Short Sale Tip of The Week 5-27-09 "Early"

Posted on 20. May, 2009 by ctlms in Short Sale, foreclosure

What to focus on when working with a seller in foreclosure

As you begin working with a seller that is in foreclosure, the most important thing that anyone must concentrate on is filling the seller’s NEEDS! Times are a lot different than they were a year and a half ago, and now sellers in foreclosure don’t care who you are or how many properties you’ve sold, listed, etc. They only care about what you can do for them NOW! You have to understand that every seller has different needs; whether it is finding an apartment in a certain school district so their kids can go to school with their friends, finding a rental house that takes pets, or just relocating to a different state. Your job as a real estate professional is to identify that right up front!

 Now don’t get this confused with what a seller in foreclosure WANTS! Wants are totally different then needs. Wants are things that these sellers do not need in order to live, they are things they desire to have. For example: if a seller is married and has 1 child and requests a 4 bedroom house to move into, that is a want! They can live perfectly fine in a 2 or 3 bedroom house. Your job will be to let them know immediately that if you are going help them then they will have to be practical on what their needs are so you can “realistically” fill those needs.

A great tip to keep in mind: When you are looking at different ways to fill their needs, make sure you know the basics of the foreclosure laws and time-lines in your state. Reason being is that if a seller wants to sell a property in a “short” state (a state whose foreclosure process is less than 60 days), then you will have to know how much time you have to work with (you can go to for foreclosure laws and time-lines for your state).  After you understand the foreclosure time-lines and laws of your state then you can proceed in filling your seller’s needs.

And so with that, make sure that your seller’s needs are your number one priority! If they aren’t, not only will the seller recognize that immediately, but you’ll lose them in the blink of an eye!

Visit the Ask The Expert Page to leave your questions. 

Short Sale Tip of The Week 5-20-09

Posted on 19. May, 2009 by ctlms in Short Sale, foreclosure

The #1 Factor to Successfully Completing a Real Estate Short Sale.

One of the most important factors of completing a short sale successfully is Managing Seller and Buyer Expectations. What I mean by that is you need to immediately let them know how long the short sale process can take, that there are absolutely no guarantees that your short sale will be successful, and finally that you will keep them updated on the process throughout the short sale negotiation. It is crucial to be transparent and let them know what you can and can’t do for them.  This is extremely important on so many levels! It not only aids in building rapport with the seller, but it is also necessary when setting accurate expectations so if the short sale is unsuccessful for whatever reason, your seller and buyer understands why.

As a real estate agent your goal is to list their property and get the highest and best offer that the market will bear, given the time restraints of the sellers situation, so let them know that. Let them know the good and the bad. Make sure you know the state’s foreclosure laws and time-line, how long the short sale process can take, and finally the potential of their property being taken back by the foreclosing lender if you can’t find a buyer or the bank doesn’t accept the short sale offer.

In addition to being explicitly clear on what you are looking to do with regards to their property, you’ll also need to explain what they can expect once you start working on their property.  Explain the entire process of a short sale and what they can expect if there is one lender, or two, or more.  For example: When I am working on a short sale my typical short sale takes between 2 to 4 months, sometimes longer depending on the foreclosing lender. So when you meet with the seller tell them right up front the typical time it will take from the day an offer comes in to when the package is submitted to the time the property closes. Also let them know that there are no guarantees the foreclosing lender(s) will accept the offer and finally, manage their expectation by giving them access to our online short sale management tool (, which gives them real time updates on the short sale negotiations.  This one tool alone greatly reduces the sellers anxiety and gives the piece of mind of knowing that there are prople on thier side working diligently for them

The most important factor in successfully negotiating a short sale is managing seller and buyer expectations. Always keep in mind that your sellers are turning to you to get their properties sold and they do not need any other added stress in their lives. The best thing you can do is be transparent, tell them the good and the bad, and finally keep them updated on your progress

Visit the Ask The Expert Page to leave your questions.

Short Sale Tip of The Week 5-13-09

Posted on 12. May, 2009 by ctlms in Short Sale, foreclosure

My client needs a short sale but is current on their payments.

What is my best course of action with this listing?

Lets first start by saying that YES, any home that is upside down “can” be short saled.  However, just because it is possible does not make it a guarantee.  Short sales on a whole are not guaranteed.  A short sale is a privilege not an entitlement.  So setting proper expectations with both the seller and the buyer is crucial to a smooth transaction for the real estate agent.

