Short Sales Steve Sanders951-271-3130 [email protected].
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Transcript of Short Sales Steve Sanders951-271-3130 [email protected].
Short Sale
•How to talk to lendersHow to talk to lenders
•The Short Sale PacketThe Short Sale Packet
•Uses of and How to Uses of and How to complete an LPOcomplete an LPO
•How to break into the How to break into the REO gameREO game
Foreclosures/NOD/REO
REO inventory increasingREO inventory increasing Abnormally low sales Abnormally low sales
combined with abnormally combined with abnormally high inventoryhigh inventory
Foreclosure At Sale Foreclosure At Sale Foreclosure
(minimum 115 days-IRS (minimum 115 days-IRS notice 25 days in advance notice 25 days in advance of sale)of sale)• Notice of Default filed by Notice of Default filed by
TrusteeTrustee• 90 days to reinstate 90 days to reinstate
(bring current), either by (bring current), either by borrower or subordinate borrower or subordinate lienlien
• At the end of 90 days a At the end of 90 days a 21 day, Notice of Trustee 21 day, Notice of Trustee SaleSale
• Right to reinstate up to 5 Right to reinstate up to 5 days prior to posted sale days prior to posted sale date.date.
• Payment in full must be Payment in full must be accepted up to time of accepted up to time of salesale
NODPANODPA BNABNA DADA ADAD
Either Agent is bonded as Either Agent is bonded as an Equity Purchaser’s an Equity Purchaser’s Representative orRepresentative or
Referral (No agency-BNA)Referral (No agency-BNA) Seller can rescind for 5 Seller can rescind for 5
daysdays Buyer may not solicit Buyer may not solicit
transfer of ownership transfer of ownership documentsdocuments
Documentation for NOD
Agency Requirements
Negative Equity
Pair upPair up Discuss what would Discuss what would
cause erosion of cause erosion of equity in properties equity in properties where the home is where the home is worth less than the worth less than the cost of liquidation cost of liquidation
Report your Report your discussion back to discussion back to the classthe class
5 minutes5 minutes
Short Sale
Loans plus cost of sale is greater Loans plus cost of sale is greater than valuethan value
ValueValue $450,000$450,000
FirstFirst $345,000$345,000
22ndnd $105,000$105,000
EscrowEscrow $ 800$ 800
TitleTitle $ 1,250$ 1,250
CommissionCommission $ 22,500$ 22,500
EquityEquity - -$ 24,550 $ 24,550 (write off)(write off)
What Does Short Sale Client Need?
A quick sale or optionA quick sale or option Money to move elsewhereMoney to move elsewhere Save credit (as much as Save credit (as much as
possible)possible) Someone to guide them Someone to guide them
through tough watersthrough tough waters
What Lenders Want
Repayment of debt, on Repayment of debt, on time, as scheduledtime, as scheduled
A predictable return on A predictable return on investmentinvestment
MONEYMONEY They DON’T want Real They DON’T want Real
Estate Owned (REO) that Estate Owned (REO) that they have to liquidate to they have to liquidate to get their moneyget their money
They will do whatever They will do whatever they can to minimize loss they can to minimize loss while liquidating quicklywhile liquidating quickly
Good Money After Bad
Lender is already taking a Lender is already taking a lossloss
Lenders won’t pay to fix Lenders won’t pay to fix upup
Really, like probate, as is, Really, like probate, as is, where is!where is!
Termite report okay, Termite report okay, Section I repairs notSection I repairs not
Limited requirement for Limited requirement for disclosuresdisclosures
Short Sale
Will you work for free?Will you work for free? Short Sale - Owners Short Sale - Owners
request, lender’s request, lender’s decisiondecision
Still will hurt credit, Still will hurt credit, but not a foreclosurebut not a foreclosure
Talk to lender about Talk to lender about possibility of, possibility of, forbearance, forbearance, modification LPO or modification LPO or assumptionassumption
Short Sale Ask for a short sale packetAsk for a short sale packet Don’t argue that they are Don’t argue that they are
asking for too much asking for too much informationinformation
If you have no lender If you have no lender agreement on commission, agreement on commission, just like a box of chocolates, just like a box of chocolates, you don’t know what you’re you don’t know what you’re gonna get.gonna get.
