Have someone else do it for you.

Short sales get dealt with just like everything else in my life that even remotely smells like stressful labor; they get delegated. Outsourced. Sub’d out. Avoided at all cost. The purpose of this article is to encourage you to do the same.

Life is too short to do things you hate. Don’t you feel the same way? Did you know you don’t have to do things you don’t like? You are not a prisoner. You’re free. I spent ten years of my life doing what the world considers “real” work. I’m done. Real work blows. Who is to say what is real and what isn’t anyways?

“Reality is an illusion.
Albeit, a persistent one.”

- Albert Einstein

Something wonderful clicked inside my head a few years back after my dangerous escape from Cubic-Hell. It’s weird because it just evolved kind of naturally. The only way I can describe it is a complete 100% aversion to doing anything at all that I don’t find enjoyable…and the ability to actually get away with it.

How to outsource all your unwanted “duties” in life is the topic of another article. Let’s focus on the subject of short sales for now.

Let me give you an insider look at a typical transaction
on a typical day in my most non-typical life:

One of my student’s cell phone rings (I do all my work with students now. I don’t have time for any of my own marketing anymore). Ring! They answer and take down some brief information about the situation and email the lead over to me. I take a look at it and we fax over an offer without seeing the property. The seller accepts it and faxes it back. We send out an email advertising the property for $10,000-$50,000 more than we put it under contract for. Someone calls me and buys it. Title company sends us a check. 17 minutes work total. I never left Starbucks. Tough life; I know.

Now let me give you an insider look at a typical short sale transaction.
Thank God I do not know this from personal experience:

You’re in an office that resembles the office scene in The Matrix where everything is grayish green and weird and lame. The phone rings, but this time is sounds a little more eery for some reason. It rings in slow motion. Rrrrrrrrrrrriiiiiiiiiiiiiiiiiiinnggg. Like it’s the scary guy from the movie Scream calling and you know it. You sense impending manual labor in your near future, and some sick part of you is wondering if you murder yourself violently is there any way you can still go to heaven (probably not).

The lady on the other end is hysterical. She’s losing the house to auction in two weeks and she needs you to close tomorrow with cash. Your worst nightmares are confirmed; you are indeed about to do alot of work that you hate. You wish it would’ve been the Scream guy calling instead and that he would stalk you down and end your misery quickly.

You spend the next hour on the phone going over all of her options with her. You’re trying to nudge her in the direction of allowing you to do a short sale. By the way, for those of you who may not know, a short sale is nothing more than going directly to the seller’s bank and offering them less than the amount of the loan. She finally agrees to see you in person.

You drive an hour and a half to the seller’s house. You’ve brought a notary with you because her signature on the deed transfer has to be notarized (so far as I recall). That’s real convenient. You don’t even like your notary. The drive over is awkward. You spend three and a half hours listening to the seller’s genuinely sad story before talking her into giving you the deed to her house. You leave depressed for the next 3 weeks.

Now the real fun begins. You submit the short sale package to the bank and wait about…a month. In the meantime you meet the bank’s appraiser back out at the house (hour and a half drive) and attempt to use every NLP Jedi mind trick you know of to influence his appraisal. It’s a $400,000 house on a golf course, but because you’ve gone through Jeff Kaller’s course and know what to say, the appraisal comes back at $99,000.

I failed to mention that during this whole time you have also been attempting to market the property to a suitable buyer. To this end, you have physically fixed the house up (ew), given it to a realtor to list (double “ew”), and some other stuff that I’m sure I’m forgetting but will remember later after it’s too late. Why are you doing this all in advance when the short sale hasn’t (and may never) even been approved? Because you have to be ready to move at the speed of light once that short sale is approved. You’ll have 30 days. That’s it. Use it or lose it.

So the stars align, you find your buyer, and the bank approves the short sale. Happens all the time. Top notch short sale investors make a boat load of money; don’t get me wrong. They just work 90 hours a week is all. And as we all are well aware of by now…that’s against my religion.

Now, you just sit back and wait for the closing date. Simply stay on top of the buyer. Make sure his loan goes through, he closes, and you don’t lose the house back to the bank.. Well, in this case - it doesn’t, he doesn’t, and you do (lose the house that is). Just happened to a friend of mine yesterday. Bummer. Do 10-30 houses at once, simultaneously, non-stop, and at all times of life, and a decent number of them will actually go through. Welcome to paradise. Total time spent - 2 months.

Which Would You Rather Have?
17 Minutes in Starbucks?…Or 2 Months In Hell?

Ah, but alas - we are not forced to answer such limiting questions as these because we do not dwell in the parched land of “either-or” thinking! We live in the Promised Land of abundance where “both-and” is the only way to fly. We needn’t limit ourselves. We can have both the luxury of Starbucks and the fruits of the hellacious labor…without doing the labor!

“Preston, please tell me how to have the luxury
of Starbucks and the fruits of the helacious labor.”

Ok. You do it by spending your time doing what you find enjoyable while outsourcing everything else. In this case, you are outsourcing your short sales. There are two ways to go about doing this. You can either find a company that will do nothing more than process your short sale with the bank and hand it back to you or you can find someone who will do absolutely everything (and I mean everything). In the case of the former, you are paying these people about 35% of the total profit while doing a lot of work still. In the case of the latter, you are getting a 25% finders fee (usually) and doing absolutely nothing but emailing leads over.

Guess which one I do. Yeah, that shouldn’t be hard right? I take 25% and do nothing. Currently I have thirty five deals in with my short sale guy. I have no idea where he’s at with any of them and frankly I’m not overly concerned. I simply get checks from him every week due to deals closing that I have nothing to do with. Free money as far as I’m concerned.