For transactions involving an upside down property that is not in default, there are extra circumstances that are important to discuss with the seller.  The most important of which is the likelihood of a promissory note for the deficiency balance.

When a homeowner is in default and has very little or no money or income to make any payments toward the deficiency created by a short sale, it is rather easy to convince the lender to settle the account in full and relieve the homeowner from the obligation to repay the balance.  However, when the homeowner is not in default it becomes more difficult.

The whole short sale process is more difficult for the negotiator when the homeowner is not in default.  Lenders need to see a Financial Hardship and the fact that the property is not worth the debt in order to approve a short sale.  In the case of a seller that is under water but not in a financial hardship there are some extra hurdles to overcome.

The first hurdle is getting the lender to look at the file all together.  Today most lenders are in firefighting mode.  That means they are trying to put out the hottest fires first.  A loan that is current is not a fire at all to the lender so it tends to go to the bottom of the pile.  So persistence is necessary to get the file looked at.

Once the file is looked at another hurdle is met.  The fact that the homeowner can afford their payments makes the lender want to just tell the seller to not sell and keep paying.  That way there is no issue for the bank at all.  But we all know there are circumstances that force homeowners to sell such as divorce, job transfers, reduction in pay, etc.

Now a homeowner still has a legitimate hardship if they have had a reduction in pay or increase in expenses, is current on their payments but expect to fall behind in the future.  This is known as imminent default.  Their financials will clearly show that they will no longer be able to afford the home.

If their financials do not show imminent default but the homeowners still need to sell the bank will most likely require some sort of promissory note.

A promissory note is basically an unsecured loan.  Most notes in a short sale are for all or part of the deficiency balance and have low or no interest with set payments per month.  The notes are negotiable and that is where the real work comes in for the negotiator in these cases.

Obviously the homeowner wants the account settled in full.  But the lender is unlikely to approve that when the homeowner has the ability to repay some or all the money they borrowed.  So negotiating these notes to as little as possible and for as low an interest rate as possible is the aim of the negotiator.  This is not something you would see your average real estate agent being familiar with. 

So let’s go over an example.  The facts:

Loan balance is $290,000

Property’s current fair market value is $250,000

Payments are current and sellers have no financial hardship but have no cash to bring to closing.

So a sale will create a $40,000 loss to the bank right?  Wrong.  There are closing costs totaling about 6%, that’s another $15,000.  So the total deficit is $55,000.

The lender will most certainly ask for the $55,000 in a note.  The negotiator will try to negotiate that lower, sometimes to as low as 10-20% or $5,500 to $11,000 with zero or 1-2% interest.

So let’s say that ends up with a note for $11,000 at 2% interest for 10 years and payments of $101.21 a month.

Not so bad to be able to walk away from the $55,000 deficit for $100 a month.  Better than having to find the cash or facing foreclosure.

But this all leads to another question for the real estate agent.  How aggressive should you be with the listing price?  Right now the sellers are paying money to the bank every month they will never see again.  That money could be used to pay down the promissory note instead.  Now if it takes 6 months to sell the house plus another 60-90 for short sale approval and closing that is 9 months of payments thrown out the window never to be seen again.

Let’s work the numbers.  Sellers have a principal balance of $290,000 and the original loan was $300,000 at 6% fixed for 30 years.  They are paying $1798.65 for principal and interest every month plus taxes and insurance.  Of that $1,456.95 is interest and $341.70 is principal, all of which is never to be seen again.  Add that up over 9 months and you have $16,187.85.

The takeaway here is that you could have priced the property lower to start and sold it months sooner and not lost the sellers anymore money.  Remember it is possible to settle promissory notes at 50% or less of the balance.  So even if the house sold for $20,000 less but months sooner, that’s a note for $2,000-$10,000 at low interest.  That’s still financially more beneficial than throwing away an extra $5,000-$10,000 because it took months longer to sell.  Remember the promissory notes are low interest where the payments they are making now are mostly interest.

Obviously this is a conversation to have with the seller when listing the home.  Knowing their current payments and interest can help to demonstrate that getting the home sold quicker but for less is in their best interest.  As always, if they are behind on the payments, getting it sold quicker is best, especially if you can get a contract to the lender before they file for foreclosure.

Visit the Ask The Expert Page to leave your questions.