Get direct contact Get direct contact information for loss information for loss mitigation, asset mitigation, asset management or REO.management or REO.
ASK what their policies are.ASK what their policies are.
Commission New rules as of 3/09. New rules as of 3/09.
Lenders cannot cut Lenders cannot cut commissions as long as commissions as long as they are 6% or less.they are 6% or less.
Commission The statement “subject to The statement “subject to
lender approval” protects lender approval” protects no one and will dissuade no one and will dissuade many from making an many from making an offer.offer.
Get lender approval of the Get lender approval of the terms and conditions of terms and conditions of the short sale and the the short sale and the amounts to which they will amounts to which they will agree.agree.
According to the DRE if it According to the DRE if it isn’t in writing it doesn’t isn’t in writing it doesn’t exist. Most lenders will exist. Most lenders will agree verbally but will not agree verbally but will not provide written provide written confirmation.confirmation.
PAAPAA
Process Attempt to get a timeline Attempt to get a timeline
from the lender for from the lender for approval of an offer.approval of an offer.
Put the timeline in private Put the timeline in private remarks along with remarks along with “subject to lender “subject to lender approval”.approval”.
If the lender has agreed to If the lender has agreed to all the necessary terms all the necessary terms and conditions, in the and conditions, in the private remarks state that private remarks state that the short sale terms have the short sale terms have been lender confirmed. been lender confirmed.
Short Sale Packet Hardship letter (SOB STORY) and Hardship letter (SOB STORY) and
documentationdocumentation Borrower’s tax returnsBorrower’s tax returns Borrower’s Bank statementsBorrower’s Bank statements Borrower’s Current Financial Borrower’s Current Financial
StatementStatement Property tax information from Property tax information from
assessorassessor Property profileProperty profile Bio or resume of realtorBio or resume of realtor Marketing Plan and timelineMarketing Plan and timeline Accurate CMA including DOMAccurate CMA including DOM Cost of Sale EstimateCost of Sale Estimate
Commission (including disclosure Commission (including disclosure of how much is paid to Selling of how much is paid to Selling Agent)Agent)
Staging and repair costs to bring it Staging and repair costs to bring it to market standard (lender won’t to market standard (lender won’t care)care)
Estimates of costs for termite Estimates of costs for termite inspection (not repair), disclosure inspection (not repair), disclosure packet, escrow, titlepacket, escrow, title
Liens, Senior or Junior If it isn’t a matter of public If it isn’t a matter of public
record, it doesn’t existrecord, it doesn’t exist A senior lien is any lien or A senior lien is any lien or
trust deed that appears on trust deed that appears on title before other liens (date)title before other liens (date)
A Junior lien is any lien or A Junior lien is any lien or trust deed that falls behind a trust deed that falls behind a senior lien (date)senior lien (date)
Except: regardless of their Except: regardless of their position, property tax liens position, property tax liens never go awaynever go away
Foreclosure of a senior lien Foreclosure of a senior lien wipes out all subordinate wipes out all subordinate liens (except taxes)liens (except taxes)
Subordinate lenders may Subordinate lenders may reinstate the first to protect reinstate the first to protect their position, then foreclose their position, then foreclose their subordinate interesttheir subordinate interest
The Angry Second
Pair upPair up What liens might What liens might
appear on a appear on a preliminary title preliminary title report?report?
What reasons would What reasons would a 2a 2ndnd have for have for walking away from walking away from the deal?the deal?
Report back to the Report back to the classclass
5 minutes5 minutes
Liens, Senior or Junior
Watch out for subordinate Watch out for subordinate loans! Lenders losing 100% loans! Lenders losing 100% of their loan, will likely take of their loan, will likely take everyone down with them.everyone down with them.
11stst $475,000$475,000
22ndnd $ 80,000$ 80,000
Sale PriceSale Price $505,000$505,000
TaxesTaxes $ 5,000$ 5,000
11stst $475,000$475,000
CommissionCommission $ 25,000$ 25,000
Left for 2Left for 2ndnd$ 0$ 0
Short Sale Don’t cheat on the comps. You Don’t cheat on the comps. You
will get caught!will get caught! Create a prelisting packet, just Create a prelisting packet, just
as though you were doing a as though you were doing a listing presentation. You have to listing presentation. You have to sell the lender that you know sell the lender that you know what you are doing.what you are doing.