If you want the situation I have, you are going to have to look around and find someone reliable who knows what the heck they are doing. This will take some time. The guy I use is the best in Florida hands down. He has buyers lined up waiting for all these deals to clear with the bank. It’s awesome.

Anyone actively investing in foreclosed and distressed properties has no doubt come across one major problem… Finding deals with equity! Trust us, this is a nationwide problem.

There are so many foreclosures out there; unfortunately most of the homeowners owe what their property is worth. We find that most investors walk away from deals with no equity. They either don’t know what to do with a no-equity deal or they are unwilling to put forth the effort necessary to make the deal work. In situations like this, we SHORT SALE the mortgage.

“What is a short sale?” You ask. To short sale a mortgage means getting the bank to accept less than is what is owed as payment in full. There are several steps that will ensure your success when short selling mortgages.

First of all, you must have the homeowner under control. Many investors are under the misconception that they can buy the property directly from the bank while it is in the foreclosure process. Not true! The bank does not own the property until the moment of the courthouse sale. You can buy the mortgage and finish the foreclosure process, but you cannot buy the property. You’ll have to work hand-in-hand with the homeowner if you plan to short sale mortgages.

Here is how it works: A homeowner calls you and talleys he is in foreclosure; owes $95,000 on his property; it’s worth $100,000 and he is 8 months in arrears. He wants to move on with his life but can’t sell his house because he owes what it is worth. Here is where you come to the rescue. You meet with the homeowner and have him sign an “Authorization to Release” form (this gives the bank permission to speak with you about the account) and a sales contract for the amount you are willing to pay for his property. In this scenario we are going to offer $50,000.

Next, you call the bank and ask for the Loss Mitigation Department. This is the department that handles properties that are in foreclosure. Tell the person handling the account that you are trying to help Mr. Smith with his foreclosure and you are willing to buy the property from him. However, due to its poor condition you are only willing to pay $50,000 as payment in full. Fax the sales contract for $50,000; comps in the area; an extensive list of repairs that are needed to bring the property up to marketable condition; a net sheet (a title company will help you with this); and some really bad pictures. The bank will then review the information and make a decision. Let’s say they counter at $65,000; you counter again at $55,000; they accept! It’s that simple! We short sale many, many mortgages every year. Banks are not in the business of owning properties. They would rather short sale a mortgage than go to the courthouse steps.

We’d like to share an incredible deal one of our Foreclosure Fortune Hunt graduates put together. Her name is Cathi Dubois. Cathi was helping some friends find a home in which they would live. They came across a property valued at $200,000 in a distress situation. The property had a mortgage of approximately $197,000 and was in need of several thousand dollars of repairs. Based on the fact that the current owner owed what the property was worth Cathi did what any prudent investor would do, she did a successful short sale. She contacted the bank and began the process. Her first offer was $50,000. The bank laughed and told her to make a higher offer. After several phone calls, the bank agreed to accept $130,000 as payment in full. That is a $67,000 short sale! With the new payoff of $130,000, she then wholesaled the property to her friends for $140,000 and made a smooth $10,000 in less than a week!!!

Personally, we think she gave the property away too cheap (smile). This is a typical case where having a firm grasp on creative real estate enabled Cathi to turn a “nothing deal” into a “something deal” just by picking up the phone. She made money (and a lot of it) on a deal most investors would have passed by. The bank was happy with the short sale, Cathi made $10,000, and her friends bought a home with $60,000 equity!

So… the next time you get a call from a distressed homeowner with no equity, what will you do? Walk away or make a few simple calls and turn your time into cash? We certainly hope you will make the small effort it takes to short sale the mortgage. It is such an easy way to make money in an industry where great deals are tough to come by. When you short sale a mortgage, not only are you helping yourself; you are helping a very distressed homeowner and giving them the chance to start over. One can never go wrong when win/win is the solution.

I know what you are thinking… “The title of this article does not make sense. How can you leave a place before you ever even arrive?” Please allow me to take the next few moments to discuss how exiting before entering is not only possible but should be considered as the single most important aspect of a short sale transaction.

The motivation to write this article came from the countless amount of feedback that we have received from our students regarding Short Sale Exit Strategies. I will soon make available more detailed information on specific exit strategies. These will be methods that I strongly suggest you follow depending on your individual geographical market and more importantly your realistic goals and expectations.

For now, what I’m about to share is focused on the importance of making sure that your exit strategy is formulated before you begin the negotiation process. It is counter-productive to do it any other way. Let me explain.

1. The main reason is although your goal is to make a profit, you should always consider the fact that the homeowner is putting a part of their well being in your hands. You do have a moral requirement when doing short sales. The last thing you want to do is put an individual or family in a risky or uncompromising position. Suppose you don’t close the deal? Who does it affect more? Therefore, it’s extremely essential that you have a game plan before you assume that type of responsibility.

2. The next reason is that once you have the acceptance letter in your hands you will be working with a limited amount of time. You will want to spend your time working on your next deal or preparing the house for sale or rent, not putting together your exit strategy. Be proactive not reactive.

3. Lastly, if you determine what your exit strategy will be ahead of time and begin putting it together you are more likely to close your deal for maximum profit within a timely fashion (45 days max.). It’s always possible that the deal falls through your hands because of lack of preparation.

All three of these reasons help to justify the importance of a well thought out plan. What’s the purpose of getting the acceptance letter if you can’t close?

I also want to remind you that you are not allowed to assign a short sale. So if you expect to negotiate the deal and then pass it on to another investor don’t waste your time. It will always be stated on your acceptance that the agreement is not transferable or assignable, therefore you must come up with another option if you want to do a quick sale of the property. I’ve shared a few creative ideas related to quick sales or flips that has worked for a select few individual investors. I’ll also be sharing these ideas with you in the near future.

