being discussed to build a huge high rise
building around the corner
7. Everything
Disclose EVERY PROBLEM YOU KNOW ABOUT.
Use many pages if possible.
The idea here is threefold.
One, you will avoid any future liability because you were
careful to not cover up or conceal. There is no such thing as
“buyer beware” anymore in this litigious world we live in.
Second, you will show that you are honest. You will reassure
buyers.
Third, there may be no time for a formal inspection. Your
disclosure will take its place to some degree.
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Here’s How To Describe the Round
Robin Bidding Process
Tell them 1. You must have viewed the house in order to bid.
in writing
2. Bids may be submitted until 8:00 pm Sunday evening. Any
how the
bid may be submitted at any time prior to that time. But
round
no new bidders can enter after that time.
robin
works 3. Bidding is open – anyone can ask and be told the status of
any bids at any time.
4. You will sell the home to the highest bidder in round
robin bidding on Sunday night starting at 8:00 pm
5. Before you start the round robin, at 8:00 pm, you will
phone the first bidder who can enter their final bid. You
will then call the second highest bidder, and you will
continue down the list.
6. Every bidder may top the then highest bid until you have
a highest bid established.
7. If you have a tie, the first person to have entered the tie
bid will win.
8. Bids must be $500 apart.
9. The highest bidder may buy the home at the bid price.
How To Advertise the House
You are going to have an open house weekend, Saturday and
Sunday, from 10 – 5. That exposes the house to the market and
assures the highest chance possible of a good price from an
able and willing buyer.
To get people to come out, you have to advertise. In the
biggest daily newspaper. And craigslist.com
The ads should include:
1. Address
2. Brief description
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3. The low starting price
4. Any reasonable offer accepted subject to final lender
okay
5. House will be sold Sunday night to highest bidder
6. Your phone number
Do not use silly abbreviations.
Like this:
Make sure the address is at the top flush left.
Make sure that the phrase BY OWNER is capitalized and flush
right (only if you don’t use a realtor).
Make sure that the “Inspection Sat.-Sun. 10-5” is centered.
3403 St. Peters Pl, Herndon VA
BY OWNER
4 bedroom, 3 bath, Spacious kitchen, Fully built
out basement, Screened in porch, Big front and
back yard
In Langley High School/Emerson Middle/Brooks
Elementary
$224,500 or best reasonable offer.
Inspection Sat.-Sun. 10-5
House will be sold
Sunday Night to
HIGHEST BIDDER
(703) 555-1212
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Make sure that the line with the price includes the phrase “or
best reasonable offer” (final bid to be accepted by lender, if
doing a short sale) and that this is centered.
Notice that HIGHEST BIDDER is capitalized. If your newspaper
offers bold, you can use it, but I wouldn’t pay extra for it.
Make sure you disclose that this is subject to lender approval if
it is a short sale. Otherwise, you are being misleading.
Make sure your phone number, including area code, is flush
right.
Run the ad Wednesday through Sunday. Each of those days. No
more and no less.
I repeat: no silly abbreviations.
How To Run Your Craigslist Ad
Then include your short description and your long description,
plus description of the bidding.
Make sure you confirm through email so that Craigslist will run
your ad. Check to make sure it’s there.
If you are in a large metropolitan area, include the
neighborhood information in the subject line so that potential
buyers instantly know where the property in located
Keep Your Craigslist Ad Current
Depending on your geographical location, keeping your
craigslist ad current can be a challenge.
The objective here is to keep your ad near the top of the
listings where the most people will find it.
As a test, I looked in the Seattle-Tacoma region to see how
many real estate for sale ads where running on a random
Thursday morning. Craigslist didn’t give me a clue. It just
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offered to let me see the next 100 listing on the next page
without even telling me how many pages of listings there were.
But there were a lot. At least 100 new postings each day.
Next, I looked at a smaller market, Reno, Nevada to be
specific. There were considerably less listings.
So, clearly your geographic region plays an important role in
how often you need to update your ad.
If you are in a major metropolitan area, I suggest that you
update your ad daily to keep it high on the list.
If you are in a smaller market, you can look at where your ad is
placed each day and make a decision if it needs to be updated.
Now, here’s a peculiar twist to updating craigslist ads that I
can’t fully explain but do have a solution to.
If you first remove your existing ad, craigslist makes you wait a
day before you can place a new ad. Don’t ask me why but they
do.
Instead, place a new ad before you remove the old one. That
does the trick, although I have no idea why it is like that.
Get Your Title Company Rep Working For You
If you are using a realtor, get their title company rep to do an
email blast to his list. Most title company reps have a good
email list of investors and agents that they work with. Ask the
rep to send out a few emails, one on Wednesday, and one on
Friday.
The emails should pretty much look like your Craigslist ad but
have a bit more information on them, as your agent is speaking
to her colleagues and will want to fill them in a little more.
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How To Get Great Results With Signs
Your signs should be placed around the neighborhood on the
Wednesday before the inspection weekend.
All the signs say is “Must Sell Sunday” and then have a phone
number. If you purchase bandit signs with that big headline,
and a phone number, you will get calls.
If you can, in the inspection weekend, put out directional signs
that say “Must Sell Sunday” and then give the address.
Important: Do not give out the address on the signs other
than during the inspection weekend.
Some communities have regulations about putting out signs and
even have enforcement agents that will take them down. But
you can work around this.
First, the signs are inexpensive so buy extras. Go around a
couple of times during the week and check to see if any have
been taken down. Replace them as necessary.
And another simple but effective trick. Often, hand written,
home made signs will be left up while professional signs will be
taken down.
Create a
new
market
where
there
wasn’t
one
before
In addition, hand written signs often attract more people
because they appear personal without leaving the impression
that professionals are conducting the sale.
How To Use Flyers and Doorknocks
Look around the neighborhood. Look for possible prospects to
buy the property that would come from the neighborhood.
Funny thing. Many sales are made this way. For example, if you
are selling a single family residence, and you are in a loan
range where a low money down FHA loan is possible, print
flyers that say “why be a renter when you can own?” Must sell
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by Sunday night – ultra low down payment possible” and
circulate them to the renters.
You can pass out flyers and you can knock on doors. This can
draw a lot of people to the inspection.
It always helps to have more people because it looks better
even if some of them are neighbors with no intention of buying.
Put pull off tabs on the flyers and even the doorknock
handouts. This just needs to be the telephone number to call
for more information. It makes it easy for people to share with
others. People can just take the number if a flyer is hanging on
a bulletin board instead of taking the entire flyer down.
Why Send Post Cards To Family and Friends?
It can be surprising but family or friends can occasionally be
the ones that actually buy the house. They have admired it for
years and would appreciate knowing that you now going to sell
it.
