Negotiation through the loss mitigation department will be the key factor in getting your new home at a deep discount.
If opportunities emerge in which lenders can sell distressed properties without registering big losses, they will do it.
For example, consider that a homeowner with a $200,000 mortgage is late on his or her loan payments and is facing foreclosure. With the consent of the homeowner, you offer his or her lender $150,000 as full payment for the loan, which is accepted. That means you instantly save $50,000 on a real estate investment.
This is a short sale.
Negotiating a short sale with a lender can be a complicated. But with careful research and patience, it is possible for you to earn big profits with short sale deals. Naturally, closing the first one will be the most challenging.
The first step in this process is to identify potential investment opportunities on Foreclosure.com, which offers more than 1.8 million listings across the nation.
Preforeclosure properties are ideal because you can make more money with them versus homes that are already bank-owned.
To be most successful, we recommend reaching out to homeowners who are more than three payments behind on their mortgages. At this point, each of these homeowners has received a Notice of Default (NOD) and is very close to losing their home. Time is running out and the chances of them curing the loans and making up the back payments are slim.
The homeowners understand this and may be grateful for your assistance. The lenders understand this, too, and are motivated to recoup their losses as soon as possible.
It’s important to gather as much information as possible about the properties and the homeowners prior to getting on the telephone with lenders. Because when you do get a lender representative on the line, he or she will have questions.
Using the contact information contained within the listings you have targeted from Foreclosure.com, it’s time to call a lender and inquire about the possibility of a short sale agreement. Traditionally, the “Loss Mitigation Department” will handle these types of requests.
If you can’t get in touch with anyone, move onto the next listing. The negotiating can begin only when you get in touch with the right person.
Once you have reached a representative for the lender, inform him or her that you represent the homeowner. This is all you need to say — avoid revealing that you are an investor. The representative will usually want basic information about the property, the homeowner and the proposed deal. He or she will also want to know the value of the property and the financial situation of the homeowner (borrower).
Aside from making the initial introduction, the goal of this conversation should be to request a short sales or workout packet. This packet will provide you with everything you need — instructions, forms and procedures — to close a successful short sales deal.
Lenders generally hire local real estate brokers or appraisers to evaluate properties in the foreclosure process prior to selling them at public auction. These are referred to as a Broker’s Price Opinion (BPO).
Essentially, a Realtor® — based on the condition of the home and current market conditions — provides the lender with an estimate for the value of the property. The BPO is the key piece of information that a lender will rely on to make a decision regarding a short sale.
The lower the estimate, the better it is for you.
Lenders want to get rid of distressed properties as soon as possible, but they aren’t going to sell them for ridiculously low prices Many short sales, in fact, fall through if the BPOs come in too high. When properties are in good condition, it is hard to convince lenders that they are worth much less than the appraised values.
Most lenders will request a hardship letter that details the reasons a homeowner has not made his or her mortgage payments. This is a bit strange because the borrower who is in default must prove that he or she is broke and unable to afford the payments.
This is a fairly extensive request, which may require the homeowner to submit pay stubs, tax records and other personal financial records, along with the letter. It is essential that you submit everything that is requested.
Otherwise, your offer will not be accepted.
Creating an effective and compelling hardship letter requires creativity. Without lying, the letter should paint a very bleak picture of the situation. If neither you nor the homeowner possesses decent writing skills, it may be in your collective best interests to seek the assistance of a professional — it’s worth it.
A lender will generally require a written contract between you and the homeowner. A preliminary HUD-1 settlement statement will reassure the lender that the homeowner isn’t receiving any cash from the deal.
The HUD-1 form requires you to itemize all charges imposed upon you and the homeowner for the real estate transaction. Essentially, it is a complete list of the incoming and outgoing funds.
The contract should be written so that you pay all costs associated with the deal. And, that the “net cash” to the homeowner is the precise amount of the short pay to the lender.
If you have difficulty completing the form, a title or escrow company may help you prepare it in advance of the closing.
Hire a professional(s) to appraise the home and provide you with a bid for repair estimate (the higher the better). This is not a requirement because as mentioned above, the lender will get its own BPO. However, providing independent appraisals and comparable sales information that support your offer are critical.
There are other things you can also do if the home is not in ready-to-move-in condition.
Always remember, it is in your best interests to submit with your paperwork as much negative information about the property as possible. For example, newspaper clippings that discuss “bad news” nearby or in the neighborhood can help reduce the price of the property in negotiations.
It usually takes about three to six weeks to receive an answer from the lender once you have submitted the HUD-1 settlement statement and all of the other supporting materials.
It’s always good to call the lender to ensure that he or she has received the information, as well as make it clear that you are always available to answer questions and provide additional information, especially if something is missing.
If the auction date for the property is approaching, ask the lender to extend it until he or she has had time to consider your offer. If your offer is legitimate, the lender will almost always grant your request.