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Short Sales

Short Sales. Presented by ShortSaleU Tom Daly www.money-dynamics.com. What is a Short Sale?. - When a lender accepts a payoff of a mortgage for an amount short of the amount that’s owed. - Acceptance of that amount is considered as payment in full.

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Short Sales

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  1. Short Sales Presented by ShortSaleU Tom Daly www.money-dynamics.com

  2. What is a Short Sale? - When a lender accepts a payoff of a mortgage for an amount short of the amount that’s owed. - Acceptance of that amount is considered as payment in full. Example : Owner bought a house for $300,000 and has a 1st mortgage for $240,000. Unfortunately, today the home will only sell for about $200,000 - hence a short fall of $40,000. x

  3. Understanding • To understand short sales, you must have a basic understanding of the foreclosure process and where short sales occur within that process

  4. Foreclosure Foreclosure is the legal process where the lender takes ownership (title) back from the homeowner. This usually occurs due to the borrower failing to keep up with his/her payments or comply with other terms of the mortgage

  5. Phases of Foreclosure • Preforeclosure • Public Auction • Bank Owned

  6. Preforeclosure • This phase is typically private in that it’s normally only between the homeowner and the lender – that is until the lenders filing of Notice of Intent to Foreclose is made public. Once the issue becomes public, competition for the listing/purchase greatly increases. • This phase usually begins when the borrower misses their first mortgage payment and will continue until the house is sold at public auction. • Seeing they are under intense pressure, many homeowners are motivated to sell their home and to be relieved of their struggle. • A short sale is negotiated and closed anywhere during this phase. • Normally a lender will NOT negotiate a short sale until the homeowner has missed at least one payment and sometimes more. • Note - not all short sales being negotiated close.

  7. Auction • The Preforeclosure phase ends when the home is sold at a public auction to the highest bidder. • The lender will normally open the bidding and if nobody else bids, the lender will repossess the home. • Some states have redemption periods where the owner has a certain period of time to repay the lender and get their home back.

  8. Bank Owned • Bank Owned AKA REO. REO stands for Real Estate Owned and occurs when the lender takes ownership back at the public auction. • The lender is in the business of lending money and NOT of owning homes, therefore the lender now wants to rid itself of the home and will list the home for sale with a realtor. • Seeing the lender has already spent so much money on getting the property back, many investors believe the lender is less negotiable in REO transactions and prefer working only with short sales during the preforeclosure phase.

  9. Why do short sales occur? • Usually when a homeowner becomes financially unable to maintain his/her mortgage payment (or payments if they have a 2d or 3rd mortgage) or has to move and the value of the home is less then what is owed on it.

  10. All Too Often Scenario • Seller is financially strapped • ARM might have adjusted upward • May have lost their job • Might be a divorce situation • May be due to poor health and/or medical bills • Must move due to job transfer or some other reason and cannot make up the difference between what his house can sell for and the higher amount that he owes • Other reasons……..

  11. Options for sellerWhat can a seller do when he/she is financially strapped and must sell • Loan Modification? Possible option for homeowner if he/she meets lenders qualification standards. This option might not answer the need though. Many borrowers who do a loan mod are unable to make the new payments as early as a few months later. • Forbearance- Allow borrower to miss some payments and pay later without complete refinance. • Rent out house? Possibly an option but owner might not be able to afford annual taxes, insurance and possible negative cash flow. • Deed in Lieu of Foreclosure – Basically, give the house back to the lender. Hard hit on credit report. • Foreclosure ? Yes, but this option would result in a hit on his/her credit report for 7 years. • Bankruptcy - Yes, but this option would result in a hit on his/her credit report for 10 years. • Short Sale? Yes, if it can be properly negotiated with the lender. Once completed, the loan is considered satisfied and there is less of a hit on the credit report.