Too many times investors make the mistake of going through the entire negotiating process without even considering what the possible options are for the property. I emphasize the “s” because one of the major benefits of exiting before entering is that you will often come up with multiple exit strategies. You increase the chances of having more than one way to profit from your hard work.

I personally feel that it gives me more of an edge as I begin my discussions with the lender. I also gain a better understanding of my earning potential because I’ve taken the time to estimate the numbers based on what exit strategy I’m using. All exit strategies do not breed the same amount of return. Consequently, you may find that although it is possible for you to negotiate the short sale it may not be a deal worth pursuing. There may not be enough profit on the table once you exit or the deal is just too risky for you to invest in.

Those of you who are attempting multiple short sales at a time will especially find that exiting before entering will help to ensure that all of your deals are prioritized and that your time is always spent on the deals that will close the fastest and yield the most profit. There are multiple facets to short sale exit strategies and it would be impossible to address all areas in this one article. However, we will continue to share information, strategies, and techniques that will open the door to many more discussions and helpful articles. Until next time.

Foreclosure lists are a great resource for finding motivated sellers, but the competition for these deals is substantial. People in foreclosure are inundated with mailers and calls, so the investor who can answer the seller’s questions and make him feel good will likely get the seller’s trust and ultimately the deal.

Every investor needs a script, that is, a pre-defined set of words to respond to a seller’s common objections. All good sales people work from scripts, and everyone has a script already in their head. Remember, a script is nothing other than a predefined set of words in response to a question or situation. So, if you don’t refine your script, the default one in your head will take over, and often lead to saying the wrong things!

Here are some of the things from our script I teach :

Objection: Another Investor Said That They Would Give Us $5,000.00

Counter Objection: “Really? I’d take that offer in a heartbeat if I were you! But, here’s the thing… based on my experience, I’m not sure how another investor can promise you $5,000.00 if they haven’t spoken with the bank and haven’t received a commitment letter from your lender yet, so that tells me that this other investor may be just telling you what you want to hear. Is that possible, Mr. Seller? Here’s a tip, Mr. Seller – ask the other investor to sign a $5,000 promissory note for the money, due at closing. If he won’t sign the promissory note, then you will be able to know how trustworthy he is, does this make sense? I can’t promise you any money right now because I honestly don’t know what I can work out on this until we meet, review your details and I speak with your lender. Regardless of whether or not you’d want to work with us, do you think you should be working with someone who will be honest with you and not ‘sugarcoat’ it? Are you with me?”

Objection: I Want To Be Able To Stay In The House

Counter Objection: “I understand you don’t want to move, it’s a very difficult thing. Unfortunately, if we purchase the house, we can’t rent the house back to you and I would be careful of an investor that says they will do that because there have been some shady practices where that’s concerned. The good news is that virtually every seller we’ve worked with is actually really relieved when they get out from under the house. For the amount of mortgage payments you are making each month, you can practically rent a palace for that! It is such a renters market, that I think you’ll be really pleased to see the great houses/condos available to you at a fraction of what you’re paying now. I can give you a website where you can find great rentals in your area at a price you can afford. The bottom line is that I think you’ll feel a lot better just putting this whole situation behind you and getting a fresh start in another home. Does this make sense?”

Objection: I Have A Friend Who Is a Realtor Who May Help Me

Counter Objection: “Basically most realtors don’t do short sales which can be a real detriment to you and the most importantly the realtor has to wait until an offer comes in to submit to the lender, (if that offer comes in) whereas we put the offer in immediately and start negotiating with your lender right away”.

Objection: How Can I Trust You?

Counter Objection: “You are smart to be skeptical, Mr. Seller, and I would be if someone I didn’t know was knocking on my door or calling me on the phone. Unfortunately, nothing is 100% guaranteed and, but I can tell you that I’ve worked with (dozens/hundreds) of people just like you who are really glad that they had someone like me to work on their situation. The bottom line is you are going to have to ultimately choose someone who you can trust, right? You don’t have many options right now; if you don’t trust someone, your house will go into foreclosure and there won’t be any option left. So, let’s just go with the assumption for now that you trust me, and I trust you, then we’ll go forward, does this sound good?”

That’s the big question for many investors looking to buy foreclosures – Should I buy an REO (bank owned property) or a pre-foreclosure (still owned by borrower, but in default)? How you answer that question can determine how easy or how difficult a time you have with your foreclosure investment.

Most investors, your author included, feel that buying an REO (an acronym for real estate owned) is a cleaner deal. Typically you are assured of good title to the property including title insurance. That means that usually you don’t have to worry about the old borrower/owner coming back trying to claim the property under some sort of extended equity of redemption, old taxes or liens that were unpaid, or even old owners or tenants who refuse to move out. (You did make having the property vacant a contingency of your REO offer, didn’t you?!)

All of these problems can occur if you attempt to buy a property in pre-foreclosure.

On the other hand, the biggest complaint investors have about REOs is that there are no real REO bargains. Rather, the lenders have rejuvenated the properties and are trying to sell them for full market value through an agent. How’s an investor supposed to flip a property bought at full market value?

It’s just the opposite for pre-foreclosures. The assumption here is that that a pre-foreclosure can, indeed, be bought for far below market value. Just get the borrower to sign it over, refi and/or flip, and you’ve made a huge profit.

Thus, the conventional wisdom goes, an REO may be cleaner, but there are no bargains. A pre-foreclosure can be more complicated, but you can get a real steal. Maybe.

