All Forum Posts by: Scott Hubbard

As an investor, I have done several short sale transactions this year. Given the large spreads (amount of loan outstanding - net proceeds received at closing) lenders are asking for unsecured promissory notes for the loan balance. I have seen lenders require them to be signed prior to agreeing to do a short sale.

I have run into this scenario when there is a second mortgage or when the home was not a primary residence. Additionally, it seems, from discussions with other investors, that this occurs more often when Bank of America is the lender.

Jon's suggestion to have the lender waive their rights to file a deficiency waiver is right on. In fact, I have it as a contingency in the purchase contract in order for me to maximze the discount while protecting the homeowner from my greed.

With regard to the promissory note, I would make sure your cient submits a personal financial statement showing he/she is insolvent and include verbage in their hardship letter that if the lender pursues a note, that he or she will be forced to file bankruptcy.

Lenders hate bankruptcy as it can drag out the foreclosure process out for six months or more.

Despite legislation for the 1099 and not being required to pay taxes on the forgiven debt, lenders may still pursue deficiency judgments or promissory notes, Although it will cost lenders legal fees or added collection costs, they are still required to perform due diligence on bank losses. This due diligence varies from lender to lender and state to state, so unless your an expert in your states banking laws, I would always assume the worst and move to protect your client.

Good Luck

Given the current state of the market and all the equity (value) lost in price declines, most lenders are very suspicious of investors and may look for a reason to decline your offer. They do not want to see investors coming in and assigning purchase contracts for large profits. Some loss mitigators are so prejudice towards investors that they will do everything in their power to not cooperate. There are good investors and bad investors and some loss mitigators prefer working with investors and some do not.

I do short sales through assignments where I can. I find lenders will agree to short sales with an assignment if you can show them how they will benefit. Moreover, you must look at them as an ally and treat them as would want to be treated.

Be prepared to right a proposal with every offer. Remember, you are convincing a lender to take a discount and you should be prepared to justify the offer.

The other keys are full-disclosure of the assignment and not be greedy.

If your profit is reasonable and you can justify the offer with proper documentation, the fact that you are using an assignment is less of an issue. I have even had an assignment with the end-buyer using an FHA close!!

There are meany tricks I have learned along the way mainly by talking to other investors. Good Luck!!

I, too, have completed several short sales this year using an assignable contract with a double closing using a title company.

What makes an assigned short sale successful?

1. Full disclosure
2. Credibility
3. Using a reputable title company
4. Have an attorney on your team
5 A good buyers agent.

The second most important element that will make it successful is using an AAR contract. I believe this will lend your deal more credence. Plus, it forces full disclosure.

The third most important having good team members. I use an experienced agent and have a very good RE attorney.

If the lender drags their feet, makes senseless demands, or passes on a contract, my attorney will make phone calls or send letters to their legal department.

Now, I cannot overcome every deal and I have been unable to assign contracts on many more deals, but you simply cannot say that lenders are not doing them.

What is the most important element for a successful (assigned or not) closing?

Writing a successful propsal is the most important piece for a successful closing. The lender needs to be convinced that it is likely to spend more money on the foreclosure than a short-sale. They cannot feel as though your taking advantage of them or their client. The deal must make equitable sense for all parties!!

So, if your planning to make 20% or more on an assigned contract, then you need to FORGET IT!! Lenders will invoke seasoning, non-assigned contract clauses, or whatever they can do when they see your making a lot of money!!! Keep your margins under closer to 10% and you will see more deals close.

Another thing, seasoning is not been an issue for me either. I actually closed on FHA financed purchase with an assignable contract. Again, this is where the equality will come into play.

Greed has gotten us where we are now and if you take a self-serving approach to your wholesaling, you will not be very successful.

Good Luck All!!

Hello Pauly-

For me, I invest in a single area of my city and subscribing to a service like Realty-Trac is not worthwhile as the cost per lead can be expensive. Instead, I use title companies where they send me public filing information by e-mail. You might also check with real estate attorneys, as they usually receive public notices as a matter of doing business. Since title companies are priced right (usually free) I would start there. Since your on the east coast, you may need to subscribe to a list gathered by an attorney (not free).

