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realestateroadkillusa.com Fear grips the market and assets are relinquished for pennies on the dollar. At times like these,VULTURES GET FAT For listings of Short Sale transactions that have failed to close after the lender has accepted an offer.

A look at the property page and the registration process

If you’ve been investing in real estate, and more specifically preforeclosures, then there’s no doubt that you’ve come across a short sale deal.  A short sale is when the lender agrees to accept less than what is owed against the property in exchange for full acceptance of payment of the loan. In other words, if the loan balance is $400,000 but the bank accepts $300,000 as full payoff, then a short sale has occurred.

Many investors find short sales different to negotiate and complete.  The reason is that lenders are constantly changing their rules and practices, and short sales by nature are complex and time consuming.  This is a reason that many smart preforeclosure investors today choose to outsource their short sales.

Outsourcing your short sales is simple.  You would still meet with the homeowner and get all of the necessary paperwork to ensure a complete short sale packet.  But after that, the ease and simplicity of outsourcing takes over.  The investor simply sends the complete short sale packet to their outsourcing company, and they are the ones that then do all of the work on behalf of the investor.

The investor’s time is freed up considerably, as they no longer have to sit on hold, fax paperwork, or do other mundane tasks associated with negotiating a short sale.  The outsourced short sale company takes care of all of this work for the investor.

Outsourcing your short sales makes perfect sense as a real estate investor.  Since the outsourcing company is working on many files for many different investors, they are building more relationships faster at a wide variety of lenders.  They have a larger rolodex of contacts at more banks, and have a proven track record of closing deals with many lenders, thereby making their files and their deals more desirable for the lender to look at.

In today’s world of outsourcing, it’s no longer necessary for a real estate investor to negotiates his own short sales.  In fact, it’s not a good use of their time.  Preforeclosure investors should be focused on buying and selling properties, not negotiating short sales or faxing documents to lenders trying to get a short sale deal closed.

Outsourcing short sales allows real estate investors to work on more deals at once, and have a virtual team of experts on his staff, without the overhead.  The best outsourced short sale companies are paid on performance, after they have negotiated the short sale deal to the price that the investor has set.  This makes outsourcing a no risk proposition for the smart preforeclosure investor.

A short sale, by definition, is the sale of a property to a lender for less than the amount of the mortgage owed.  This sale is often only permitted under extreme circumstances.  The bank or mortgage lender takes into account current economic outlooks, the personal financial situation of the debtor or home-owner, the local real estate market, and the reasonable possibility that the bank will recover some, if not the entirety, of the mortgage loan.  The advantages of short selling a property to the debtor are obvious.  A short sale is often pursued instead of foreclosure proceedings.  Thus, by short selling a property, a debtor can keep a foreclosure off of their personal credit history.  Also, the difference between the original mortgage and the short sale offer, also known as the deficiency balance, is partially under the control of the debtor.  This means that the debtor is free to pay back the deficiency under their own terms.  Sometimes, though rare, this debt is forgiven completely.

The advantages of a short sale are less obvious for the bank or mortgage lender.  These institutions are primarily concerned with recouping their financial losses on bad or risky loans.  Thus, they may choose to allow a short sale if they believe that this course of action will result in a smaller financial loss than foreclosure proceeding.  Whereas a foreclosure can cost the bank or mortgage institution a certain amount of money through legal fees and court proceedings, a short sale is simply an agreement between the debtor and the lending institution and entails much less hidden costs to the lending institution.  Oftentimes, a short sale is the best method for the bank to guarantee at least a partial return on a bad or defaulted loan.

A short sale is a fairly common business transaction.  However, lenders do not like to view these transactions as financial favors to the debtors.  Rather, these institutions view these short sales as sound financial extensions of credit.  When retaining an asset makes little business sense or is economically unfeasible, a business will default on their loans.  If enough of these loans are defaulted on, a bank or mortgage lender can be put in dire financial straits.  Thus, a short sale is utilized to reacquire these economically unfeasible assets and recoup a portion of the extended and defaulted loans.  In this manner the financial institution looses only a fraction of the accumulated debt.  In these types of business short sales the deficiency balance is almost always forgiven.