In my own experience I’ve found that the value of REOs is greatly underappreciated, while the bargain value of pre-foreclosures is often overestimated. Here are 4 important questions to ask to help you decide which is the better investment avenue for you:

1. Do You Have To Deal With The Lender?
Dealing with a lender, as investors with recent experience know, can be a real burden. With an REO, you obviously have to deal with the lender, since it owns the property. Many investors complain that lenders are so overwhelmed by the number of foreclosures they have, that they don’t have the staff or the time to talk or act.

That’s certainly been true, but most lenders are now ramping up and many will soon be up to speed. Their REO departments often are the fastest growing element of their business.

On the other hand, when you’re buying a pre-foreclosure, typically the borrowers/owners are underwater. That means that in order for them to sell, you’ll need to get the lender’s permission for a “short sale,” where the lender accepts less than the loan balance.

Thus regardless of whether it’s an REO or a pre-foreclosure, dealing with a lender is virtually a certainty.

2. Can I Get A Bargain?
When you negotiate in pre-foreclosure directly with a borrower/owner (and with a lender in a short sale), usually you’ve marked down the property so much that if the deal actually goes through, you’ve got a bargain. But, that’s a big IF. Keeping the borrower/owner interested in moving forward, getting timely action from the lender, and doing it all against the backdrop of the foreclosure timeline takes knowledge, skill, perseverance, and probably most of all, luck. There are many variables to control and too often nothing comes of a lot of work.

On the other hand, with an REO you’ve only got the lender to deal with, and there are no fixed timelines staring you in the face. The challenge here is to get to the lender early, before it fixes up and lists the property. Negotiate with the lender then, and you may get a bargain.

However, most investors I’ve talked with complain that they can’t find out who the lender actually is or get to the right person to talk to before the lender spends money on the property and lists it. They come in on the deal too late in the process.

My suggestion is to follow the foreclosure trail. Who buys the property at auction will lead to the lender who actually owns it (not some servicing company). And going to the top (even to the CFO) as well as restricting what you ask for (for example, you request REOs within a specific neighborhood or group of streets) can have better results.

3. Can I Get Good Financing?
Two years ago that wouldn’t even be a question. Today, it’s often the biggest. Can you line up financing on a foreclosure you want to buy?

You’re certainly on you own with a pre-foreclosure. Finding a lender who won’t simply shunt the property aside because of its foreclosure status can be a big hill to climb. And being an investor (non-owner-occupant) is sometimes a financing killer.

On the other hand, with an REO, you’ve got a captive lender – the owner. The lender that owns the REO wants to sell, knows that it can be hard to get outside financing, and usually has the wherewithal to handle the financing itself. So why go elsewhere? Make the purchase contingent on seller financing. (Sometimes you’ll even get a break on the terms, the points, and the interest rate!)

4. What About Fixing Up The Property?
Virtually all foreclosures, REOs and pre-foreclosures alike, need rejuvenation. Nationwide, lenders today are averaging $9,000 a property for this. That typically includes new windows and screens as needed, painting, basic landscaping, and new carpeting. Of course, that’s just the average. Many properties require far more costly fixing up.

Whether you buy a pre-foreclosure or an early (before fix-up) REO, this is money you’ll need to spend. So, there’s no saving here. Of course, you can get an REO that’s already been rejuvenated. But, as noted earlier, you’ll probably end up paying full market price.

So, what’s best, an REO or a pre-foreclosure? Obviously every deal is unique. Nonetheless, I still prefer REOs IF I can get them from the lender before it invests money in rejuvenating the property and listing it. For me, the hassles and unknowns of dealing with both a lender and a borrower/seller in a pre-foreclosure are just not worth the trouble required.

REO Properties, as I am sure you know, are properties that are owned by banks. The primary reason that they are owned by a lender is that they were foreclosed on and there were no bidders at the foreclosure sale, thus the lender took them back. VA/HUD Auction Properties are properties that had loans backed with VA or a HUD guarantee. Those loans were foreclosed on, with no successful bidder at foreclosure, and the property thus reverted back to the VA or to HUD.

Generally, the easier it is to find a deal, the higher the price you will pay. The great bulk of investors do not know how to find deals in the way that I do with the techniques that I teach in my course. They thus go after the properties that they can find—listed properties, REO properties (which are typically listed), and the VA/HUD Properties. Because so many people with limited experience and larger checkbooks can find these properties, the prices paid are too high to make any real money.

On REO properties, remember that the lender will typically bid at the sale for the amount they are owed plus interest, penalties, and legal fees. If there is equity in the property beyond this point, other bidders will bid above the lender’s opening bid until the bidding stops with a successful bid. REO properties are by their very definition lacking in equity. Otherwise, they would have been sold at the auction.

The sole exception to this might be if no one showed up at the auction, but in my market, as in most, there are plenty of people bidding at the sales. Most do not really understand what they are doing. They buy one property for too much money and are never heard from again. The next month, someone else steps into their shoes. This makes it tough to make a living at a foreclosure auction for real investors. We like the pre-foreclosures before the sale. Fewer people are willing to work on those even though there is much more profit in them.

Lenders now are showing an increased willingness to repair REO properties before putting them on the market. In past years, they would put a sign out in the yard after they took the property back. Typically the house needed work, scaring off owner-occupants, and leaving investors as the only buyers. It was possible to get a decent deal on a house like that. Now, lenders have found it to be a better move to go in and fix sheetrock, paint, and generally clean up the property. They can sell directly to owner-occupants and get a much better price on the property. Thus, many REOs are too pretty and nice to get the kind of price we want to get on them.

Even lenders who don’t fix are a little stubborn as well. They often get an appraisal on the property and price the property as if it were in better condition. Remember that they probably made a loan relatively recently on the property (hence there is no equity in the property), and they had an appraisal done at that time. The lender thinks that this appraisal was probably right, and will feel justified in asking for that amount or more. They will not entertain or accept any offer that is not near to their asking price. After months and months of not selling, lenders may come around and be willing to take less, but it takes time. Typically if you give a house enough time, a homeowner or the ignorant investor will come in and spend too much on the property before enough time elapses to pay what it is really worth.

