Joe Pryor.com Realtor Oklahoma Investment Properties

Part 7-Final Thoughts and Advice

For Realtors. I wanted to make an even stronger appeal to Realtors who think that they can do a short sale by on the job training. It won't work. Get training, mentoring, and your CDPE designation. Short of that, excuse the pun, if you refer to someone who knows how to do this and cares, you can get a fee and it just might close. Also please remember that this is not a normal sale, and these are very distressed homeowners. You need to act like a PhD psychologist to start. Then you need to understand that if you screw this up people and their families are adversely affected. Are you willing to tell them oh well I tried. That is no where good enough and you should be brought before your local Board and Commission. If you do it right, then credit can be restored in a much smaller time for these folks, and you will have their loyalty and gratitude.

For Buyers. Please don't enter into a short sale transaction if you don't have the staying power or you really have a contingency you haven't told your Realtor about. If you can follow through, and if you are truly non-contingent then you are walking into an instant profit on paper. Also understand the risk. You cannot do an interest rate lock until you are sure that all the t's and i's are crossed and dotted. If you want a sure thing buy a new house at a premium figure that is finished. For me, even a .5% increase in a rate is worth having when you are getting 5 figure reductions in real value.

Two warnings for everyone.

Lawyers. No I am not going to make the standard lawyer jokes. What I am warning about is that real real estate law is an acquired skill. Law schools teach contracts, but don't spend a lot of time of real estate. Folks, that's not where the big money is. I recently had a short sale that was about to close after the owner finished a Chapter 13 bankruptcy. Tow days before the attorney filed a Chapter 7 liquidation with the advice that there was no advantage to the short sale. Gee thanks for extending the credit problem about 5 years. A foreclosure is worse than a bankruptcy and has been for the 20 years I have been in real estate.

BA/Countrywide. This is the true Nightmare on Elm Street. Every ones patience will be tested. They make a tortoise look like it is moving like a Ferrari by comparison. They also have a policy that if everything is done but it doesn't close, you have to start over like it never happened. These folks border on criminal in the way that they put people in harms way. It sometimes seems that they really want homes to go into foreclosure to dirty the books. Could this be a TARP ploy? I have no proof but something really stinks about the way they are doing distressed property negotiations, if you could call it a negotiation. I now know of Realtors who are refusing to do Countrywide short sales. We will still do them, but everyone should be informed of the problems before entering a contract to buy.

That's all for now. Thank you for reading the series and I hope it helped. For more information go to our short sale web site, www.avoidforeclosureoklahoma.com, or to contact me for your questions or referrals, email me at joe@joepryor.com.

Part 6-Red Flags

We have gone through the process of what constitues a short sale, what you need to put together for the mortgage company, and how to choose a Realtor and finding the right buyer and buyer's realtor. Now let's go into a few Red Flags to watch our for.

Red Flag #1. Lack of transparency. More lenders are calling for an arms length relationship. BA/Countrywide is especially firm on this. if i want to buy the short sale and leave the owner in as a renter, they will probably kick it back, as they have in relatives buying the house. yes, I can buy a short sale for myself, but I need to put it on the open market for rent. This is becoming more an accepted practice with lenders for accepetance of a contract.

Red Flag #2. True hardship. Let's say for arguments sake you made a bad buy and you want out. Don't lie about it and create a false hardship, and don't go out and buy another home that's cheaper, quit making the payments, and expect the mortgage company to go okay, we will do the short sale. Just stop making payments is not a harship, and if a realtor tells you to stop, file a complaint with the state real estate commission or local board.

Red Flad #3. Don't assign a contract. This is for Realtors. I have been approached by "investors" who want to do an assignable contract for the short sale, then they said that they would hire me as a Realtor to sell it while they do the neogtiation with the lender. After I sold it for more money I would get a full commission. First, i have a signed contractcwith the homeowner, not this scammer. When this all blows up, the homeowner suffers the most. FYI, I have been propostitioned numerous times to do this. As Tony Soprano said, "fuggeddaboudit". I don't look good in orange anyway.

Red Flag #4. The Realtor who says don't worry. Please worry, becasue a 15% national success rate should cause you to worry. We have a 95% success rate but that means no all sales work. This is the same Realtor who does not not get financial info up front, and would more than likely send the offers to the lender without your signature. yesterday we sent in one of our smaller short sale file to the lender with one signed offer and 70 pages of documentation.

The last entry in this series tomorrow will deal with the benefits for all those concerned and a summary of what these 6 blog posts means to the markets we serve.

