Stopping Foreclosures

Using
“Short Sales”

Matthew Smith

S & G Real Estate Investments, Inc

www.shortsaledesmoines.com

October
2009

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 Only Three Goals For Today
1) Educate agents on how to capitalize on


the “pre-foreclosure” market & make

additional commissions thru short sales.

2) Educate agents on how to help
homeowners in foreclosure who are
desperately looking for help by
understanding their options.

3) Show agents additional marketing and
revenue streams in pre-foreclosures

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 Important Information!
What is Mid Iowa Negotiation Services:
Ø A short sale OUTSOURSING, negotiation
 & consulting service
 Ø A business that does NOT subscribe to Equity
Skimming

Ø Here to assist real estate agents with short sales
 Ø Here to provide solutions and answer questions
Ø Over 6 years experience in short sales
Ø

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 What is a Short Sale?
 Occurs when a lender accepts less than
full payoff on the mortgage(s) to allow
transfer of a property to a new buyer.
 Only available on houses in pre-
foreclosure.
 Can be negotiated on all mortgages plus
junior liens.
 Not available on bank owned houses


 4
 Case Study - typical deal
 Payoffs are at or more than the value
 No equity in property when closing costs
and commissions are factored in
 Homeowner in foreclosure
 Homeowner wants to get out of situation
 Realtor wants to outsource extra work
involved in short sale negotiations with
lenders.

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 What if you could…….?


 Outsource all the short sale negotiations

to an expert
 Pay no fees (seller, buyer or agent)
 Check “case” status online 24/7
 Closings and title work with a proven
expert
 EARN FULL COMMISSIONS when
properties transfer

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 What We Will Cover


 Case Study
 The Foreclosure Crisis
 Market Size
 Working the Foreclosure Market
 Short Sales: What, When and Why
 Steps in a Short Sale – Flow Charts
 How Short Sales Can Benefit You


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
3015 E Porter – Case Study
3015 E. Porter – Case Study
 The Foreclosure Crisis
 Increase in the number of ARMs and rising interest rates:
– Nearly 25% of all mortgages – 10 million – carry
adjustable interest rates.

Source: Mortgage Bankers Association


 First American Core Logic shows there are 2.8 million active
interest-only home loans worth a combined total of $908
billion.


 The interest-only periods, which put off the principal payments for
five, seven or 10 years, are now beginning to expire. In the
next 12 months, $71 billion of interest-only loans will reset.
The year after, another $100 billion will reset. After mid-2011,
another $400 billion will reset. Source: NY Times

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 The Foreclosure Crisis
 7.8% of FHA loans at the end of the
second quarter 2009 were 90 days
late or more or in foreclosure



which


 Is up from 5.4% a year ago.


Source: Wall Street Journal

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The High Cost of
Foreclosure
 The Foreclosure Crisis

"The biggest growth department in all
of the mortgage-lending servicing
departments over the last year has been
the loss-mitigation department. That is
the department dedicated to finding
solutions to defaulted loans other than
foreclosure” .


Source: Bruce Juenger, President of the Association of Real Estate Owned Managers in Los


Angeles

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 Market Size - Nationally

 Nationally 8.22% of all homes were
delinquent – at least 30 days behind
 Nationally 3.85% of all homes were in the
foreclosure process in varying stages.
 Sub-prime and FHA had highest %

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 Market Size - IOWA
 In Q4, Iowa reported 6.3% of all
mortgages were delinquent
 Home Sales experienced a 13.87 YOY
decline from 2007
 Home prices declined by 4.47% YOY


– Mortgage Banking Association.



 20
 Local Real Estate Market


More and more foreclosures every day

Most foreclosures have no equity

Most homeowners are leveraged 100%
of value

Tougher and tougher to find listing
opportunities with equity
Enormous opportunity in pre-


foreclosures and short sales

 Working the Foreclosure
Market
 Working with People in Foreclosure
– Homeowner reliance on advice
imposes an obligation to maintain
high standards of technical
competence and integrity.
– Always place the best interests of the
homeowner above all else, and
disclose fully the facts representing
the true costs, benefits and
limitations of any recommendation.

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Working the Pre-foreclosure Market

 Stages of the Foreclosure Process

– Collections – 1st 90 days delinquent
– Pre-foreclosure – 90 days - 12
months
– Short Sale Potential in this stage!!!!
– Foreclosure Sale – Sheriff’s auction
– Redemption Period – 0 to 360 days
– REO Department – until liquidated

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Working the Pre-foreclosure Market

 Options for Homeowners in

Foreclosure –www.hud.gov
– Refinance
– Loan Modification
– Forbearance / Repayment Plan
– Partial Claim
– Bankruptcy
– Deed in Lieu (voluntary foreclosure)
– Sell
–
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–
 Working the Pre-foreclosure Market

 Options for Lenders with loans in

Foreclosure
– Workout Plan / Repayment plan
– Deed In Lieu (voluntary foreclosure)
– Short Sale
– Sheriff’s Sale
– REO



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 When Will a Lender Consider a
Short Sale?

