The Queen of Short Sales

Hi Folks,

I am sitting at the airport headed to Hawaii. My husband, Bill just turned 50, so we are taking a 9 night trip to Maui. We are so excited.

I can hear the beach calling my name:-).

I wanted to send some short sale information before I headed out......

As you know, I am the "Queen of Short Sales" so it is my job to keep you up on the latest real estate investing techniques...so here goes...

Everywhere you turn, there is another seminar, another guru, or another boot camp all teaching the same thing. Can so many people be right? How many different ways can there be to do the same thing? Folks, believe it or not, there are not one hundred different ways to do short sales, there is one and everyone is trying to put a spin on it to seem original.

Since my partner, Sharon Restrepo, and I were the first to bring this topic to the surface, it’s exciting to see how this incredible topic has exploded. I’m going to review the short sale concept and show you just how easy it actually is.

A short sale is simple: Through simple negotiations you get the bank to accept less than what is owed as payment in full. For example, you find a homeowner with a property worth $100,000 that has a $100,000 mortgage balance. You work with the bank to negotiate a discount on the payoff. The bank agrees to accept $50,000 as payment in full and you have just completed your first short sale.

Is it really that simple? You bet! The key to successful short sales is to understand the mindset of the people involved and make the deal appealing to each person involved. There are basically three parties involved in a successful short sale: The homeowner who is interested in getting out of foreclosure, the bank who wants to get a bad debt off its books, and the rehabber who wants a great property to fix-up and sell retail. In each situation, there is a win/win outcome.

Let’s start with the homeowners. Their motivation is obvious. They are behind in payments or already in foreclosure. They are getting called by creditors, banks, attorneys, mortgage broker’s and more everyday. They just want to sleep at night and get out from under the stress this situation has placed on their lives. Their downfall: they have no equity. They have called every investor in town and been turned down by everyone because they have no equity. They call you and you say, “No equity? No problem!” You explain the short sale concept, get the property under contract, and get busy.

Why would the bank accept less? The bank can take the property back at the sheriff’s sale and then retail it. Well, let me ask you this, “Are banks in the business of lending money or owning homes? Correct, lending money. Is a foreclosure an asset or a liability? Right again, a liability. Folks, banks are in the business of wholesaling money. They borrow money from bigger banks and then lend it to you. They have to show their credit report, just like you do, to get a low interest rate on the money they are trying to borrow. If you were going to lend millions of dollars to a bank, would you lend your money to the banks with the low default rates or the banks with the high default rates? Right again, you would lend to the banks with the smallest number of defaulted or foreclosable loans. The banks motivation to accept a short sale is to clean up its books so that it can borrow more money, at a cheaper rate, and then lend it to you.

Were does the rehabber come into play? You have to have someone to sell your properties to once you negotiate a successful short sale. Rehabbers are the perfect outlet. Rehabbers like to purchase fixer-uppers at 65% of the retail value. In the case of the $100,000 property, a rehabber wants to buy it for no more than $65,000. In order for this to happen, you must get the bank to say yes to your offer.

So, how do you get the bank to say yes? You build a great case. Think of it like an attorney defending a case. The better case you build, the better your chances are to win. I send as much information as I can to the bank to show the bank why it should accept my low offer now instead of waiting out the foreclosure and bankruptcy process and getting the house later.

How do you build a good case? Send: a sales contract, signed by the homeowners, for the amount you want to offer the bank; an “authorization to release information” form; low comps; bad pictures; a detailed list of repairs; a hardship letter written by the homeowners - backed up with proof such as late notices, shut off notices, bank statements, job layoff papers, medical bills, tax returns, or whatever you can find; a crime report; a list of sex offenders in the area; articles from the newspaper showing negative items – job layoffs, crime, natural disasters, foreclosures up, bankruptcies up, and whatever you can find that is detrimental to the neighborhood; net sheet; and a cover letter from you stating why you couldn’t possibly pay full price for the property.

Submit that information to the Loss Mitigation department of the bank and you are in business. The rep will negotiate with you and once you settle on a price, wholesale the property to the rehabber. You become the middleman and make the difference between what you negotiated with the bank and the rehabber.

Folks, short sales are that easy. There are millions of dollars being left on the table. Get busy and put some of it in your pocket. Good luck! Fore more information on short sales, please contact me at http://www.theieu.com.com/

Dwans Real Estate Minute

Hi Folks,

I'm finally getting with the program....I made my first blog! I have no idea what I'm doing, just yet, so bear with me:-).

I'm going to spend a few minutes each day updating you on what is happening in the real estate market...and my life.

So....here goes...