They can If they know someone that is in the market for a house and will
be great eagerly pass the message on. It can be someone they work
amateur with, a relative, or another friend.
marketers
What To Do When People Call You In
Response To the Ad
1. Log all calls, including date/time, name and phone
number. In case you have to call people back, you’ll be
glad to have their information.
2. Log every call.
3. Spend as much time with each caller as they want. That
could be 30 seconds or twenty minutes.
4. Answer with a nice, friendly “hello”.
5. Read your quickie description to every caller.
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6. If they want more information, or if they don’t respond,
then read your detailed description.
7. Make sure you pause occasionally. You can ask “shall I
continue?” and get them to say “yes” so you know they
are still interested.
8. When you’re done, ask them what they are looking for.
9. Don’t try to qualify them in any way. Don’t ask them if
they can afford it, or if they have financing, or these
types of questions.
10. Don’t let anyone inspect the house off-hours. Stick to the
Saturday and Sunday hours, 10-5, period.
You’ll 11.
know if
it’s going
to work by
Friday
night
If you get 20 – 40 calls by Friday night, you are going to
do fine. If you don’t, then you should call off the whole
thing. Call the 10 or 15 people back and cancel. See if the
paper will stop the ad at this time. It isn’t going to work.
You probably started your price too high, or else the
market is so terrible that it is impossible. This is rare.
Usually it’s a price issue.
What To Do Before the Open
House Saturday and Sunday
1. Have your client arrange it so someone pet sits any dogs
or cats so they aren’t in the house at all on Saturday or
Sunday. Really.
2. Here is a biggie. This may surprise you. But smell is very,
very important. Nobody can possibly over-estimate the
importance of a bad smell. More on this in the next
section.
3. Have your motivated clients clean things up. No repairs.
Just make sure things are clean and tidy. If you don’t
think they will do a good enough job you will have to do
it yourself or hire someone.
4. Friday evening or first thing Saturday morning, put up
open house signs. You need open house signs put
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around the neighborhood. You can buy these at Home
Depot or off the web. They should have an address on
them. Do not put them up too soon.
5. Open house signs should have the address and a properly
aligned arrow. This is essential.
6. You can shrink down your ad and put it up on telephone
poles as a sign. People will see this as they walk and it
will work to generate some traffic.
7. Put out your short description pile, your long description
pile, your disclosures, and bidding process sheets in
separate piles.
How To Do Very Quick But Incredibly Effective Cleanup Before the Open House.
We will talk about the single most important thing you can do
to make sure the house sells in a moment.
For now, just clean up.
Here’s the deal. If you can reduce clutter, you are better off.
Even if you take the stuff, put it in boxes, and cram all the
closets so they are full of stuff and so you can barely shut the
closet doors, you are better off.
1. If you can remove furniture and put it in the garage, you
are better off.
2. Everything you can take out, makes the house easier to
sell. Even if you have to jam the garage full of stuff and
all the closets, it’s worth it.
3. Bathrooms – remove all toothpaste and toothbrushes.
Mercilessly remove all shampoo bottles. Your goal is to
make the bathroom surfaces glistening clean and
completely free of any personal items or products
whatsoever.
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4. Kitchen – remove all clutter so counters are totally,
completely empty. Just put everything from the counters
and table into boxes and put the boxes in the garage or
store them somewhere.
5. Living room and family room – remove as much as you
can. All clutter should be gone. If you have furniture, try
taking some out and getting rid of it. Hey, you’re selling
the house and most people have far more stuff than is
ideal for a quick sale.
6. Repairs – don’t bother making repairs. The removal of
clutter raises the house in value and makes it much more
salable. No need for doing repairs.
If you’re the type that just has to make at least minimal
improvement, you can slap on a quick coat of paint where it
will do the most good.
You might also shampoo the carpets if they need it. Both of
these are relatively inexpensive and will have the most impact
on improving the showability of the house.
Now turn to the most critical thing of all that most people
overlook.
Getting Rid of Bad Smells – The Single Most
Overlooked Part of Selling the House
You might
not notice
a bad
order but
others will
want to
leave
I mentioned how smell is so important. Smell reaches down to
our reptile brain. We don’t know it, we don’t realize it, but we
are terribly prejudiced against someone or something that
smells bad.
I once had a beautiful house in a great tract and it had one
flaw. There was a bad odor. That house took months to sell.
And it was really because of the odor. I am convinced of this.
It isn’t hard to get rid of an odor but first you have to recognize
it. The thing about smell is that once you are used to it, which
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takes only minutes, you can’t smell it anymore. New people
coming into the house will want to leave. The odor will be
strong to them even though you can’t even smell it anymore.
1. Don’t cover up smells. Get rid of them chemically.
Covering them up makes things even worse.
2. Get rid of anything that smells. That includes the kitty
litter box. Kitchen garbage. And so forth. Easy to do and
very helpful.
3. Air the house out if you can, with all windows open.
4. If pets have been in the house, or if the carpet is more
than a year or so old, or if people have been smoking in
the house, then the carpet will be smelly and needs to be
treated. You can sprinkle the carpet with baking soda.
This helps remove odors. Then you can vacuum up the
baking soda.
5. Wash down mildewed areas with either hydrogen
peroxide, or diluted bleach. These kill germs that cause
mildew and odors. Never mix ammonia with bleach, and
make sure the area is well ventilated if you use bleach in
it.
6. Curtains are smell magnets. They get dusty and
disgusting. You should remove curtains and wash them. If
you can’t wash them, better to remove them. A house
will sell better with clean window treatments or none at
all. If you can’t remove them, you can spray Febreze on
them. Febreze does kill odors.
7. If a cat has sprayed, you can treat that with vinegar.
Then put on baking soda. The vinegar smell goes away.
And the cat spray odor does too.
8. Febreze on things works very well. So try it when in
doubt.
9. If a lawn or dirt area smells (from manure, or something
else that you can’t identify), you can buy big bags of lime
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dust. This may not be great for the lawn but it does kill
outdoor smells.
Okay, good job. Things look good. They don’t smell bad
anymore. And now it’s time for the open house inspection!
How To Run the Open House Inspection
1. Best to have several people who can greet the folks who
come in.
2. Say hello, invite them to look around, and tell them you
will give them an information packet.
3. Compose your paperwork packages while you are speaking
to a prospective buyer. This builds rapport as you talk.
4. Give every single prospective buyer a package as soon as
you can.
5. Watch what they are doing and reading. Remember the
colors of the paper? You’ll be able to know who is reading
disclosures, who is reading bidding rules, who is reading
the long description. This lets you start conversations
easily.
6. You want to get the other person talking. The more they
talk, the better.
7. One person on your “team” should be the Lead. That’s
you, the short sale expert.
8. The Lead is going to close the sale.
9. Most people will leave quickly. Some will stick around.
The Lead will deal with these folks.
10. The Lead closes the sale
How To Get People To Bid At the Open House
Here’s the secret to this thing. Get people to bid. Any bid.