There are a number of steps that debtor must take in order to secure a short sale from a bank or other financial institution.  Most banks require that a Notice of Default be completed.  This alerts the local government of the impending default and stipulates the location, relative value, and financial history of the defaulted property.  While conditions vary from bank to bank, several levels of approval are usually required.  This is often a long and complicated process for the debtor.  Some banks have set limits on short sales, and these restrictions can vary in amount or type.  For example, many banks won’t approve a short sale if there are tax liens held against the property.  However, if approved, a short sale can be a great way to relieve debt obligation without permanently affecting your credit score.

If you’re looking for inspiration involving realtors and properties, look no further than these novels.  Entertaining, funny and even educational, these books will show you the other side of real estate in all its humorous, gritty glory.

Red Hot Property by Devin O’Branagan
Devin O’Branagan’s new book “Red Hot Property” follows four real estate agents as they begin their careers. Sometimes it’s a bumpy road, filled with dangers and pitfalls. They’re not always in the open houses; Molly O’Malley and Valentino DeMitri also have to wade through the perils of office politics.  Despite the wholesome safety warnings, O’Branagan manages to keep the book an exciting, believable read.

Cracks in the Foundation by Erica Ferencik
Ginger Kanadoo has been coasting along on a notoriously slow real estate market in Squamskootnocket, NY, so she plans to make the most of her latest listing… an outhouse. Teaming up with her 93-year-old aunt and her Wiccan daughter against arch-rival Tandy Brickenhausen, Ginger fights to keep a toehold on real estate representation. This is a very funny book with a lot of truths about real estate and the selling of it hidden behind the laughs.

Fatal Fixer-Upper by Jennie Bentley
New York textile designer Avery Baker inherits a 1870s Victorian cottage in Maine from her aunt and decides to renovate it herself.  She throws herself into reclaiming the home with the help of a good looking handyman, Derek Ellis… pity that they clash so much on modern vs. vintage.  Home renovation takes a deadly twist, though, when she starts finding clues that could mean that her renovation project is turning deadly…

The Ruthless Realtor Murders (Wyn Lewis Mysteries) by David A. Kaufelt
The third book in the Wyn Lewis Mysteries, “The Ruthless Realtor Murders” has realtor/lawyer Wyn Lewis trying to solve the murders of local realtors involved in condo developments in Wagg’s Neck Harbor.  Can she find out who is bumping off everyone in the real estate profession before she gets nailed for a crime she didn’t commit?

Lullaby by Chuck Palahniuk
A real estate agent sells haunted houses repeatedly because the buyers can’t live in them.  An investigative reporter finds that there is a correlation between the haunted homes and crib death via a lullaby that kills.

Dracula by Bram Stoker
The legend of Dracula has been so overshadowed by the allure of the vampire, most people forget that it all started with a real estate transaction.  This book is definitely a safety-first warning to agents who go into the boonies to meet an unknown client.

Answers to the Most Frequent Asked Short Sale Questions

1. Q Will I be eligible for a short sale if I have 2 mortgages?

A Yes- The majority of short sales involve 2 lien holders. They both have to agree and be satisfied. If only the first lien holder is paid off after closing, the second mortgages terms has to be re-negotiated and resolved.

2. Q How Many Payments do I have to Miss to Qualify for a Short Sale?

A None—-In the later part of 2007—Most major lenders began to accept offers of a short sale from sellers that had never missed a payment or been late.Their personal situation had changed.

3. Q Will I be Responsible for Additional Income Taxes for the Difference of Loss to the Bank?

A No in most cases. It was true in the beginning of short sales; but now the rules have changed. Consult with your CPA or tax Attorney. The law has been changed so that most people are not responsible for any additional taxes.

4. Q Will I have Trouble Qualifying for a Short Sale If I Owe More Than My House is Worth?

A No If your debts are greater than your assets and you cannot make your payments; then you will qualify for a short sale. It’s that simple.

5. Q Is There Time for a Short Sale Before the Foreclosure Process Begins If I Have Only Missed One Payment but Know I will Miss A Lot More?

A It varies in each state. A rule of thumb is; 6 months to a year. A well priced short sale usually sells and closes in less than 120 days.

6. Q Is A Short Sale Right for Me If—I Have The Resources to Pay All or Part of the Negative Amount Owed. I Don’t Want to Ruin My Credit. I Just Can’t Make My Payments Any Longer.