Offer an appraisal if the lender Offer an appraisal if the lender gets tough.gets tough.
Lender may run an appraisal or Lender may run an appraisal or get a BPO anywayget a BPO anyway
If Lender estimates that they will If Lender estimates that they will only be able to recover 80%-only be able to recover 80%-90% of value or less, a short sale 90% of value or less, a short sale is likely.is likely.
Though some companies loan to Though some companies loan to own, most lenders just want own, most lenders just want their MONEY!their MONEY!
Short Sale
Maintain contact with the Maintain contact with the lender and report progress. lender and report progress. The lender has reports to turn The lender has reports to turn in.in.
After an offer or offers have After an offer or offers have been submitted, call and keep been submitted, call and keep calling. Every other day if calling. Every other day if necessary and wait on hold.necessary and wait on hold.
A good transaction may result A good transaction may result in referrals and possible REO in referrals and possible REO businessbusiness
Also possible source of BPO Also possible source of BPO (Broker Professional Opinion) (Broker Professional Opinion) incomeincome
If you get the deal work it If you get the deal work it hardhard
Unsecured Note Lender may want an Lender may want an
unsecured note for the unsecured note for the amount of deficiency.amount of deficiency.
Sellers who agree to the Sellers who agree to the note will escape with their note will escape with their credit somewhat in tact. credit somewhat in tact. Negotiate this.Negotiate this.
Notes, if paid, are not a Notes, if paid, are not a charge off and remove charge off and remove immediate potential for immediate potential for taxation.taxation.
If the unsecured note is not If the unsecured note is not paid, a charge off will be paid, a charge off will be recorded and credit will be recorded and credit will be affected for 7 years.affected for 7 years.
Help your seller, get a Help your seller, get a release of liability from the release of liability from the lender.lender.
Deed in Lieu of Foreclosure
Helps the lenderHelps the lender Sets workable time framesSets workable time frames Less (slightly) hit on creditLess (slightly) hit on credit Taxable event?Taxable event? Discuss the deed in lieu Discuss the deed in lieu
only after getting listingonly after getting listing
Tax Consequences - CAR Capital gain or loss is the Capital gain or loss is the
difference between the difference between the taxpayer’s basis in a capital taxpayer’s basis in a capital asset (usually cost, plus asset (usually cost, plus improvements, minus improvements, minus depreciation) and the price depreciation) and the price the property sells for at the the property sells for at the foreclosure sale or short sale.foreclosure sale or short sale.
Foreclosure wipes out Foreclosure wipes out purchase money recourse. purchase money recourse. Short Sale does notShort Sale does not
Purchase PricePurchase Price $500,000$500,000
ImprovementsImprovements $ 20,000$ 20,000
BasisBasis $520,000$520,000
Short SaleShort Sale $480,000$480,000
Cap GainsCap Gains $0 (-$0 (-$40,000)$40,000)
Tax Consequences - CAR If the basis is greater than If the basis is greater than
the foreclosure or short the foreclosure or short sale price, the difference sale price, the difference is capital loss. If the basis is capital loss. If the basis is less than the foreclosure is less than the foreclosure sales price, the difference sales price, the difference is capital gain and is is capital gain and is generally taxable.generally taxable.
Capital loss on personal Capital loss on personal use property, such as the use property, such as the taxpayer’s residence, taxpayer’s residence, cannot offset other types cannot offset other types of income and gives the of income and gives the taxpayer no tax benefit.taxpayer no tax benefit.
Excercise
Pair up – one partner is Pair up – one partner is the lender the other is the the lender the other is the agent with a short sale agent with a short sale client with a good sob client with a good sob storystory
Sale priceSale price $500,000$500,000
11stst $400,000$400,000
22ndnd $110,000$110,000
CommissionCommission$ 30,000$ 30,000
Prepay Prepay $ 15,000$ 15,000
ShortageShortage $ 55,000$ 55,000 Agent, sell the lender on Agent, sell the lender on
working with you to working with you to complete a short salecomplete a short sale
Report back to the classReport back to the class