 Only on loans in default, or where default
is eminent.
 When a lender receives an offer that is
higher than what it expects to net by
foreclosing.
 When the type of loan, status of the
foreclosure and lender are conducive.


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 Why Would a Lender Consider
a Short Sale?


 Lenders are in the business of loaning

money, not managing and selling real
estate.
 Non-performing loans reduce what can be
loaned by 2-8X the amount of bad debt.
 Lenders have Loss Mitigation Departments
responsible for mitigating, or
minimizing, losses from defaulted
mortgage loans.


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 Steps In a Short Sale


 Refer an owner in foreclosure, or expects

to be, who is both interested in selling
and participating.
 We determine the likelihood of success
based on the ability to negotiate a
discount and the ability to resell the
property.
 We confer with the sellers and listing
agent to explain the process and
coordinate required documents


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 Steps In a Short Sale


 We prepare, submit and negotiate the

short sale package, driving the entire
process for all lien holders.
 We prepare a repair estimate.
 We make an investor offer to start the
process.
 M.I.N.S. requests the lender to postpone
auction (if needed).
 M.I.N.S. follows up on offer & triggers a
BPO (Broker Price Opinion).


 29
 Steps In a Short Sale


 A BPO is ordered by the lender to obtain

the “as is” value, which is used to
determine if the loan can be discounted
and by how much.
 If our offer is accepted by the lender we
will buy it with a quick cash close.
 If our offer is declined the agent lists or
re-lists at a conservative CMA price,
subject to lender approval, and reduces
the price as necessary until sold.

 30
 Steps In a Short Sale

 Once an offer from a end buyer is
accepted we will negotiate a small
spread from the lender and sell it to
the end buyer through the agents
involved.
 The negotiated settlement will stipulate
the lender is to pay all seller closing
costs, including real estate
commissions.
 Proven expert with experience handles
title opinions and closings 31
 The Interior BPO


 The most critical point of the entire

short sale process.
 Opportunity to validate the offer.
 Whatever the BPO comes in at, the
lender views that # as the FMV.
 Lenders want approximately 85-
100% of new BPO.


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 Risks for Agents
 Waste time and energy on listings when
an acceptable discount could not be
negotiated.
 Upset agents and brokers when they lose
a buyer because the process took too
long or the commission was reduced by
the lender.
 Unable to find a buyer in time.
 Negotiate a discount and have the buyer
not close.

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 Risks for Sellers
 The lender may choose to either:
– Seek a deficiency judgment against
the seller for the shortfall (HSBC)
– Send a 1099C for the shortfall,
creating a tax liability for the seller.
– IRS Pub 523
– Internal Revenue Code Form 982 Sec
121


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1099’s
1099’s
Deficiency Judgments
 Real Estate Agent Mistakes

Send P&S agreement to lender with no



hardship package


Short Sale / Hardship package incomplete



Approach short sale lenders with no buyer



Do not understand the importance of Interior



BPO’s



 Real Estate Agent Mistakes

Think process completed overnight



Waiting for Hardship Package from lender



Listing property above market value to cover



full payoff



 Rewards to Agents
 Allows properties with no equity to be sold at
attractive prices in a short time.
 There is less competition among agents for
properties that have little or no equity.
 Allows you to earn full commissions on
sales that would have been lost without a
short sale.
 Provides a way to help people in financial
difficulty who couldn’t otherwise be helped.


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 Rewards to Agents
 Easy to demonstrate benefits to sellers in
need.
 Creates new opportunity in a growing
market with little competition.
 You set the price where it will sell quickly,
since it is a forced sale, earning
commissions on sales you would not
otherwise make.
 Receive strong testimonials and referrals
from people who couldn’t be helped by
anyone else.

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 How Short Sales Benefit
Homeowners
 Homeowners don’t pay for anything.
 Sellers avoid a foreclosure on their credit
report.
 Most lenders will waive their right to a
deficiency judgment as part of settlement.
 Short sales minimize the loss, and
therefore any shortfall reflected on a
1099C.
 Homeowners can often avoid paying
income tax on the shortfall when
professionally advised.
 Allows sellers to get on with their lives!

 42
 Key Points Covered
 The Foreclosure Crisis
 Market Size
 Working the Foreclosure Market
 Short Sales: What, When and Why
 Steps in a Short Sale
 How Short Sales Benefit You


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 Questions?
 To refer short sale business, please contact:



Matthew Smith

S & G Real Estate Investments, Inc

www.MINS.com



Office: (515) 988 -21287

Fax: (866) 800 -5042

Email: sandgrealestate@yahoo.com


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