Finally, on REOs that are actually priced well, your odds of getting them are very remote. Unlike dealing with private sellers, where I can make an offer today, and no whether or not this offer was accepted within 24 hours, lenders move VERY slowly. It may take two weeks or more to hear back from them. Everything decided by committee. And during that time, guess how many other investors have seen the property and made offers? Lots. And what are the odds that your offer will be the highest of all of those, when many investors are not afraid to overpay? Not great. Thus, even on the few good deals, the knowledgeable investor has the deck stacked against him or her.

The one exception to this is if you find a REO that is SO torn up that it scares away all of the new TV seminar graduates or doctors who decide to buy a couple of homes as an investment. However, these are fewer and farther between now that lenders are fixing up these properties themselves. Also, most REOs have recent loans, so the odds of the property falling apart since the loan are remote.

REO listings are often controlled by a relatively small number of agents in a given city. Thus if you are not in the loop, it is hard to hear about the good deals before the rest of the world does. If you ARE in the loop, and can find these “pocket listings,” there may be some potential in this area. However, subscribing to a list of REOs in your area, or waiting until a deal hits the MLS system is usually not a way to proceed and make money in this area. I typically thus advise against subscribing to such services, which have dated information at best. You are better to have a relationship with a Realtor to find REOs in your area if that is what you are interested in doing.

VA/HUD Properties are not the best deal in the world for most investors for similar reasons that the REOs are not. These basically are REO’s that are owned by HUD or the VA. Thus the same considerations apply, and we do not need to rehash those again.

The primary problem with these deals is that people buying these homes to personally live in them are able to bid on the property before investors are able to bid. Thus, the really good deals are picked off first at this stage. Many investors lie and say that they are going to buy for themselves, and later “change their mind.” I am not comfortable doing that, and do not believe in committing fraud to obtain houses. There are too many deals out there to move into these murky waters. If you are truly looking for a personal home, this is an area to check out, as once in a while a few homes are wildly mispriced. The scraps left to investors after the owner-occupants have had a chance to buy or pass are not worthwhile in my book.

A relative has an interesting strategy that he uses to buy these properties in Florida. He helps his kids (over 18) buy them in the town where they live and go to school. They live in the home for a year and resell. Enough is made on the homes to pay for the mortgage payments plus a little extra. On some, the properties are rehabbed after the kids move out, so more money is made. If you have college age kids, or will soon, this is an interesting strategy to think about. It is the only way that doing these types of houses makes sense to me.

I hope that this information has been helpful, and not too discouraging! I am asked my take on these subjects quite often, and I thought that every one would benefit from this info. I want to make sure that you spend your time looking for deals in the best fishing holes, and not where everyone else already has a line. I know that some people reading this will have done some good deals on REOs, and I do not doubt that there are some out there.

However, my goal is for you to spend your time working only the most lucrative markets, and not to spend time looking for deals where they are harder to find, and where there is much more competition. In my career, I have encountered very few good deals, and the slow committee-like manner that the banks evaluate deals leads to many other offers competing with mine because of time delay.

This Article is Meant to Serve Two Purposes:

Purpose #1 - To develop a roadmap; where real estate agents and realtors will learn how to earn profits from listing short sales. I will show you how to literally have investors lining up at your doorstep giving you their listings. Not once but twice! That’s right; can you imagine getting paid commission twice on the same property, within the same year? Listing agents will benefit the most from this information which is evident by the articles’ title.

Purpose #2 - To give the short sale investor an idea of the level of competency, character, and skills they should look for in a real estate agent or realtor. Choosing the right agent is an extremely important part of the short sale process.

Let’s be frank. If you are a licensed real estate agent your primary goal is and always will be to prospect for listings and buyers. Not only am I a real estate investor I am also a licensed real estate agent. In addition, I work with a handful of other real estate agents who would find it hard to replace their income if I stopped giving them my business.

Did you know that a mortgage lender who holds title to a property that is in danger of foreclosure will often allow up to a 6% commission to be paid to a real estate agent if it is sold through a short sale? There is a huge market for agents who truly understand the short sales process and can handle the various tasks involved in order to assist the investor.

As an agent, I would suggest that you communicate with your broker before you attempt to pursue a short sale listing for the first time. Make sure that you are in line with the company and office guidelines and that you are not jeopardizing any terms of your license agreement. It will also be a wise idea to find out if any other agents in your office have had success listing short sale properties. Don’t be surprised if your broker is not too familiar with the short sale process. I’ve found that many are not.

There are several items that are necessary for the process to work. First, you must be able to convince a short sale investor that you are capable of doing all of the following:

1. Pulling accurate comps that justify the amount of the short sale.
2. Writing up a sales contract.
3. Filling out a net sheet for short sale transactions.
4. Negotiating the terms of the agreement with the lender if needed.
5. Showing the property to prospective buyers.
6. Flexibility on terms of a traditional listing agreement.
7. Marketing the property.
8. Providing referrals and recommendations of valid service providers.

Your responsibilities will not be limited to the list above. There is a still a vast amount of hard work and dedication needed to become known as a preferred agent for short sale investors. However, the reward is well worth it.

Once you feel confident and knowledgeable of the short sale process you are now ready to market your services to investors. Short Sale investors who are being proactive and finding his/her deals before the foreclosure process starts will usually have the most need for your services. Agents that I work with spend more than 60% of their time matching my properties up with buyers, pulling comps, and filling out net sheets. I would say they spend approximately 6-8 hours on each deal and receive an average of 4.5% in commission that I almost always have pre-negotiated with the lender.