Even a dollar.
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So the people who greet the prospective buyers and give them
the paperwork should steer them over to the Lead. The Lead
should explain the bidding by reading the bid rules sheet.
1. Remind the prospects that early bids have an advantage.
2. Get them to bid something, anything.
3. Remind people that they are under no obligation and can
always change their mind.
4. They will ask “if you only get a low bid of $x, will you
really accept that?” and the Lead answers “Yes!”
5. Say it with conviction.
6. Buyers will say “what about closing?” and you explain
that the closing is the same way as any other closing.
Same settlement process. If it’s a short sale, the lender
will fax a letter to the settlement attorney and the deal
will happen just like any other closing.
7. Always come back to this: “this is an open bidding
process. Everyone can see anyone’s bids at all times.
See?” and show them.
8. Try to get 10 – 25 bids. Say “c’mon, you could steal this
house. Just enter a bid, even one dollar will keep you in.”
Get as many bids as you can!!!
What To Do Before the Round Robin
Starts, Sunday Night
1. Review with your team the people who bid. What they
remember about them? What they did? What they said.
2. At 8:00 pm sharp, call the first bidder. Read the bid
terms again. Read the bids to them, all of them.
3. Get the first bidder to settle on a specific bid.
4. Tell them you’ll call back in perhaps 30 minutes.
5. Call the second bidder. Do the same thing you just did.
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6. Some bidders will just say “no thanks” and drop out right
away. Explain that once they drop out, they are no longer
allowed to bid.
7. A few bidders will be serious and enter serious bids.
8. Now, call the first bidder back. Has anyone made a higher
bid? If yes, then you need to go around again amongst all
the serious bidders. You give them the high bid and the
opportunity to enter a new bid.
9. You will end up going back and forth between two or
three bidders.
10. Don’t rush things. Don’t be afraid to pause and just wait
on the phone when the bidder is thinking. Or wait while
they confer with a partner or loved one, perhaps with
their hand clamped down on the phone.
11. Sometimes a bidder will say “I need to first talk to my
husband/wife/mother/partner.” You have to use
discretion. You may wait a few minutes on the telephone,
or call back in 30 minutes, but you don’t want to drag
things out very long. You can call the others back and tell
them what is going on.
12. Keep every bidder in the loop, so they know everything
that is going on.
13. At last you will have a high bid. You call the other bidders
back, and nobody will top that. Wait a few minutes.
Sometimes the second highest bidder will call you and
enter a still higher bid.
14. Call the top bidder and tell them they’ve won the house.
Explain that they have to move on finalizing the purchase
agreement and going to settlement or else you will move
to the #2 bidder.
15. Call the other bidders and tell them what is happening.
Explain that if something goes wrong with the winning
bid, you will be back in touch and it will be very quickly.
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For now, bidding is closed and barring something
unforeseen this is a “done deal”.
16. If you can’t reach a bidder, he or she doesn’t want to be
reached. Just go on to the next one.
If Things Fall Through…It’s Not the End of the World
You can call the #2 and #3 bidders and that may work. Or you
can run another round robin all over again.
Now that you know the ropes, it will be a lot easier.
And Some Quick Do’s and Don’ts
1. Never extend the original bidding past 5 pm on Sunday.
2. Never enter your own bids or have friends enter shill bids.
3. Never ask for a deposit. This discourages bidding. Round
robins work because it is easy to make bids, as there is no
deposit.
4. Never set your price to the “comparables”. Set it very,
very low, according to the instructions here.
5. Never do a “reserve”. You have an out already, in the
form of “reasonable offer” wording in your ad. Besides,
there is no enforceable written agreement yet. That is
what the round robin is about, trying to reach an
agreement on the sales price. If you don’t get what you
need, you can walk away and try again next weekend.
6. Never rush the settlement. Make it as quick as it can be,
but understand that the buyer determines this. They may
not be able to settle for sixty days. If you explain that the
short sale situation applies, they will hustle but
remember, the lender may take their sweet time anyway!
7. Never lower your price once it’s agreed-upon. If bidder #1
falls through, go to bidder #2 or do another round robin.
8. Never deviate from the rules. Don’t let bidders push you
around. Don’t accept their stories. If someone is a
problem now, they will be a problem later at settlement.
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9. Other agents often show up at the open houses.
Encourage them to bid. Many of them are looking for a
listing, or looking for new clients, but they often buy real
estate themselves.
Now It’s Time To Get the Deal Written Up Formally
Get the
purchase
agreement
written up
quickly
You and the winning bidder must write up a purchase contract.
This should be done immediately, Monday.
The paperwork must explain that the winning bid is still subject
to approval by the lender if it's a short sale, which you will try
to get quickly.
There is no getting around that. You really had no way to know
what the winning bid was going to be.
The buyer needs to know that the probable value of the home
is lower than the loan and that the lender will have to sign off.
This won’t dissuade most of them, but if it does, then it does.
One thing that it does assure them of is getting a very good
deal because it will be well below the most recent appraisal.
Make sure they understand this.
If it is not a short sale, you have a sale, no need for a short sale
contingency clause.
Ask for a
deposit
when the
purchase
agreement
is signed
At the time the sale agreement is signed is also the time to
firm up the commitment by asking for a deposit from the
buyer. You’ll want to do this based on what is customary for
your area and what you can persuade the buyer to put up, but
it is the best way to be assured the buyer will follow through.
About Investors and Tenants
Investors with tenants in a rental property have a couple of
extra challenges to deal with.
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In most
states,
tenants
have legal
rights that
complicate
this
process
If possible, it is preferable to have the tenants vacate the
house before you try to sell it. In almost all, if not all, states
require that tenants be notified before a house is shown to a
perspective buyer. In some cases, the requirement is a 24-hour
advance notification.
You might get away with notifying them that you will have
perspective buyers coming in all day Saturday and Sunday but I
don’t recommend it.
Are you going to be able to put all of their clutter in closets
and the garage during the week to be ready on Saturday?
Will you be able to clean up and get rid of bad smells? Take
down the curtains if you need to?
If you can get them to agree to be gone all day Saturday and
Sunday, will the house still be clean when you get there on
Saturday morning and again on Sunday morning?
And that assumes your tenants cooperate. If they don’t
cooperate, it will be much worse holding the inspection open
house.
You might be dependant on the rental income to pay the
mortgage but a 9-day house sale just does not work well when
there are tenants living there. You really need to get them out
if you can.
Here’s
another
option if
they will
agree
One alternative is to pay for them to spend several days
somewhere else. Not just Friday and Saturday night but several
days during the week so you can clean house.
If you do this, be sure to get their permission to handle and
store their belongings.
Let’s wrap this section up with some important information
about the short sale process since it has been mentioned
several times.
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Here’s How Simple the Short Sale Process Really Is
The short sale process is simple although the devil really is in
the details.
