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"Short
Sale" Success Secrets with Foreclosures
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by:
Richard Odessey
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If you're active in real estate investing,
you may already realize one of the biggest issues real estate investors
face: Finding Great Deals.
Foreclosures at a 52-year High
With foreclosures at a 52-year high, there are thousands of deals
available on the market, if you know where to find them and how to
secure them. The first challenge you'll face once you locate the
property is that most of these homeowners are mortgaged to the hilt.
They have no equity, and big loan payments. In fact, many actually owe
more than the property is worth!
Most investors will walk away from these deals because they see no
obvious profit. That's because they don't know about the Short Sale.
WHAT IS A SHORT SALE?
The concept behind the short sale is simple: your goal as a real estate
investor is to convince the bank to sell for less that is owed as
payment in full. Of course, this concept is easy - buy the foreclosure
from the bank at a big discount, sell the real estate, and make money!
So how does it work?
Success with short sales can be accomplished in the following steps:
Step 1: Do your research.
Many new real estate investors make the mistake of waiting until some
subscription service sends you the list. The disadvantage is that a ton
of other investors are also getting the list. If your first contact is
to send a letter, forget it. Your letter will be lost in the huge pile
the homeowner is getting from all sorts of other investors, credit
repair etc. 99% of the time these go directly into the trash or a big
basket unread. If you go directly to their door you've got a chance.
So if you're going to mail, be the first to act when the default
notices are printed in the local newspaper. Or be the first at your
courthouse, if that's where they're filed first. The key to finding
investment-worthy properties is to act quickly. Be disciplined and mail
out the letters the very same day-in fact take them to the post office.
In this business, the early bird really does catch the worm.
Tip for Success: If you don't have a company that publishes your
notices of default, check with local title companies or bankruptcy
attorneys to see if they offer these services; you need somebody
familiar with the subject that visits the courthouse often.
Step 2: Develop your marketing strategy.
When you have located foreclosures, make sure your timing is swift.
Mail your initial letters of approach to the homeowner the same day you
discover the property. Placing ads in your local papers also helps to
generate leads and find homeowners eager to avoid the credit penalties
involved with foreclosing.
Tip for Success: A typical advertisement strategy taught in real estate
training is to get listed in real estate or credit section of the
classifieds. These ads typically have a bold, to the point headline,
such as “Avoid Foreclosure” or “Stop Foreclosure, Today!” If you are
targeting a specific property type, or reaching for higher market
values, specify this in your ad. (Instead of simply “Avoid
Foreclosure,” add your target market to the bottom of the ad. Example:
“Avoid Foreclosure, call 1-800-555-1212. 500K and up.” You'll make more
money in real estate by reaching for high-value properties, and an ad
like this shows your prospects that you specialize in helping those
with higher value homes avoid foreclosure.
Step 3: Work with the homeowner.
You can't get anywhere without the cooperation, and often gratitude, of
the homeowner. The homeowner you are working with has obviously run out
of options, but you'll need their trust and confidence if you plan to
short sale mortgages. Remember, in these situations, you are often
looked at as the “rescuer”. Make sure you explain the homeowner's part
in the process thoroughly. Once they deiced to allow you to work with
them, there is important paperwork you need them to fill out and sign:
1. an “Authorization to Release” form that gives you permission to
contact the lenders and the foreclosing attorneys.
2. a sales contract - signed but leave the purchase price blank. You
may need to change the numbers as you negotiate with the bank
3. a financial statement - to show they can't afford to make the
payments
4. a hardship letter - to explain in personal terms what happened.
Tip for Success: Remember that this is a stressful time for the
homeowner. It's easy to get caught in the excitement of a prospective
short sale profit. You can get them to make a decision when you are
able to convince them that this is the right option for them Emphasize
the benefits of working with you, and then ask for them to take action.
Make sure to let them know that once your contract is signed, and the
bank accepts it; they'll be free to move on with their life.
Step 4: Negotiate with the bank.
Although banks don't enjoy taking a loss, it is a simple fact of the
lending business that short sales are a necessary evil for lenders.
Indeed owning the property (a non-performing asset) is even more
expensive than selling it for a loss. Consider:
Banks use short sales to drop unwanted property quickly without having
to deal with the REO office and go through the long process of putting
the home back on the market. When you speak with the Loss Mitigation
department, remember, this property is actually costing them money!
Federal regulations require somewhere between $300,000 and $800,000 (or
more!) to be held in reserve by lenders, which is many times over the
actual price of the bad debt.
When you call the bank and ask for the Loss Mitigation Department (the
department that handles properties that are in foreclosure) tell the
person handling the account that you are trying to help Mr. X with his
foreclosure and you are willing to buy the property from him, but due
to the condition of the property/declining values/etc. you are only
willing to pay X amount. This is where your negotiations begin.
Be firm and polite, but don't ever make threats to not buy or be
forceful in your approach. Loss mitigators are often busy and
overworked, and they want to see you as somebody who is minimizing the
damage - and hassle - of the bad debt.
Tip for Success: Larger banks are the easiest to deal with when working
with short sales and foreclosures. This is because the larger banks
have more resource, more experience, and more loans! While there are
some larger banks that don't work with short sales at all, other banks,
such as Wells Fargo or Fairbanks Capital, tend to work with a much
larger volume of short sales.
Once you have worked with enough short sales, you'll find that you have
inside contacts at some of the larger banks; be friendly, ask them
about their day, Develop a rapport. Sometimes, they'll open up about
problems they're facing or current trends, which of course, you'll need
to keep on top of!
You don't have to be a real estate pro to see the potential for making
money with short sales, and now you definitely have some great tools to
get started. Great deals in real estate are out there, and with today's
market, your potential for profit is limitless. Just keep in mind: do
your research, market your services, and treat the homeowners and
lenders with respect. When you use this approach with short sales, you
can make a win-win for everybody, especially the officers at your own
bank when you cash in on your profit!
In the next article, we'll discuss the tricks and tips in convincing
the bank to take a big discount on the short sale.
Best of Success,
Richard Odessey
About the author:
Go to www.InvestorWealth.comfor these
Real Estate Profit Secrets:
* Super Success Short Sale Secrets (*Best Course)
* Deal Evaluation Tool
* Free Teleseminars on the latest and most effective real estate profit
techniques
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