The real bonus is that if I decide to put the property back on the market immediately after the first closing I will 9 times out of 10 list it with the same agent. Now they have the opportunity to re-list the property and make another commission. Because of this arrangement, I always agree to pay a discounted commission. Once the property is re-listed, it typically sells quicker than the average listing; mainly because it is sold below market value which makes it an excellent purchase for another investor or a homebuyer looking for a steal of a deal.

The agents that I work with are capable of handling the short sale process from the moment I submit my package to the lender. Based upon my knowledge of certain lenders processes, I determine whether it’s best for me to take on the negotiations as an investor, or if I would rather quarterback the deal and let my agent be the main point of contact. I always have that option. No matter which route I take I still make sure that the lender pays a commission. So it’s a win-win situation for everyone involved.

I hope that you are not too confused at this point. I will do my best to explain more on this topic in part 2 of this article.

Making big $$$ in pre-foreclosure properties is just simply one of the most profitable ways to consistently make money in real estate today. The popularity in recent years of investors taking over payments of mortgages on “pretty houses” has grown exponentially as well as other services and individuals keying into those opportunities. Now more than ever we have more pre-foreclosures services right at the fingertips of investors to take advantage of. If a company or individual has not already set up shop at your local tax assessor’s office selling pre-foreclosure information, then it’s probably not far away. The fact of the matter is that information in real estate, and especially pre-foreclosures, is the key that makes it so profitable for more real estate investors each day. Accessing that pre-foreclosure information correctly and then implementing your marketing plan to reach those pre-foreclosure leads in simplicity is one technique that many investors literally live off of daily…..and quite well I might add!

Before we go much further it’s almost an insult in one paragraph to describe why taking over properties “Subject-To” existing financing is so profitable. Just on the front end it is worth mentioning that structured correctly you as an investor can make yourself almost “bulletproof” from a liability prospective. With mortgages in recent years there are just some absolutely fabulous interest rates that are obscenely low from a “traditional” investor financing perspective. I mean who can’t make properties cash-flow with 6-8% interest rates? After locating the deals, then it’s mostly a matter of then evaluating how much cash (if any) it will take to:

* Pay off owner’s equity making it worth their while - note that sometimes no money is required and a matter of offering debt relief.

* Repairs needed if any to get property in A-1 shape for owner financing specials on tenant/buyer prospects.

Catch Up the Mortgage Payments to Be Current

The great aspect of taking over properties “Subject-To” existing financing is that the three items listed above does NOT mean you must have a large cash reserve to make these deals profitable for you. The standard rule in real estate of “using other people’s money” is so applicable here. That money may come from your future tenant/buyers, partners, or yes even your cash reserves for the time being. Even if you have to float the deal with your own cash reserves, if the deal is negotiated correctly then all your money can be recouped once the right tenant/buyer is realized for the property. There are simply a number of ways to get your pre-foreclosure leads by either developing your own personal leads or simply just buying the information that is readily available in your area. My emphasis here lies in this one question I want to ask you:

“Once you get a pre-foreclosure lead, how are you going to turn that into big money?”

If you had to hesitate even a moment or you just don’t have a clue what to do with that lead once you get it, then hopefully by the end of reading this you will be more equipped. This is not only to have a game-plan of where you are going with your real estate business, but to develop the vehicle of how to get your message effectively to your target marketing turning the “potential” into “profitable”!

Moving on, now let’s say you have an address and name on a property in foreclosure, so what now? What is your plan to talk to that seller or rather how are you going to get that phone ringing off the hook getting them to talk to you? Well, that is the question to answer and this is exactly what this article is entirely about. Call it what you want: Attack Plan, Method of Operation, Game-Plan, Standard Operating Procedure, Plan of Operation, etc. The end result is the same as you must know how to get that seller talking to you as soon as possible because time is of the essence in dealing in pre-foreclosures.

From this point on let’s just call it your “game-plan” but let’s define this one technique that will work for you: Direct Mail! I don’t know how to emphasize it more because direct mail in pre-foreclosure is an absolute lethal weapon to have. Sure there are many ways to get into direct contact with the seller and some are more effective than others and I’ve tried many:

Going Directly to Properties and Knocking on the Door to Talk to Sellers

Accessing the seller’s phone numbers by reverse CD directories of property address….at this point in pre-foreclosure a seller may have changed phone number or implemented other features to block calls because they are probably getting bombarded by creditors to pay up.

Leaving Flyers on Doors, Cars, or Mailbox

Playing detective a bit here finding out their work place or work phone number to contact them directly there.

Do you know what has been my experience contacting individuals in pre-foreclosure with the above listed approaches? You’re harassing them! You can lead a horse to water, but you simply can’t make it drink. What I mean is that until the individual in foreclosure is receptive to deal with their problem then you will have a hard time progressing on that property turning it into a profitable deal. Sure, I’ve been able to finally track down an individual to make a deal happen but it can all too often be just exhaustive and time-consuming.

Direct mail is my most preferable approach to getting those pre-foreclosure leads calling me! I assimilate my pre-foreclosure information personally and do buy from other sources also. When I get that information all I’m really concerned about is the name and address of owner. Sure you’ll get all sorts of information about the property being in foreclosure like outstanding mortgage balance, payments behind, lender on mortgage, etc. I just don’t need all that information because until that seller is contacting me, then they are not in the motivated category making it worth my while.

My approach is to use direct mail to get the individual in foreclosure talking to me. The foreclosure information if you’re buying it from a foreclosure source is obviously available to others. So yes there is some competition out there and to distinguish yourself from others and getting the individual to contact you will need some creativity. That creativity for me comes in the content and frequency of my marketing message.