1. The lender agrees to do a short sale.
2. You list the property with a real estate agent or you go at
it alone.
3. The buyer signs a purchase agreement. Your client still
owns the property so they sign the purchase agreement.
The purchase is made contingent upon approval by the
lender. In return for being in this limbo, the buyer gets a
much better deal. Sometimes well below market value.
Not a steal, but a really good deal. That lets you sell the
house when most houses are just languishing on the
market without any takers. The short sale house will be
the one that sells.
4. The lender is in on all the details. The sale has to meet
the criteria that they lay out. They will issue instructions
to your client or the escrow company or the title
company.
5. The sale closes, and your client walks away from the
property with relatively good credit and the whole matter
behind them.
You now have the knowledge and information to complete a 9
day House Sale. You know that it can actually be done in as
little as 5 days.
Are you convinced this is a much better way to gain the
maximum exposure for clients’ houses in a downtrodden real
estate market where houses are sitting unsold on the market
for months or longer?
With no end in sight for the current declining market, certainly
many others can benefit from what you have now learned.
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How To Get the Lender To Agree To Your Short Sale
How To Get the Lender To Agree
To Your Short Sale
This is how to get the lender's attention before you start the short
sale process and get a rep assigned.
Here's an interesting challenge.
Say your client decides to do a short sale. They simply have to get
out from under.
And perhaps it's late in the game. Your client may be in
foreclosure proceedings. The sale date may be coming up. Maybe
it's tomorrow or next week.
Or maybe the client hasn't gotten to this point. They are making
the payments, but struggling. You call the mortgage lender about
doing a short sale (because they owe more than the house is
worth) and they won't talk to you. They are too busy to talk to
someone representing a client that is actually making their
payments.
So How Do You Get a Rep At the Lender To Pay
Attention To You?
When you contact a lender about a short sale you will need to
work with their loss mitigation department. They will require you
quite often to submit some paperwork or information. Then they
will supposedly use this information or paperwork to assign a rep
to work the case.
You don’t
want to
wait
weeks for
an answer
Often times, weeks go by before you are assigned a rep. Then the
rep doesn't have your paperwork and you have to start over
again. Why? What happened to the paperwork? It was thrown
away, shredded, sadly, the people doing this work are so
overburdened. Often they simply discard files that they can't
work.
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There is a better way for you to do this. It's amazingly effective.
Respond to those people who say "I'll buy your house for cash".
Look them up on Craigslist or in the newspaper or the signs you
see out there.
Put an offer together for 50% of what the house will sell for. Make
sure it is contingent on lender approval.
You can also advertise on Craigslist: subject: 50% of market value
- pretty house in Manchester Hills. The body copy has an
explanation of the house and the fact that your client is
accepting offers at 50% of market value subject to lender
approval. Explain you will be expediting that so that there won't
be a long delay.
You will get an offer. This is a lowball offer, a ridiculous offer. It
is so ridiculous that if someone got the house at that price, they'd
be stealing it.
Now, submit your short sale package WITH THE OFFER.
The
lender
won’t
accept the
offer but
you will
have their
attention
You will get the lender's attention. They will quickly assign a rep
to you. Now you can work with that rep. You will probably have
to speak to a supervisor at some point, or the corporate
headquarters. You will have a rep paying attention.
They can postpone the sale date on your client’s foreclosure.
They can give your client breathing room.
You say that you are working to get a better offer but this is the
best you can do now. They can give you several months.
If your client is making payments faithfully, this is how you can
get them to assign a rep who will work with you. If you are close
to the sale date, this is how you can get them to postpone for
several months.
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Make sure the offer is a real offer. It cannot be bogus. It must be
legitimate. It can't be from your mom or a friend. But you are
looking for a lowball offer to get the ball rolling and this is the
way to do it.
Getting a “Yes’ From the Lender For a Short Sale Price
This is the chapter where you learn how to get the lender to
accept the short sale. If you’ve followed the system up until now,
you know that it isn’t that difficult to sell the house in a week
and get a reasonable, market price.
Now you have to convince the lender to accept that price. In
return they will let your client walk away from the loan and will
agree not to go after them for any deficiency. Your client should
be grateful for your services.
As you know by now, you hold all the cards because the lender
doesn’t have much in the way of recourse to go after your client
for a deficiency anyway. They could always file for a petition for
discharge under federal bankruptcy law if they had to. And in
most cases it won’t get that far because they can’t sue your
client for a deficiency judgment anyway.
Go back and review prior sections of this book if you don’t
absolutely 100% understand what we just discussed.
How Your Short Sale Paperwork Needs To Look
Here is what you will now put together and forward to the
lender:
1. Hardship letter with proposal for the short sale and a
detailed explanation of what you went through to get TOP
DOLLAR for the lender
2. Short-sale payoff application.
3. Your client’s financial statement.
4. Your client’s financial history.
5. Your client’s proof of income – usually payroll stubs.
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6. Two years tax returns.
7. Six months bank statements.
8. Proof of things like unemployment benefits status, child
support payments status. Copies of official statements,
usually.
9. Copy of medical bills that may apply.
10. Copy of divorce decree if any.
11. Copies of late bills (the more the better), including their
auto loan, credit cards, etc.
12. Signed copy of the purchase contract.
13. Your Broker’s Price Opinion.
14. HUD 1 (the settlement agent will prepare this).
15. Repair cost estimates and documentation.
16. As-is photographs.
You may
want an
assistant
doing this
for you
Wow! That’s a lot! I know it is. But remember I said this was “a
loan application in reverse”?
It really is true. The lender needs everything they needed to
approve your client’s loan, but this time things should ideally (but
honestly) look bad, not good.
It isn’t very difficult. Let’s see how simple it is to put this
together.
How the Hardship Letter Should Look
Always be
honest or
the deal
may fall
apart
A hardship letter must be relentlessly pessimistic. Honest, but
pessimistic.
If you got this hardship letter and you were the lender, you would
be crying. You would say “we must let these kind folks out of
their problem.” You should be writing that letter.
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A hardship letter states why your client can’t continue paying on
the house, what a fair deal the short sale is, and why the lender
should accept that.
Write the letter in the first person for your client’s signature. The
format of a hardship letter is as follows:
1. Lender name and address, the loan number and borrower
names, address of the property
2. Open your letter by explaining that you are asking them to
approve a short sale. State the sales price, the current loan
balance, and how far behind you are. Explain how well you
exposed the house to the market (“We held a round robin
auction and showed the house to 94 prospective buyers and
had two offers”). That is a snapshot of the situation and
shows the buyer and the purchase price in a good light. “I am
asking for a short sale. I have a purchase agreement with Mr.
John T. Smith on the property. I sold the property on March
17, after 94 willing buyers looked at it and I had 2 bids. Mr.