Does anyone here subscribe to realty trac?

Rita-

You can make a great deal of money with short sales. The trick is to put a team together as it is difficult to do this without some help. You need agents, title companies, investors, mortgage officers, and lot of energy.

I find 1 in 10 short sales close. But that one close makes it worth while. If you can get leads then you can make money.

These are not meant to be written in stone, however, you should make an attempt to be somewhat accurate. You are likely not paying any points and your closing costs can be calculated by contacting a title company. If your offering to pay the sellers closing costs, then you must inform the escrow officer to estimate the closing costs for both sides.

I think what Lou is saying about unethical or fraudulent is that in some states using the double closing where the end-buyer funds are used for closing without full-disclosure to all parties can be considered fraudulent. In my state, I use the double close to hide the profit margins, but I must disclose to all parties when I exercise the assignment. I find most lenders have no problem with assignments as long as it is part of the PSA.

I do not necessarily agree with Richard. There is a slight chance you can accomplish both, but only if the following scenario has occurred and can be substantiated. There is a little known precedence regarding predatory lending practices that could allow you, under law, to stay in your property and seek restitution in the form lost equity. The caveat to this is, I am unsure if an investment property would be eligible.

In order for this to work, your mortgage broker would have needed to misrepresent your qualifications in order to get you qualified for the loan. Perhaps he/she inflated your income, called this property your primary residence, manipulated your credit report, etc., The theory behind this is that, had the loan officer not falsify the application, you would not be in the financial turmoil your in now. Now, the second part to this is you need to prove he/she was dishonest.

If you think you can do the above, contact me and we can talk.

Another solution, though I would not recommend this, is to find a relative or friend to purchase the house from you as a short sale and after a couple of years, sell it back to you. This, of course is slimey to say the least, but I have seen other people do this with success. Two or three years is suggested because it will a least be that long before your credit will recover anyway.

Otherwise, Richard is correct. There is no chance that WAMU will entertain a hit like that at this time.

Real Estate investing is really about building a team. I would recommend you do the following: First, concentrate on finding an investing style that best fits your objectives and resources. For instance, if your short capital and long in construction experience, then find a local rehab investors to team up with. Ask them which types pf properties they look for and where. Then, look for local distressed properties that fits the bill.

Whichever investing style you decide on, become an expert and participate in every aspect of your deals. You learn a lot more about the nuances if you participate in the entire process.

So, evaluate your strenghts and weaknesses. Where your weak, you can partner with someone who is strong. I realize this is over simplification, but you'll find that you cannot do this by yourself. It is super-critical for you to network and build a team of agents, attorneys, investors, and lenders.

Short Sales are more successful when your offer is within 10% of BPO. If the broker asked to do the BPO takes in account the rehab, then you should have no problem getting a decent price.

To get below the a "lowball" offer accepted you should concentrate on writing a proposal when submitting your offer to the listing agent. In that proposal, include your justifications for your price. Be prepared to provide documentation. Investors who get their offers accepted are very good at justifying their price. Here you need to be creative.

Also, during the short sale process, most agents will submit all offers, but there may be some qualifying factors the lender may require. For instance, proof of funds may be stipulated.

Since there are a lot of variables, such as, lenders, markets, staffing, personality, etc., each deal is different from the last. One thing is constant though, convincing the lender it is in their best interest to sell the property to you at your price. The motivation for lenders to short sell are varied too. Some argue that carrying non-performing loans on the books hinder the banks ability to lend by tying up liquidity. Unfortunately, banks are illiquid on such a large scale in today's enviroment, that the case by case basis that is short sales, will not even be a drop in the proverbial bucket. So, I personally do not think this is a motivation for them anymore. I believe, in today's enviroment, the lender has to be convinced that the stand to lose more if they decide to wait until foreclosure.

Bank owned properties are a different animal. The lender has already added considerable expense in the judicial foreclosure process. Therefore, they may be less wlling to discount their properties.

Most agents will submit any reasonable offer, but it is difficult to get really big discounts here. Again, within 10% is very possible, but it really depends on DOM and other factors as well.

Good luck