All things are relative to the time of the pre-foreclosure information once you receive it but here is my game-plan that pays dividends for me month after month. My basic approach is mailing to the individual in pre-foreclosure with a total of two letters and two postcards. The seller will receive an alternating letter/postcard each week until all are mailed. The vast majority of leads I will hear absolutely nothing back from, but it just takes one deal to make it all worthwhile.

My message is alternating and “incremental” in style. I’ll list here the body/text of the letters and postcards to give you an idea. Make no doubt that you can tweak your message in many different ways but here are just some examples for you to think about:

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Letter #1 (Week #1)

Do you need to sell your house and F-A-S-T! I buy houses that others simply won’t consider because of one reason: I Get Personally Involved. Others just don’t take the time to listen how to meet your needs because everyone’s situation is unique from the next person.

I am an investor and do expect to make a profit so if you need all cash and retail value for your house, then simply do not call me. However, if you have some flexibility and need a resolution quickly so you can quit putting your entire life on hold then give me a call. No obligation, fees, commissions. I just want to buy your house!

Postcard #2 (Week #2)

If you are looking for someone to possibly buy your house, then don’t call me! However, if you want to already consider your house sold, then start packing your bags so you can get on with your life.

There is a variety of ways I can buy your house and it doesn’t have to be a complicated process. In fact I can close in little as 48 hours or as long as……..you name when! Give me a call and I’ll explain in plain English how the solution to your problems is a phone call away.

Letter #2 (Week #3)

Life can bring on many circumstances to deal with and unfortunately some of those are not pleasant to work through. Selling your house can be the exact type stress you need relief from and that is what I specialize in. I buy houses no matter what the situation so people can simply make a difficult decision easy, and just move on in life.

If no obligations, fees, or commissions has an appeal to you then give me a call. I would be happy to meet with you face-to-face and discuss the opportunities available to you so I can buy your house. I hope to hear from you soon.

Postcard #2 (Week #4)

Well, I can certainly understand if you do not want to sell that property for now. There may come a time down the line that you may decide to do something with it. I would only ask that you keep this card and that way you can give me a call when you’re ready

Thanks for taking the time to listen to my offer to purchase just in case you know where to reach me if you decide to sell. Don’t hesitate to give me a call if you have any questions and I do hope to hear back from you soon.

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You can see by the above listed examples that my message is incremental and differing in nature. It’s just rare for the pre-foreclosure seller to call you on that first letter or postcard. You just have to put yourself in the “shoes” of the seller and know that if they are in pre-foreclosure then they are probably getting a LOT of mail from creditors. The possibility of the pre-foreclosure seller throwing some or all of your direct mail away is a given! Just know that now and expect it. However, all it takes is one phone call and one deal to see your next big payday dealing in pre-foreclosures.

A Couple of Points in Wrapping Up Here:

On all your letters, stamp on the outside in red ink, “I Want To Buy This House!”. You can buy stamps like this at Office Depot or Staples costing you about $25. You write in the script you want and mail it to them with the custom stamp coming back to you in a couple of weeks. Before that potential foreclosure seller throws away your letter, they will at least read that red stamped message on the outside. I can’t tell you how many people have commented to me on that one technique was the reason they took the time to open my letter and thus call me.

Best success in direct mailing to pre-foreclosures is that you simply must mail to them more than once. I don’t have the time or patience to mark on my calendar or day planner when to write the next letter or postcard and that is where my custom direct mail software comes in. It knows the date I enter a contact and automatically calculates when the next scheduled mailing of letters and postcards due. I just have to remember to print my letter/postcards at least once a week and just keep pumping the leads into my database.

Although some of your initial offers will be accepted, you must also be prepared if the lender rejects your offer. Just because your first offer is denied does not mean that the deal is dead. This is now the perfect opportunity to learn precisely what you have to do in order to close the short sale.

The first thing you will want to do before making another offer is find out from the lender exactly why the first offer was rejected. Here are several key factors that may result in your offer being rejected.

* They will not net the required amount needed to justify accepting your short sale offer. Simply speaking, your offer was too low!

* The lender is adamant that they can do better waiting for a better offer or foreclosing on the property.

* They do not agree with the terms of your contract or net sheet.

* The loan is government insured and therefore they are protected against a foreclosure.

* The investors of the loan are asking for more money to close out the loan.

* You tick the loss mitigations rep off so bad that the last thing they want to do is help you.

* The hardship was not proven enough to persuade the lender to accept a short sale.

* The lender would like to explore alternative payment options with the homeowner instead of doing a short sale.

* Your offer was much lower than what the BPO assessed the house for. This is another example of your offer being too low.

These are just some of the reasons you may get from the lender for your short sale being rejected but the main thing to remember is that you must at least probe and find the exact reason why. I can confidently say that the main reason your short sale offer will be rejected will be because the offer is too low. Remember, the lender’s number one priority when doing a short sale is how much money they will net. The best way to find out how much the lender needs to net is to just ask! Once you identify the right loss mitigations rep you can simply ask:

“How much do you need to net if we agreed to a reasonable short sale offer?” Will the lender tell you how much? That is to be determined after you ask the question. The point is that you will never find out unless you throw it out there. Even if you don’t find out initially, the next best time to ask is prior to the counteroffer. You want to start and maintain a constructive dialogue with the loss mitigations rep where you are constantly probing for information that will determine what your best offer will be.

When I do short sales, I mainly develop my initial offer based on how much equity or profit I want to make with each deal. However, from time to time when I’m preparing a counteroffer I use a formula to help me come up with the most accurate guess on what I think the lender is willing to accept. If used correctly, this formula alone will more than pay for the price of this course 1000 fold.