  12. Players in a Short Sale • The lender • The homeowner • The realtor • The short sale negotiator • The buyer and/or buyers • Sometimes investors will negotiate the loan with the lender and purchase the home. • Sometimes they will hold the house, other times they will sell quickly to an end buyer.

  13. Advantages of Short Sale for Lender • Many people cannot understand why a lender would take the hit from a short sale but there are some significant advantages for them to allow it. 1. Allows lender to remove the non performing asset from their books 2. Allows lender to avoid expensive foreclosure process 3. Added burden if foreclosed - lender must maintain home, pay taxes on it etc…

  14. The Cost of Foreclosure Foreclosure costs the lender precious time and money. Ex. Attorneys fees to foreclose on property Potential costs of eviction Property insurance Property taxes HOA dues and other fees Maintenance Closing costs to sell

  15. Advantages of Short Sale for Seller • Seller is • Is relieved from the financial burden and can move on with his/her life • Possible 1099 but it is negotiable • Short Sale is less of a hit on the sellers credit report then a foreclosure is

  16. Advantages of Short Sale for Realtor • Market and sell properties for prices way below true market values thereby decreasing the properties time on the market and increasing the realtors closings.

  17. Disadvantages of Short Sale for Realtor • Many times the lender decreases the commission it is willing to pay. • So, even though the realtor is closing the property faster, the realtor might be making less of a commission on the transaction. - Note – Our investment group guarantees 6% realtor commission.

  18. Advantages of Short Sale for Buyer • The advantages are pretty obvious • If done properly, there are tremendous opportunities for a buyer to purchase distressed properties well under value. • However, it is very important that the buyer have an experienced short sale negotiator. Not having a capable and experienced negotiator can greatly expand the time it takes to get the deal done as well as maybe increasing the price the buyer purchases the property for.

  19. Why have a Separate Negotiator? • Working the short sale process with the lender requires high levels of knowledge and experience which translates into better deals for the buyer. • The short sale process takes A LOT of time and is usually very frustrating. • By having a separate negotiator, the realtor is then freed up to do more prospecting and get more deals.

  20. Normal Short Sale Sequence • Owner enters Preforeclosure • Realtor gets listing and builds short sale package with seller. • Realtor markets property. No negotiations can take place as of yet. • Realtor finds potential buyer and submits offer to lender (note – many times it will take months to receive an offer and then it will take the lender several weeks to reply to it) • BPO is ordered (Broker Price Opinion) • Negotiations continue and maybe an agreement is reached • This is a very inefficient process and takes way too long. • Many buyers are NOT willing to take this long to buy and realtors are NOT usually fully compensated by the lender either.

  21. Our Short Sale Sequence • Owner enters Preforeclosure. • Realtor gets listing and brings listing to our investment group. • Investment group builds short sale package with seller. • Investment Group submits short sale package to lender as well as its offer to purchase property . This begins negotiations with lender. • Realtor spends time finding end buyer, NOT negotiating with the lender, which ultimately increases chances of finding end buyer. • BPO is ordered (Broker Price Opinion) • Negotiations continue and chances are better an agreement is reached due to having a seasoned negotiator involved as well as the realtor being able to focus on marketing. • Realtor finds end buyer. • Investment Group closes on purchase. • Investment Group then sells to end buyer. • This is a very efficient process and allows the negotiation process to take place simultaneously with the realtor marketing for the end buyer.

  22. Advantages of Working w/Us • 6%Realtor Commission GUARANTEED! • Greatly reduced admin requirements for realtor. • Shorter process w/ higher probability of closing. • End buyer gets deal below market. • Investment Group makes its money on the difference of what it purchased property for and what it sells to end buyer for. • Owner is relieved of financial burden.

  23. Thank You Thank you for taking the time to watch this presentation. There are two ways to work with us 1. No short sale listings? No problem. Be a referral source for us and receive a referral fee when the deal closes. 2. Work your short sale listings with us. Contact Tom Daly 813-274-4911 tom@money-dynamics.com www.money-dynamics.com

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