Smith’s was the winning bid. I am behind four payments and no
longer able to afford to live there. The purchase price is
$176,000, the loan amount is $218,422 and there are $4723 in
arrears.”
3. Now go on to the hardship part in the next paragraph. Explain
how you bought the property or refinanced and got the loan,
and briefly recount your past (hopefully good) history of paying
on the loan. Put things in a negative light: “We tried to pay on
time but made 25 payments on time and had to pay late 3
times in the past, and that was through borrowing money on
credit cards and asking my mother for the money.” Notice that
you are very specific here. The more specific, the better. You
had trouble making the payments, so specify what trouble.
You had to borrow money to make them, so say so, and explain
who you borrowed the money from. Nobody can expect that
particular source of funds to be endless, so it is good
ammunition for your case.
138
4. Explain the nature of your hardship. Include what happened,
when it happened, and how it caused you to fall behind. Here
it pays to be specific and pessimistic. The more permanent
your situation seems like it will be, the better. “On December
4, I had a fall in Ralph’s Grocery store due to their slippery
floor. I was in the hospital with a broken femur, slipped disks,
and a concussion for two days. The accident resulted in my
missing 19 days of work, and having to visit various doctors in
order to get better. As a result, my income dropped from
$2800 per month in take-home salary to $680 per month in
disability income. Further, I am unable to return to work. I
have visited the orthopedist and physical therapist 23 times
this past month. I've been diagnosed with chronic sciatica and
two slipped lumbar disks for which I may need surgery. I am in
constant pain and the pain medication keeps me from working,
even if I could find a job.
5. Now, explain how your situation is permanent (at least it
seems so) and hopeless. “Because of my pain and the doctor
visits, I cannot even begin applying for work. I will have to
retrain when I am better but that is far in the future. I must
live on disability income of $1180 and have no ability to pay
this mortgage now or it seems in the future. I am considering a
bankruptcy filing to help with credit cards and other debts but
even after that I do not see how I will be able to make the
mortgage payments.”
6. Close by explaining that you would be grateful if they could
approve and complete the short sale within the next 30 days.
Explain the urgency by the buyer. “The buyer, Mr. Smith,
wants to take possession and settle within 30 days. Please
expedite this so that we don’t lose Mr. Smith.”
7. Each borrower must sign at the bottom of the letter.
What follows is a well written example of a hardship letter.
139
Sample hardship letter
date
December 4, 2010
April, 2010
140
The Short Pay-off Application
The lender will provide you with a short pay-off application. You
should fill it out in full. Nothing complicated about that.
How To Put Together Your Client’s Financial Statement
Some lenders want a lot of detail. Some will accept a simple
version.
There is no reason not to give the lender what they want here.
Less detailed is always better. But if they insist on the detailed
version, give it to them.
Here’s How To Provide Your Client’s Financial
History To the Lender
This is a sheet of paper where you explain their financial past.
You explain what they do for an income, what happened to that
income, what they were doing when they got the loan, any
periods of unemployment, financial reversals,
and so forth.
It really is very simple to do. It shows a snapshot of what they’ve
been through.
Documentation To Put In the Package: Pay Stubs, Tax
Returns and Bank Statements
Pay stubs are important to document take-home income.
If they don’t have a job, they won’t have pay stubs.
Two years tax returns are very important. And copies of their
bank statements for the last six months are also very important
to show that their situation is real and legitimate.
These are all to document to the lender’s satisfaction that your
client is in financial bad shape. They want to grant a short sale
only if they have to. This documentation tells them that they
have to. It is your proof.
141
Other Documentation Such As Unemployment Benefits,
Child Support Payments
The more
financial
problems
you can
show the
better
These will help your case. Your client’s unemployment benefits
are meager and their child support is behind. All the better to
show your case to the lender. Make sure you are being 100%
honest and provide them this documentation so they can see for
themselves.
When and Why Show Copies of Medical Bills
A medical hardship is the best short sale situation. It is not the
borrower’s fault, and it will get a short sale granted in almost
every case.
Showing your medical bills is a great reinforcement of your
situation. It is one thing to say something, and another to show
proof.
Why Show a Divorce Decree
Divorce is Divorce increases the chances the lender will grant a short sale.
often a So if a divorce is involved, show the decree to prove it.
cause of
financial Give Them Copies Of Late Bills
problems
The more bills you have to show them the better. Overwhelm
them. This is very helpful in establishing your hardship case.
Why Give Them a Signed Copy Of the
Purchase Agreement
They need
this to
figure out
how much
they will
receive
from the
sale
The purchase agreement is the heart of the matter for them. How
much is being paid, terms and closing dates.
Remember, your client still owns the property. The purchase
agreement is between them and the buyer. The only involvement
by the lender is to remove the lien that they have on the
property at settlement, and hopefully forgive part of the loan
amount your client owes while still being relatively kind in how
they report to the credit bureau.
142
You will get these things in writing. The lender will usually refuse
to put into writing how they will deal with the credit bureaus.
But you must get in writing the fact that the lender gives up
their right to pursue your client later for any deficiency. If
they won’t put this into writing, you may not want to do the deal.
My experience is that they will put this in writing, and even if
they don’t, they seldom go after someone later. If they do, it is
an unsecured debt now, and can be discharged in bankruptcy.
It is far better to get the lender’s waiver of their right to pursue a
deficiency judgment in writing. Far better. I would insist on this
point. But occasionally, due to the fact that you are really
dealing with the loan’s servicer and not the actual owner of your
note, you can’t get them to agree to this. They may not be able
to due to their deal with the actual note holder. If you want to do
your short sale, you may have to just go along with it.
It’s a judgment call.
What isn’t a judgment call is your influence over the most
important thing the lender looks at when considering your short
sale proposal. Let’s discuss how you can get the best short sale
deal by getting the lowest broker price opinion possible.
Perhaps the Most Important Thing You Can Do To Gget
the Lender to Say “Yes” -- Having the Right Broker
Price Opinion
Remember the lender will depend upon a broker price opinion
(BPO) as much or more than any other factor in deciding to
approve your short sale.
Go over it one more time before sending it in, especially if time
has passed since you wrote it up. It can be a good idea to look up
comps one more time to see if there has been further decline in
the market. Look at new listings and the most recent closures.
143
Why Show the Preliminary HUD-1 Form (from your
settlement agent)
The lender has to see the HUD-1 so they can make sure that
terms are acceptable.
At the end of this, the lender will fax instructions to the
settlement agent and these will dictate how much minimum the
lender must receive, and usually maximum that can be paid out
on things like real estate broker commission.
So the HUD-1 gives the lender the preliminary numbers that let
them prepare their instructions to the settlement agent.
It’s not
over until
everyone
has signed
off
If the lender requires the buyer to pay something like, say, all of
the lender’s title insurance, and that wasn’t in the purchase
agreement, then the buyer will have to either cave in, negotiate,
or back out of the deal.