Here it is…

Step 1: I take the estimated or actual BPO amount or the value of the house, based on the comps then multiply that number by 85%.

Example:

$175,000 (Estimated BPO value) X 85% = $148.750

Step 2: I then take the number I got and multiply it by 92%

Example:
$148,750 X 92% = $136,850

If this were an actual deal, I would use this final number or something close to give me my counteroffer amount. Although I have reason to believe that the lenders use a similar formula when they determine the amount they are willing to accept on a short sale, I cannot say that this is exactly it.

I do know that this formula does two things.

It gives me a calculated number to use for my initial offer or counteroffer.

It allows me to breakdown to the lender how I came up with my offer.

Be resilient yet realistic when making your counteroffers. Understand that it may not stop with the first counteroffer. You may have to counteroffer a 3rd or 4th time just to get the amount down to where the lender feels comfortable to accept. At times it may only be hundreds of dollars that you are negotiating. If you are game for a strategic a methodical approach to negotiating your offers you can always use my 3 step approach to getting your offer accepted.

Step 1: The first offer will be used to get the number that you and the lender are negotiating down to tens of thousands.

Step 2: The first counteroffer will be used to either close the deal or get the number that you and the lender are negotiating within thousands.

Step 3: The second counteroffer will be used to either close the deal or get the number that you and the lender are negotiating within hundreds. Usually at this point, the lender is the most flexible and the loss is obviously not as great.

Another thing to consider when determining your counteroffer is if in fact it even makes sense to offer one. Sometimes the lender is non-negotiable and will only accept what they will accept. Period! If this is the case does it make sense to continue trying to persuade someone who is not willing to work with you? You have to make that decision on a case by case basis. The most important thing to remember when making your counteroffer is that the deal has to make sense for you. I’ve seen investors get their short sale accepted but fail to agree to an amount that is highly profitable.

Like I mentioned, I cannot determine the value of your time and effort. That is something that you must decide, but I can say that short sales are big money deals and if you are making offers that do not put a lot of money in your pocket you are probably leaving it on the table for someone else to enjoy.

It is virtually impossible to complete a successful short sale without dealing with the loss mitigation department at the bank. So, how does one deal with loss mitigation successfully? Hopefully I can shed some light on that today.

For those of you who are new to investing, you might be wondering what a short sale is. Good question. A short sale is getting the bank to accept less that what is owed as payment in full. For example: You find a homeowner in distress who owes $100,000 on a property that is worth $100,000. What do you do? Most investors walk away unless they know how to short sale. Using my “short sale secrets”, you get the bank to accept $55,000 as payment in full. You now have equity in a deal that had none, the homeowners are ecstatic as they can move on with their lives, and the bank has a defaulted loan off its books. Short sales are win/win for everyone.

Once you have your homeowner under control and your short sale package together, you are ready to deal with loss mitigation. When making the initial phone call to the bank, ask for the loss mitigation department. Some customer service reps may say that the bank does not have a loss mitigation department. Keep trying. Ask if the bank has a work-out department, foreclosure department, short sale department, loan modification department, or reinstatement department. The reason I ask for different departments is many times a new person is working the customer service phone and may have no clue what you actually want. By using a term they are familiar with, you will eventually get to the right person.

You have loss mitigation on the phone; it’s time to get to work. This person will make or break your deal so be very nice. Your initial conversation should go something like this: “Hi, my name is your name here and I am calling on behalf of Bob and Sally Smith (your distressed homeowners). I have an “authorization to release information” form I’d like to fax to you. What is your fax number? (Stay on the phone while the rep retrieves the form from the fax machine) Great, I’ll send it right over. – the rep gets the authorization and returns - As you know Bob an Sally are in foreclosure. I recently met them and they seem like sweet folks.

When I found out about Bob and Sally’s dilemma, I said I’d try to help. They would like to sell their property and move on with their lives. I own several rentals in the area and am willing to purchase Bob and Sally’s property. However, we have a big problem. I called a real estate agent friend of mine and ask her to run comps for me. Based on her comps and based on what I know about the area, Bob and Sally owe much more than their property is worth. As I said, I’m willing to help them out of foreclosure as well as helping you get a defaulted loan off your books, but I can’t possibly pay the mortgage balance. Will you entertain some sort of short payoff or something along those lines? Great! What do you need from me?”

As you can see in my conversation, I do not come across as a professional investor out to make a killing on the banks loss. Many investors chose to present themselves that way. I have much more success as a friend trying to help poor Bob and Sally. Use whichever approach makes you feel most comfortable. However, don’t lie to get the deal. I did recently just meet Bob and Sally, I do have rentals, I do have a real estate agent friend, and I am willing to purchase Bob and Sally’s property. In your conversations with loss mitigation, be certain to refer to your distressed homeowners by name as often as possible. This makes them seem more real to the rep. I am trying to get a banker to make an emotional decision as well as a business one.

Once you build rapport with the loss mitigation rep, send your short sale package. I call my reps at least once a day to follow-up. Always ask the rep how the day is going, how the weather is where they are, how the kids are, and so on. You want the rep to look forward to your calls, not dread them. Find out who makes the actual decision, how long it typically takes, how long the rep can give you to close once your deal is accepted, etc. With a helpful attitude from you, your loss mitigation rep will push your deal through quickly.

Once your deal is accepted, get it in writing immediately. Find your buyer or arrange financing and get the deal closed. You don’t want anything to happen between the acceptance and the closing to make you lose your deal. Once the deal is closed, send the rep flowers or a gift basket and write a letter to the reps boss. The rep will remember you and the next time you call about a short sale, the rep will be more than willing to help you again. Loss mitigation: Friend or foe? I say friend!