A In this case; it would be better to work out a repayment plan with the first lien holder. The monies you have will more than likely be used to pay the 2nd lien holder. They will release the lien. The property can be sold and closed in a regular manor.

7. Q Does the Lender Have to Approve My Home Before It Be Listed As A Short Sale?

A No There basically is no such thing as being short sale approved by any lender. The approval occurs after there has been an accepted offer.

8. Q Will Property Taxes Still Have to Be Paid If I do A Short Sale?

A Yes Property taxes always will have to be paid. Each lender has different policies and it will depend on the specific agreement you reached while negotiating the short sale. So, either yourself or the lender will be responsible for paying the property taxes.

9. Q Why Doesn’t my Mortgage Insurance Pay The Deficiency Amount?

A . Mortgage Insurance is not for the protection of the owner. It only protects the lender. In most short sales there are 2 lien holders and NO mortgage insurance.

10. Q Who Pays the Listing Agent’s Commission?

A The bank will pay all commissions along with the usual closing costs.

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With how the economy is going today, there are a number of people who are having a problem facing their financial obligations.  These financial obligations are not only apparent on daily bills but also for mortgages and other loans.  And if you are having some problems in sustaining your mortgage or your property, you might want to try short sale instead of having it on foreclosure.  This is perhaps the best way for you to face lesser credit standing issues.

However, what is a short sale and how will it have an effect on your credit score?  Short sale is the instance where you are going to sell your property, with the approval of your bank of course, at a discounted price compared to its original price.  In this way, you can pay the amount that you owed the bank.

If short sale was done properly, there is a great chance that your credit standing is not going to be affected.  How can you execute this properly?  You should be able to put your house on sale with very few expenses.  If it is possible, convince the lender to get the full amount of sales in order to cover for the whole amount loaned.  At the same time, if you will be getting help from an agent, find someone that will ask for smaller commissions.

However, if the amount of sales is not enough to settle the debt, you can pay the remaining amount in terms.  This is called loan for deficiency that will allow you to pay at the most affordable price and flexible terms that you can keep up with.  You just have to be aware that it will definitely reflect to your credit record.  But granting that you can pay them properly, the effects will not be that detrimental to your credit record.

Another option in order to get the remaining amount owed is a suit.  However, doing this option is going to give a negative judgment to you.  And thus, will result to a much greater credit report issue.

So basically, the effects of short sale on your credit record are based on how you settle the remaining amounts after the sale.  Be sure to be committed in paying the remaining amount if there are any.  If you will not be paying it properly then you are just putting your credit score to a big problem.

So if you want to settle the amount that you owe through short sale, it is important for you to ask your bank for these and other options that might have lesser effects on your credit score.  In this way, you can avoid future problems in terms of finances as low credit records will make your charges much expensive than it should be.

Buying Bank Owned REO Properties Using Private Investors’ Money

Copyright © 2009, Lex Levinrad

Many real estate buyers are aware that there are fantastic bargains available in the real estate market. The huge amount of bank foreclosures has led to a tidal wave of bank owned REO properties which has flooded the market with low priced properties. Astute investors are taking advantage of this situation to scoop up houses at bargain basement prices.

If you are considering investing in bank owned properties then you will need to be a cash buyer. This means that you are required to show “proof of funds” which is usually a bank statement which shows that you have the cash available to purchase the house.

If you don’t have the cash available then you will need to borrow the money from someone that does. If you have a relative or friend with access to cash they might be willing to lend you money to purchase a property in exchange for you giving them a first mortgage on the property. They will effectively become the bank and you will be required to make a monthly payment to them.

There are professionals in the real estate business that make these kinds of loans to people that are not relatives. They are called hard money lenders. The only difference between a hard money lender and a private investor is the interest rate. Borrowing from Aunt Sallie might cost you 8% per year in interest. A typical hard money mortgage in today’s market would be 15% plus 3 points up front.

Why would anyone borrow money at such a high interest rate? Let’s look at an example. Assume that you could purchase a bank owned REO property for $40,000 when the house has a true market value to a non cash buyer of $80,000. Paying 15% interest on a $40,000 loan amounts to a monthly payment of only $500.