Part Five-Qualifying a Buyer

So far we have concentrated on the meaning of a short sale, the advantages, and how it relates to the seller. But a successful short sale needs a qualified buyer otherwise this is an academic exercise with real life consequences.

First a buyer needs a good Realtor. Okay I know this is a cliche, but what I mean is, a realtor who either has a knowledge of the short sale process, or a willingness to learn from an experienced short sale listing Realtor. Since most of the time I represent the owner, I find our team teaching the buyers Realtor. No matter what we put in the MLS comments like "as is", and no service contract to be paid by the seller or lender, we get that in the offer. Even if the offer is acceptable, we need to make sure it jibes with the lender requirements. I never mind a realtor on the other side who truly collaborates. They play a valuable role in rescuing my seller from foreclosure.

Second, a buyer needs to be non-contingent preapproved. You can't buy a short sale if your house is not on the market, or on the market unsold. Even a home with a contract is a contingent contract. It is right on the line to accept a contract where a home is merely under contract for the prospective buyer. Where it gets really sticky is dealing with a company like the former Countrywide. If the buyer falls out, they start the clock all over agian,even if a price is agreed on. if you are working with a buyer, have them totally through underwriting, and with a contingency if you want a successful sale.

Third, patience is a virtue. let's say you are listing a property with a 1st mortgage one place, a 2nd mortgage elsewhere, and maybe a divorce in the works. This is not a rare scenario. Throw in a disputed broker price opinion, and you can have a six month closing time from contract. We have had situations where we have gotten approval in a week, but that is rare. keep reminding your client that they got a great deal that probably can't be duplicated. Despite that, we have gone through a 2nd or 3rd buyer in a short sale process.

Fourth, consider a backup. Please reread number three. patience can be in short supply. a backup does not obligate you to close if you find something else. if you locate a smoking short sale deal, put in a backup. You could be Miss America here if you are the first runner up and the winner can't perform there dities.

Fifth, remember that the price is subject to lender approval. As hard as we try to hit the jackpot on pricing we are at the mercy of the lender. They are looking at net, so the price plus the cost of closing including what you ask for equals a scenario they like or don't. Evaluate the final price and make a decision. Don't go into a contract without realizing that it may adjust upward. Pricing a short sale certainly invloves a lower price because it is a distressed situation, and it has to be attractive enough for a buyer to consider waiting longer than a regular price. if they saving are $25K instead of $30K, dont be greedy or ego driven. Your ego could cost you a lot of money.

Footnote, you can go FHA or VA, just don't buy a basket case. All FHA and VA mandated repairs have to be previous to closing and these are your responsibily. If you buy a basket case, go to your local bank with an FHA preaprroval letter, do a loan involving the cost of repairs and convert it. We know banks who will do this simpler "203K" type loan. For more information go to www.avoidforeclosureoklahoma.com, or email me at joe@joepryor.com.

Part 4-The Marketing, Contract, and Negotiation

We have gone through the interview process, we have all the documentation required by mortgage companies, we know the mortgage situations, and if any other types of liens have been filed including tax liens. We now know what we are working with. What's Next?

Pricing. How you price a short sale depends on the market. In Las Vegas, pricing is going to be much different than Oklahoma City because Oklahoma City is not doing poorly. Let's take a recent example. The home had been marketed at a $185K price bu the previous Realtor and 5 months later it had not sold. Sure the appraisal could support that but the market does not. We get it as a short sale and drop it to $165K and within 30 days have a contract. We also factored in the amount of loss based on mortage payoff. The price will be aggresive so we can get to the next steo

Contract. As I said in the the last segment, you still own the home so sending multiple contract to the lender is not only wrong, it violates our state law on single party brokerage. We look at the best possible offer, with an experienced Reator preferably, especially if we have a patient buyer. Remeber that the contract is still subject to lender approval so even if you sign it, they have the final say. Lender will pay closing cost, but they will not allow for repairs, and certain items like a service contract, which we used to call a home warranty will not be allowed. We can take FHA or VA contract offers, but the home needs to be in very good condition, and a buyer would have to be reponsible for all appraiser mandated repairs.

Processing. Their is a science and an art ot this. First it needs to be a complete packet with the contract, and a non-contingent pre-approval letter. Lender won't take it otherwise. It has to be acknowledged by the lender and some take up to two weeks to upload it into the system. We have a process that insures this and i would rather not share our secret. It will be assigned to a loss mitagator, and our goal is to get it to the next level of getting an appraisal or broker price opinion.