This is where these things get touchy. You will need to be
resilient and draw hard on your negotiation skills. How you
negotiate these final items can still make or break the deal.
How and Why Show Repair Costs Estimates
Repair costs are essential to document. Your buyer may be
getting estimates. Ask the buyer to forward copies to you so you
can show the lender.
You may want to get an estimate yourself of repairs for big items
such as:
1. Roof
2. Heating, ventilating and air conditioning
3. Water damage
4. Moisture and mold problems
5. Expensive kitchen appliances
6. And so forth
144
Being specific as to these repairs, with estimates, will raise the
chances of a short sale at the price you agreed upon, the fair
price you determined during the round robin.
Make Sure You Include Plenty Of As-is Photographs
The lender might order another BPO but you should always submit
your own photos in the short sale package. Seeing is believing.
And it is true that pictures are worth a thousand words.
Take plenty of digital pictures showing the property in the worst
light. Show the worst angles, the paint peeling, the breaks in the
floors, the damage to the walls. Close up pictures of each
problem area, wider shots showing the general disrepair.
You want to show the house in the worst possible way. This is
what often sells the deal. The lender’s people look at these
pictures and they are emotionally swayed to your case. They
don’t want that property back as an REO (property the bank owns
after repossessing it.)
Remember, at this point, there will be a settlement. And you
have to make sure that you don’t forget something crucial in the
settlement.
If They Say No
Now, if you get a “no”, you should write to that person. Just ask
them to reconsider. Sometimes that does the trick. If that
doesn’t work, find out who they report to and try getting a “yes”
from their supervisor. If a couple of attempts at this doesn’t
work, go to the top. You should write to the company’s CEO and
provide a cover letter and a copy of your offer. Explain that that
it is in the company’s best interests to agree also.
What follows is critically valuable information. Unfortunately, it
might become dated very quickly. I am providing you with the
senior management names and corporate contact information for
the 10 mortgage companies responsible for 60% of the mortgage
crisis.
145
I have tried to keep this information current but as the subprime
mortgage mess imploded, it has become almost impossible.
Several of these companies are subsidiaries of larger companies
and the parent company has sold them. Company names have
been changed to protect the guilty. Almost all of the executives
will be fired and investigated by the SEC.
Obviously, I can’t provide the senior management names of every
lender that you might need to contact but here are the top 10
and their most recent status.
Merged Countywide
with Bank Kenneth D. Lewis
of America Chairman, Chief Executive Officer and President,
Bank of America Corporation
Corporate Secretary
101 South Tryon Street, NC1-002-29-01
Charlotte, NC 28255
Declared New Century
Bankruptcy Currently in bankruptcy
Holly Etlin
Chief Restructuring Officer
Telephone: 1-949-224-5700
New Century Headquarters
3337 Michelson Drive, Suite CN-350
Irvine, CA 92612
Telephone: 949-517-0000
146
Option One
Sold to
Home Retention Team
American
Home
877-304-3100
Mortgage
Servicing American Home Mortgage Servicing Inc.
4600 Regent Blvd, Suite 200
Irving, TX 75063-1730
Loans now Fremont Investment and Loan
Default Counseling Department
being
serviced by (800) 999-8501
Litton Loan
Servicing
Litton Loan Servicing LP
Attention: Customer Service Department
4828 Loop Central Drive
Houston, TX 77081
Purchased Washington Mutual
by
Jamie Dimon
JPMorgan Chairman & CEO
Chase
Charlie Scharf,
Chief Executive Officer, Retail Financial Services
JPMorgan Chase & Co.
Attention (Board member)
Office of the Secretary
270 Park Avenue, 39th Floor
NY, NY 10017
147
Purchased
by Merrill
Lynch &
Co,
this was in
turn
purchased
by Bank of
America
First Franklin
Kenneth D. Lewis
Chairman, Chief Executive Officer and President, Bank of America
Corporation
Corporate Secretary
101 South Tryon Street, NC1-002-29-01, Charlotte, NC 28255
Wholly GMAC - RFC
owned by J. Ezra Merkin
GMAC
GMAC Chairman
Financial
GMAC – RFC Corporate Headquarters
100 Witmer Rd.
Horsham, PA 19044
GMAC Mortgage: 1-800-766-4622
Lehman Brothers
In
bankruptcy Bryan Marsal
Chief Restructuring Officer
[email protected]
Real Estate Team
Jeff Fitts
[email protected]
646-333-9195
Gerry Pietroforte
gpietroforte@alva
646-333-8844
148
New York
World Headquarters
745 Seventh Avenue
New York, NY 10019
United States
Telephone:
1-212-526-7000
Ceased WMC Mortgage
operations Daniel W. Porter
in 2007 Chairman of the Board and Chief Executive Officer
Gregory J. Macfarlane
Chief Financial Officer and
Executive Vice President of Finance
6320 Canoga Avenue
Woodland Hills, CA 91367
Phone: 818-596-5155
Fax: 818-592-4477
Out of
Business
Ameriquest
(800) 430-5262
How the Settlement Works
The settlement will take place at an attorney’s office in most
states, although some states (and some lenders) use a title
company or escrow company.
Your client’s may have to be there but they shouldn’t care much
about what happens, because it is the lender who will be
collecting all the proceeds anyway.
Your client will never be able to collect a dime from a short sale.
The lender is very clear about that. All proceeds pay off
commissions, inspection fees, and closing costs, and whatever is
left goes back to the lender. In exchange for whatever they get
149
back, they will release their lien on the property. And the buyer
will own the property instead of your client.
Most Important Thing You Can Do When They Settle
Important: Make sure the lender agrees to waive the right
to go after your client for any deficiency. This must be in
writing!
If you are going to all this trouble to help save your client’s
credit, and get them out from under, you want to make sure the
lender won’t go after them in the future for any short sale
deficiency.
Make sure they have the agreement when they settle the short
pay that the lender will not try to pursue them for a judgment.
The lender will offer this if you ask, but if you don’t, they may
conveniently forget. Depending upon your state, they may be
able to go after your client later. Who needs that??
On the same subject, negotiate as to how they will report your
short sale to the credit bureaus. “PAID – SETTLED” is fine. It is
not a foreclosure. This looks much better on your credit report
than foreclosure.
Special Considerations For Short Pays on FHA Loans
The lenders make FHA loans by advancing their own money. But
the loans are insured by the FHA. The lender has to go through a
set process set forth by the FHA, in order to foreclose.
This means that the lender is sometimes not as eager to foreclose
on an FHA loan. They will get their compensation in the end
anyway. So why rock the boat?
I have seen people stay in foreclosure for a year or longer,
because their FHA insured lender doesn’t care all that much.
