The next item we need from the homeowners is a Sales Contract. There are several places you can get your hands on a contract. In our area, we ca go to the local real estate board and buy directly. Check you area to see if this is an option. It makes homeowners feel comfortable using a contract prepared by a neutral party. You can also get contracts at local office supply stores as well as from attorneys.
A note of caution:
Many times these contracts call for the investor to pay all the closing costs (on both sides), real estate taxes (pro-rated or not), give up escrows and more. In other works, these contracts are usually VERY one sided. This is okay for you when selling, but not good when buying from others. We like to keep it simple and stick to the local common contract. We have never had a problem because of it.
When the bank entertains a short sale, it must see that the seller is willing to sell at the lower price and walk away with no proceeds. The sales price on your sales contract is the amount you are offering the bank, no the balance on the mortgage.
This is the only document that will allow you to speak directly with a lien holder about another’s private account information. This must be delivered via fax, mail or e-mail to the lien holder before any information is released to you. Understand, this form does not authorize you to do anything on behalf of the homeowner, only obtain information. Obtain a separate Authorization to Release for each lien holder.
Below is the form we use. Feel free to make any changes necessary for your specific situation. Remember, use a different form for each lien holder. You don’t want one lender knowing what the other is doing; it can cause too many potential problems.
Some lenders are now asking for a notarized Authorizations because too many investors have signed the homeowners’ names without their permission.
Below is an example template.
This is the key question we use to encourage the homeowner to move out quickly:
Without being rude or blunt, this question will imply that they must move out soon and will put the thought in their minds that they could move in with family. Most homeowners don’t even think about moving in with their family. This will help them realize the need to move and where to go. The reason you want them to move in with family is because there will be no requirement for a credit check or for the first and last month’s rent and security deposit (money they don’t have and would need to get from you).
It is impossible to expect the sellers to move out immediately when you are not promising an exact result. Often, when the seller is not moving in with family, they need moving money. Therefore, the family will remain in the home until closing, or until you record the deed and are SURE that you have an acceptable short sale payoff negotiated. Whenever you can get the sellers to move out quickly is to your advantage.
When dealing with homeowners without equity, we explain that one of their best solutions is a short sale. We explain to the homeowners that if we can negotiate with their bank to accept less than what is owed as payment in full, so long as the amount is acceptable to us, we will purchase the house from them. We also mention that we do need their help in obtaining the short sale, as the bank may request items that only they can provide. If they are in agreement, then we proceed with executing the paperwork for our short sale package.
One of the first questions you should ask the sellers is what they are seeking as a result of your help. The answers will vary from “nothing, just help my credit,” to “$3000 for moving expenses,” to an unreasonable amount of money that will kill the deal.
Most sellers without equity don’t want anything except help out of their situation. We always tell them that if we are able to work out a deal with the bank and actually purchase the home, we will give them at least $500. There are two reasons for this. One, we want to help them financially. Two, if the sellers should move out during the short sale negotiation (regardless of where they have signed a deed to us), we want to maintain communication with them in case the bank requires additional information. Knowing that they will receive $500 when the deal is complete will motivate them to continue to cooperate with us.
Any amount of money you agree to give the homeowners is okay, it just cannot appear on the closing statement. It must be a separate agreement. At the closing you are required to sign a form stating that you are not giving the homeowners any “sale proceeds.” What you can do is pay them to clean the house, or for another service, such as debris removal. You can also purchase appliances, computers, or cars from them.
If you do this, you must use a “bill of sale.” The reason their payment cannot show on the closing statement is that the closing statement is reviewed by the bank just before closing. They will not accept thousands less than what is owed, pay all the sellers’ closing costs, and then allow the sellers to leave the closing with a profit. Can you blame them?
If you can “get the deed,” go for it. Do not record it. The bank will check the title before the closing. If you show up on the title, guess what? You lose your deal. The reason you get the deed is in case the homeowners decline to attend the actual closing. You have the deed and you can still close.
Let’s start with the obvious –> Find motivated homeowners who want to sell.
During your conversation with the sellers, explain to them that you are going to try to negotiate a short sale with their bank(s). Be certain they understand that if you cannot come to an agreement with their bank that you will not be able to help them. Be clear and don’t make any promises that you can’t keep.
Once you come to a clear agreement with the homeowners, you must then obtain the following items from them:
9 reasons for a short sale acceptance:
A “short sale” is negotiating with a mortgage holder to accept less than what is owed as payment in full on the mortgage.
A short sale is a fantastic strategy to use when you have found a real estate foreclosure, however the homeowners owe the bank close to or more than what the property is worth.
Here’s the breakdown:
The homeowners owe $100,000 to their first mortgage holder and the payments are in arrears. Their property is worth $100,000 in the current market condition. With proper negotiating strategies, you get the bank to accept $60,000 as payment in full. Therefore, purchasing a $100,000 retail property for $60,000. Interesting, eh?
Please keep in mind there must be a defaulting situation for the bank to entertain your short sale. No lender who is receiving current mortgage payments would accept less than what is owned as payment in full. The number of delinquent payments vary, however sometimes one late payment is enough to entertain the bank.
It doesn’t matter which lien is foreclosing when you attempt your short sale, only that there is a delinquency. Some homeowners will be in foreclosure on their first mortgage, yet their second mortgage is current.
When making an offer to the bank, be sure your starting offer is low but still reasonable enough to be taken seriously, and not too high that you cannot go up. In the example above, a starting offer of $50,000 would be worthwhile; approximately 50% of the retail value, assuming the mortgage amount is also high. We’ll discuss negotiating later in this program.
A short sale can be done anytime during the default prior to the lender taking the property via the sheriff’s sales, courthouse steps, or foreclosure sale. It is called different names in different areas. We’ll use “sheriff’s sale” for the sake of this educational material. Also, many areas have what’s called a “redemption period” after the foreclosure sale. This period gives the homeowners one last opportunity to get their home back. During this time the bank is still not the owner.
The homeowners own the property until the last day of the redemption period. The homeowners many find the money to pay off the bank and keep their home, thereby redeeming the home. You can still negotiate a short sale during the redemption period. When you see that a home has “gone back” to the bank at the sheriff’s sale, ou can contact the homeowners and speak with them about working out a short sale agreement with their bank. Some areas have very long redemption periods (up to one year), which make it almost impossible to actually bid on property at the sheriff’s sale itself. During the redemption period is another great way in which to create a superb deal. Call you county courthouse and ask for the foreclosure department. The folks who answer the phone are usually very cooperative in answering questions and can tell you how long the redemption period is in your area. This is “Must Know” information. Make the call today!
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