Price Opinion. This is where an experienced short sale Realtor is worth hiring especially if it is a Realtor BPO. There are Realtors who live off the pittance that these companies pay, so they don't necessarily care about accuracy. Why do lenders do this? Money. They charge a lot more than what they pay the Realtor. it is imperative that the listing Realtor meet the BPO agent and to come armed with market data. Often the BPO agent is pleased that you have done the work for them. We had one situation in a relatively new neighborhood where the BPO on a 3 year old short sale came in higher than new construction cost. Two months of challenging the BPO got it reduced. This can be the source of our greatest frustration, but we fight for our clients and the buyer.

Closing. Finally! Done properly, you come to closing bringing no money, but we have been on the buyers end of short sales where owners do bring money which partially negates the value of it. Again we have had no one bringing money to closing in our short sales. You have kept the utilities on, maintained the yard, and now you are signing papers. Before you sign you have received the full negotiated settlement we arranged. On that not only do you have zero cost, you also have a full release from the first mortgage without deficiency. We have also negotiated how it will be reflected on the credit report and short sale never appears. In a later post we will deal with exceptions imposed by second mortgage companies and/or private insurers. Not all short sales are created equal.

For more information or to contact us go to www.avoidforeclosureoklahoma.com or email me at joe@joepryor.com.

Part Three-Choosing a Realtor as a Seller

This is where I first invoke the Code of Ethics we abide by, that informs us that it is unethical to try to do something when we do not have the expertise to do it. When you are holding someones future credit history in your hands, a short sale is much more than a normal transaction, and it should not be done as on the job training. You would be better off to refer it to an experienced Realtor and get a referral fee, rather than put your potnetial client in jeopardy. Sadly, I see this happen everyday. As many Realtors scramble to find something to have as a transaction, and as short sales become more prevalent, the temptation is to get it the ole college try. If you are a owner in a default position, run like the wind.

Let's start with some potential questions to ask a Realtor, and excuse me if I throw in a few plugs for our team.

Question One. Have you done a short sale before and what is your success ratio? Estimates in some areas about the ratio can be as low as 15% where ours is over 95%. We also do short sales every week.

Question Two. What training do you have? Our team all goes through the CDPE training, Certified Distressed Property Expert. We also pay them a monthly fee to go through two monthly webinars where we can go over the changing landscape. We also have two national experts on retainer to bounce scenarios off of. We have also done them for years, not months or days.

Question Three. What paperwork is needed before we list the property? If a Realtor says just the listing agreement, and the Commission mandated paperwork, that is wrong. There is 60 to 150 pages of documentation we need to turn in once we have an offer.Much of short sale work is done before the house goes on the market Loss Mitagators are swamped. Incomplete files are put to the bottom of a stack that could be 500 files high. Many are paid bonuses one how many they can trun over to Phase 2. They love complete files.

Question Four. What would you do with multiple offers? If the Realtor says send them all into the lender, vote them off the island. You are still the owner in Oklahoma until the judicial process is finalized. You can take backups, but only one offer is sent into the lender.

Question Five. I am on the sheriff's sale list, is it too late? Oklahoma is a judicial state, and a sheriff's sale is the way to clear out everyone but the first lien holder. We have been successful in having a home removed from sheriff sale, so it is possible. Just please don't wait until two weeks before. We got it removed two days before but you increase your risk.

Question Six. Do I still need to bring money to closing? If the answer is no, have them qualify that. If the Realtor does not account for the cost properly, then you may have a deficit. This year no client of ours had a balance.

Question Seven. How do you deal with the second mortgage, especially if it is not with the same company? If you get silence you are in jeopardy. Second mortgages can be tricky, and they don't always completely release you. In most cases we have got them to do that. After all they get nothing in foreclosure unless they buy it. This can also be complicated if their is a private mortage insurer and the second is a line of credit. We know the drill, but we are not going to gaurantee you success. Don't be fooled with a nothing to worry about. This is where it can really fall out.

Last and most important question. Why do you do short sales? Trust me there are easier ways to make a living in real estate. First, short sales demand three times the work and twice the normal expertise. It sounds like we are not very smart to do these. Maybe that is true but here is my answer. It is not always about the money, it can be about the challenge. We do value a sense of accomplishment. Let me add that there is satisfaction at closing when you have rescued a person, a couple, and especially a family from 10 years of a bad credit record. When the family can repair their credit in two years or less and go on from a real hardship, you have given people hope for the future and not regret about the past. So let me add a real estate 101 marketing tip for anyone considering getting the expertise. If you value loyalty after the sale from a client, no greater fan can you make than someone who is successful at getting a short sale finished. I should add that they are more than a fan, they are a friend.

You more answers go to our website http://www.avoidforeclosureoklahoma.com.