150
In addition, most FHA loans are done with very low down
payments. So if a lender has a lot of FHA loans, they probably
have a lot of them that are delinquent or non-performing. Their
loss mitigation folks are incredibly busy and won’t have a lot of
time to spend on your client’s case, sometimes for months.
That doesn’t mean they will get a free ride for all this time. But
it does mean your client often has significantly more breathing
room if they have an FHA loan.
If their loan is 4 to 12 months delinquent, and they think they can
bring things current and stay current, then the lender can make
what is called a partial claim to the FHA. They will ask your client
to sign a note for the delinquent amounts, but the note will be
interest free and only needs to be paid off when they sell the
house or pay off the mortgage.
The FHA will allow the lender to do a short sale if the loan is
more than three months delinquent. A short sale is only allowed
if the purchase price is at least 82% of the appraised value.
That means you want to make sure you get a low appraisal. Much
of what we talked about in the section on BPOs applies here.
Make the house shows poorly, make sure the appraisal is an
interior appraisal, have your client pour their heart out and shed
tears for the appraiser, make things look and smell bad, and
provide up-to-date comps to the appraiser including houses that
haven’t settled yet, that will frequently be much lower than stale
comps the appraiser may know about.
Otherwise, an FHA loan situation is very similar to the ones we
have already covered.
A Brief Discussion of VA Loans
VA loans are often made with no down payment, and the money
is advanced to the bank directly by the VA. Essentially, the VA
ultimately funds these loans and is responsible for them.
151
The VA can be even slower than FHA lenders to move through the
foreclosure process. They may “refund” your client’s loan,
meaning they pay the lender off and then take over the loan
directly.
This slows things down even more, which can work in your
client’s favor.
Some people simply bank their mortgage payments and build up a
nest egg in the meantime.
The VA does do short sales. They call them compromise claims.
The VA will actually pay the lender some or all of the deficiency.
But they will not generally do short sales less than 80% of the
broker price opinion. Key point to remember.
And Let’s Wrap Up With Some Points On PMI Or Private
Mortgage Insurance
If your client borrowed money from their lender and paid private
mortgage insurance, listen up. Assuming you can get the lender’s
attention, these loans are easier to short sell. The PMI company
will often pay the lender up to 20% of the loan amount, which
softens the blow. In fact, the lender may be at little or no loss if
you do a short sale with a PMI loan.
The process varies. Sometimes the PMI company will buy the loan
and deal with you directly, or more likely through another
servicer they appoint. They may ask your client to sign a note for
any delinquent amounts.
I would refuse to sign personally for any note unless you and your
client feel that they really have no choice. Instead, do a short
sale and move them into something they can afford. The process
will be the same as we’ve discussed, but the lender may be more
flexible due to the PMI company backstopping their loss.
152
That's it. The secrets of doing a short sale, the ins and outs,
how to obtain the highest possible price.
Did You Like What You Learned?
Can you think of a better way to find 50 or 60 interested buyers
to look and bid on your clients’ houses in a broken real estate
market where houses are sitting unsold on the market for 6
months or longer?
Every day brings more bad news that the economy is only getting
worse. There will continue to be a steady and increasing flow of
clients that need what you have now learned.
If you have an interest in helping others get out the financial
pickle they are in, keep reading to find out how you might further
benefit from this course by becoming a consultant in the 9 day
House Sale MethodTM.
153
The 9 Day Cash System – Making It Work For You
The 9 Day Cash System – Making It Work for You
My 9 Day House Sale MethodTm has caught fire and is working for a
lot of folks.
Realtors are learning to use it. And can sell a house every
weekend in a drowning real estate market.
Become a
9 day
house sale
consultant
You can also do this as a consultant even if you are not a real
estate agent. You can advise homeowners and help them promote
it. As long as you do not talk to any buyers and simply confine
yourself to advice, I don't see how you could have a problem not
being licensed.
You would want your client to have a real estate agent or better
yet a lawyer write up the purchase agreement.
Don't listen to me as I am not a lawyer and your state laws may
conflict with the above. I don't see a problem as a consultant if
you steer carefully. Even Realtors can act as coaches or
consultants rather than agents using this method.
The third method is to be a principal in the deal. My good friend
Mark Neal has done some of this.
Use it to Here is how I would approach the 9 Day House Sale as a principal.
rapidly buy This method will let you use outside experts to find the deals for
and sell you, and also to do the short sale negotiation.
real estate
investments
All you have to do is a bit of marketing and talking to sellers, you
could do a ton of these deals, and I think make out pretty well.
Look for short sale sellers. So here I am assuming you are into a
short sale situation.
Which is nice, because the seller doesn't care how low a price he
or she gets for the house, so you aren't fighting your seller to get
154
some unrealistic price.
I would always use an entity for this other than your own self. I
wouldn't enter into a contract without using an entity. I like a
limited liability company. Mark uses a land trust.
So I'd contact sellers and tell them "I will buy your property. You
have to cooperate with me. I will buy it conditioned upon the
Flip a
lenders approving the loan. You have to provide me with financial
house
every
information that I will submit to the lender on your behalf. You
weekend have to agree to cooperate one or two weekends when I market
your house, because I will be flipping it."
Now you sign the purchase agreement and make it contingent
upon lender approval and seller cooperation including cleanup
and helping with the sale. Something like "Buyer and Seller agree
this sale is contingent upon lender approval of the short sale.
Buyer and Seller agree that Seller will provide financial data to
Buyer and cooperate with Buyer in getting lender approval. The
Seller will cooperate with Buyer in marketing the house including
holding weekend inspections by interested parties who may buy
the house from the Buyer."
You’re
going to
need to
learn the
LowBo
BPO
MethodTM
What purchase price? Try 80% of the LowBo BPO. Something
cheap but not ultra cheap.
If you know a Realtor real well, or are one yourself, you may be
able to slip in a commission. This can get paid out of closing and
could compensate someone for finding you deals, and also pay
the negotiator.
Photocopy the seller's financial info, and get the seller to sign a
disclosure certifying they are aware of the fact that you are in it
to make a profit, that the sale may not go through, and that they
are not going to hold you responsible.
Also get them to sign a representation letter that gives the lender
155
authority to talk to you.
Now you get the BPO and negotiate the short sale just like you
normally do.
You could use an outside firm to do this for you if you are doing
volumes of deals and don't want to get bogged down in
negotiations on short sales.
Anyhow, at some point you'll deal with the negotiator and the
deal will be approved. Let's say it's approved at $200,000, with 5%
to Realtors, which pays for your expert help.
Now, hold a 9-Day House Sale that weekend. Promote it and try
to get 30 or 40 buyers there.
Chances are you will get higher offers. Maybe even $225,000, let's
say. So you do your thing and accept this. Make the acceptance
contingent upon lender approval and upon your being able to
furnish clean title.