Assume that you waited 90 days for seasoning of title and then sold the property to an FHA first time homebuyer for $79,900. Assume that you paid a commission of 6% to the realtor and another 6% to pay for the buyers closing costs. You would still net $70,000 from this transaction. After paying off the hard money lender the $40,000 that you borrowed, you would still be left with a profit of $30,000. Even if you held the house for six month before finding a buyer you would only have spent $500 per month in interest for 6 months. Your total interest cost would only have been $3,000. This would leave you with a net profit of $27,000.

Or expressed another way, using no money down (borrowing all of the money) you could potentially make a profit of $27,000. How easy would it be to sell a house like this to a first time home buyer? The answer is it would be extremely easy. The buyers are putting down only $3,000 (3 ½%) to buy a house with a monthly mortgage payment which is about the same as their monthly rent. You are paying all of their closing costs. And the government will give them an $8,000 tax credit if they purchase before the end of 2009. It is a win/win for everyone. The bank gets to sell their property quickly to a cash buyer. The cash buyer gets to flip the property and make a quick profit and the end FHA buyer gets to own a home for the same monthly payment as rent.

The trick to the above transaction is to find an $80,000 property that you can buy for $40,000. This is the part that requires training, knowledge and experience. Finding deals like this is an art form and the people that find these deals are known as “bird dogs” or “property scouts”.

Many bird dogs sell their deals to cash investors for a small profit. This is known as wholesaling. For example a wholesaler might contract to purchase the above house for $40,000 and then sell it for $45,000 to another cash investor. This way, the wholesaler does not need to borrow money from a hard money lender. The wholesaler simply finds a deal, signs a contract to buy it and then flips the contract to a cash investor for a profit. This is known as “assigning a contract” and the profit that is paid to the wholesaler is known as an “assignment fee”.

Banks do not want wholesalers flipping contracts on bank owned properties. For this reason, banks do not allow assignable contracts. This means that a wholesaler cannot assign a bank owned property to another cash investor. The reality is that there are still ways that a property can be assigned. One way is to purchase the property in a Land Trust and then assign the beneficial interest in the land trust. Another way is to purchase the property in an LLC and then assign the membership interest in the LLC. However the problem with these methods is that the end buyer might not want to have a land trust or an LLC.

For this reason, the best way to sell a bank owned property to another cash investor is to have what is known as a double closing.  This means that the wholesaler essentially buys the house from the bank and then simultaneously on the same day sells it to another cash investor. The disadvantage is that the wholesaler will be paying double closing costs.

If a wholesaler has a signed contract and is wholesaling the deal to an end buyer, then if the wholesaler is short on cash they might need what is known as “transactional funding”. Transactional funding is perfect for bank owned properties and short sales that a wholesaler is flipping to an end buyer. Since banks do not allow assignable contracts the wholesaler is going to need to schedule a double closing with the end buyer. Double closings also known as simultaneous closings allow a wholesaler to schedule two back to back closings for the same property on the same day. The wholesaler will need to have a source of funds to pay for the first transaction. This is where transactional funding (also known as same day funds) is needed.

Our company offers transactional funding to all of our Private Mentoring Students. However our students need to schedule both closing with our title company in order for us to offer the transactional funding. We will only offer transactional funding if both closings are with our title company (Independence Title & Escrow).

If you are looking to flip a bank owned property then you will have two contracts and two closings. The first contract is between the bank (seller) and you (buyer). The second contract is between you (seller) and your end buyer (buyer). The end buyer is the person that will ultimately be the long term owner of the property.

Example:

A – Bank
B – You
C – End Buyer

Assume that you have a contract with the bank to purchase a bank owned property at $40,000 (first contract). This is known as the A-B transaction.

You market this property to your cash buyers and you find a buyer at $45,000. You sign a contract with this buyer with you being the seller and them being the buyer (second contract). This is known as the B-C transaction.

The difference between the two contracts (after deducting closing costs) is your profit which you will walk away with at the closing. Since there are two contracts there are two closings. This means you will pay double closing costs.

The transactional funding fee that we charge is 2% +$495 with a minimum fee of $1,250. For example if you were to request $40,000 your fee would be $800+$495=$1,295. We will only provide transactional funding if you use our title company (Independence Title) for both closings.

To learn more about transactional funding please visit  http://lexlevinrad.com/transaction_funding.html