Why has the real estate market changed so dramatically over the past few months? Is it still a good idea to invest in real estate? When is the market going to turn around? Should I sell the properties I own before the prices drop again? Have questions like these been on your mind lately? For most of us, they have. It’s important to understand what has been happening and why, so you can ride the wave.

We believe the biggest reason for so many foreclosures and bankruptcies has been “interest only” or “exotic loans.” These exotic loans are very appealing. They allow homeowners to purchase a larger house with a smaller initial payment. The problem is that when the payment changes, most folks cannot afford the larger payment and end up in foreclosure.

Let’s take a look at several of these loans:

Teaser Adjustable Rate Mortgages: This loan entices borrows by promising an initial period of very low interest (typically around 1% to 2%) which later resets to market rates. Over 1 million borrowers will be jolted back to reality this year when their introductory periods begin to expire. Payments on a $200,000 loan at 2% are approximately $725 a month; at 7%, the payment is $1,340. If the property was purchased based on the affordability of a $725 a month mortgage payment, what happens when the payment climbs to $1,340?

Subprime Adjustable Rate Mortgages: Because many of these loans require no income verification, they attract low-income, minorities, and people with bad or marginal credit. These folks assume that they can't qualify for a more reasonable rate so they take what they can get. Many are in questionable financial positions to begin with and are therefore in greater danger of defaulting. Subprime (also called nonprime) ARMs start with a lower interest rate that continues to climb each year. Homeowners can find themselves paying 13% interest in just a few short years. If the initial interest rate of 7% was the maximum payment they could afford, what do they do now?

Option Adjustable Rate Mortgages: This is initially the most appealing loan. It gives homeowners the choice each month of paying the principal and interest, just the interest, or an even smaller minimum amount. If the mortgage payment is $1,000 a month and the homeowners decide to pay $450, the balance of the payment goes on the back of the loan, causing negative amortization. Eighty percent of homeowners pay the bare minimum. Because the amount paid does not cover the amount due, the balance is added to the back of the loan increasing the total amount owed. Once the loan balance has increased to a certain point, the bank demands that the homeowners begin to make full payments on the now larger amount.

Why are these loans so popular? Everyone wants the American dream … a house, a family, a white picket fence, to be successful, and so on. When homeowners see a chance to buy a larger, more expensive property that comes with a low payment, they jump on it. The homeowners know that the payment will increase in a few years and assume that they can sell their property for a profit or refinance it for another low interest rate. If you have been following the market since the first of the year, you know that property values and sales have fallen nationwide. These same homeowners can no longer sell their properties because they owe what the property is worth, if not more. The enticement of exotic loans is that most require a very low down payment, if any, and the promise of a low monthly payment. This is fine if the market is going up, but when it takes a dramatic drop, they can’t sell or refinance so they end up in foreclosure.

In the year 2000, 19% of all new loans were exotic; so far in 2006 over 81% are. This tells us that most of America owns a property they can’t afford. In addition, the income verses debt ratio has taken a dramatic swing:

2000: 93% of mortgage payments consumed 28%-36% of a homeowner’s paycheck.
7% of mortgage payments were 36% or more of the homeowner’s paycheck.

Now, let’s take a look at what’s happening now. We think you’ll agree with us that these numbers are scary:

2006: 33% of mortgage payments consume 28%-36% of a homeowner’s paycheck.
20% of mortgage payments consume 36%-58% of the paycheck.
47% of mortgage payments consume 58%-69% of homeowners’ paychecks!

Almost half of all homeowners use up to 70% of their paycheck just to make their mortgage payment. This leaves very little left over for emergencies. In addition, when that payment changes, they can’t afford it resulting in a foreclosure.

What does this mean to investors? It means there are unlimited properties available right now if you know what to do with them. As a landlord, buy as many properties as you can afford. With the changing market, buy low and plan to hold for the long haul.

Since most of America is in a buyer’s market (meaning there is more than six months of inventory available), rehabbers need to offer incentives to get properties sold quickly: sell below market, offer no payments for 12 months, offer to pay all closing costs, offer new appliances, offer cash back at closing, and so on. Any property will sell if it is priced right, even in a buyer’s market. Remember, 90% of the marketing is done when you set the price on the home.

Wholesalers must hone their short sale skills in order to get good deals. USA Today recently said that short sales are becoming commonplace. As more and more properties go into foreclosure, banks are being forced to short sale in order to get rid of properties. With 50% of loans maxed out, banks no longer have a choice.

The bottom line is that there has never been a better time to be a real estate investor. Foreclosures are going to skyrocket over the next few years because of exotic loans and our cup will runneth over.

For more information on real estate investing, short sales, wholesaling, rehabbing, landlording, and more, contact us at http://www.theieu.com/