The lender already approved the deal, so why have this
contingency? Because the lenders could change their mind and
you don't want a problem. Clean title makes it clear that you
need to be able to do a few things before you have salable title
and that if you can't, the deal is off with no penalty to you.
Be careful to find a buyer who has the dough to follow through.
Not a 100% financing person. You need a pre-qual letter and a
down payment.
Now, you go into settlement. Here's what you do:
 You will get the settlement agent, an escrow or law firm,
the money from the ultimate buyer. That will be $225,000.
I'll use the term "escrow" to mean whatever settlement
agent you use.
156
 I would want you to use either a separate escrow company
if you are in an escrow state, one that is not part of a title
company. Or use a lawyer. I would not want you to use a
title company to do the escrow because I find they are not
flexible enough.
So here is how it would go down:
 You will have the seller deposit a grant deed into escrow.
Granting the property to your entity, in return for $200,000.
 The lender will approve those escrow instructions.
 Remember, 5%, or $10,000, will go to your captive Realtor,
or to you if you are the Realtor, and this will pay the
finder's fees and the negotiator and give you a bonus if
there is money left over.
 You will also open a second escrow with the same escrow
company (or lawyer).
 You will deposit a grant deed from your entity to the
ultimate buyer.
 The ultimate buyer will put in the $225,000. That will close
just after your first deal closes.
 Now you collect the $25,000 difference and the 5%
commission on the first closing.
 You do these closings "back to back" so the first grant deed
transferring title to you is recorded. Then immediately the
second one is recorded transferring title to the ultimate
buyer.
Now here's a tip that can save you big clams on the title policy.
You can purchase a "one ten" title policy for 110% of the price of a
regular policy that insures you and also requires the title company
to issue a policy to the ultimate buyer. So this saves a lot of
money you would otherwise spend on title insurance.
You can do one of these every weekend and if you do, you will
157
become a millionaire quite fast.
You've cleared $25,000, plus commissions and minus some closing
costs. Could be $27,000 or $29,000.
Not bad and now, rinse and repeat.
Do you dare?
158
Appendix A – Loan Modification Forms
Other Resources To Help You Succeed Financially
http://www.creditcardreliefformula.org/
This report is for you if you want to:
 Learn how to settle your credit card debt for far less than you
owe, without bankruptcy.
 Learn how to get your creditor to agree to accept much less than
the full amount of your account and agree to lower payments for
a limited time.
 Know why time is on your side and not your creditors.
 Learn which bills to pay first and which are low priority.
 Learn how to live a worry free life paying only with cash.
 Learn how to deal with the psychological tricks of debt
collectors.
 Learn how to respond if a debt collector files a lawsuit against
you.
159
Appendix A – Loan Modification Forms Clients Responsibility Form
201_.
160
Document Gathering Checklist
For property located
@:
___________________________________________
Client Name/s
___________________________________________
LOAN MODIFICATION REQUEST
DOCUMENTS NEEDED TO OPEN CASE
Financial Statement form
1st Lender Authorization to Release Information to 3rd Party
2nd Lender Authorization to Release Information to 3rd Party
3rd Lender Authorization to Release Information to 3rd Party (if applicable)
Hardship Document
Signed Client Responsibility during the Loss Mitigation Process
Loan Modification Disclaimer and Agreement
Two most recent paycheck stubs
2008, 2009 Federal Tax returns (first two pages only) SIGNED (keep handy)
2008, 2009 W2's or 1099's (keep handy)
Two most recent bank statements (first page only)
Most recent statement/s from your lender/s
Copy of any collection letters, default notices or summons (if applicable)
161
Borrower’s Financial Statement
162
Borrower’s Financial Statement Continued
163
Hardship Form
EXPLANATION OF HARDSHIP
What changes or events have occurred since your loan originated that have caused you to fall behind?
How did this impair your ability to afford your mortgage payments?
When did the change(s) and/or events(occur?
Do you anticipate any improvement in your financial situation in the near
future?
If yes, please explain:
By my (our) signatures below, I (we) agree that the information provided is an accurate
statement of my (our) hardship
Borrower
______________________________________________
Co-Borrower ______________________________________________
Date _________________
Date _________________
164
Authorization to Release Information Forms
165
Junior Lien Holder
Authorization to Release Information Form
166
3rd Lien Holder
Authorization to Release Information Form
167
Disclaimer Form
168
Disclaimer Form Continued
169
Appendix B – Sources of BPO Work
Below are 33 business that hire realtors for BPO work. They each pay
different rates and have slightly different policies. After working with a
few of them it will not take you long to determine the ones that you
prefer working for. These are listed in a random order. I am not
recommending any one company over another.
1. Pro-Teck Services - Website: http://pro-teck.com/
2. Source One Services - Website: http://sourceoneservices.com
3. Asset One – Website: http://assetonemg.com
4. Nation Services - Website: http://nationsvs.com
5. Lighthouse Real Estate Solutions - Website:
http://Lrescorp.com
6. IAS REO - Wesite: http://iasreo.com
7. REO Experts - Website: http://reoexperts.com
8. California REO Management – Website: http://calreo.com
9. BPOsonline.com Website: http://www.bposonline.com/
10. Home Steps – Website: http://homesteps.com
11. Lenders Asset Management Corp - http://lendersreo.com
12. NREO – Website: http://nreo.com
13. Nationwide REO Brokers – Website: http://nreob.com
14. Ocwen Financial Corporation – Website:
http://ocwen.com/residential/propertyvaluations.cfm
15. Owen REO, LLC – Website: http://owenreollc.com
16. Rels Valuation/ACS - Website: http://ACSlinks.com
17. REO America - Website: http://reoam.com
18. Advantage Evaluation – Website:
http://www.advantagevaluation.com/applogin.php
19. Service Link - Website: http://servicelinklp.com
20. REO Solutions - Website: http://reosolutions.net
170
21. Nationwide Appraisal and Title Services - Website:
http://nascopgh.com
22. Seattle Appraisal Services - Website:
http://settleappraisal.com
23. Market Intelligence – Website: http://www.mivalue.com
24. RRReview – Website: http://rrreview.com
25. Imortgage.com – Website: http://imortgage.com
26. PCV/MURCOR - Website: http://pcvmurcor.com
You can also do a web search for asset management companies. They
hire for BPO work. My suggestion is that you only take one or two jobs
from a company until you are familiar with how quickly they pay you.
Also, each company uses a slightly different form. Eventually working
with only a few preferred companies allows you to become familiar
with their forms. Once you learn the forms you can fill them out
quickly without needing to determine exactly what they are asking for.
Good Luck!!
171
Appendix C – Detailed BPO
Address Here
Lender and/or Client Here
Date Here
Your name and contact
information here
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Subject Address
Address
Address
Address
Subject Address
Address
Address
Address
Subject Address
Address
Address
Address
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Mortgage Relief Formula - Professional Edition

Transcription

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