After being on the fence for quite some time, I finally decided to head up to Vegas for SREC's short sale event. Even though much of the information may not be new, I think it's always good to hear quality information a second and third time and I'm sure there will be some new stuff as well.
I want to also invite more investors to join the blog and participate in our discussions. I think this can only help all of us become better, smarter investors. And when I'm there, I'll try and report some info back to this blog if I'm not exhausted.
Best,
Jordan
Friday, March 20, 2009
Credit Damage of Foreclosure: Today & In the Past
Does a foreclosure in today's economy damage your credit as much as a foreclosure when the economy was good? Here's an article from the NY Times last week that discusses how some lenders are starting to offer loan programs to those with a foreclosure on their record.
How Will Foreclosure Effect Credit Scores?
The amount of damage to a credit score caused by foreclosure, deed in lieu or a short sale during 2008 and 2009 may be mitigated by the slower economic times, say some credit and legal experts.
FICO may have to adjust its credit scores to lessen the impact of a foreclosure in the last two years, says Todd J. Zywicki, a professor of law at George Mason University.
''It just seems obvious that a foreclosure in 2008 or 2009 doesn't have as much information value as a foreclosure five years ago,'' he says. ''To the extent that foreclosure doesn't predict future behavior as much as it did in the past, you'd expect that the FICO algorithm would change to adjust for that.''
One of the country’s largest credit unions Golden 1 has already figured out a way to lend to people with a foreclosure on their record by offering a mortgage repair loan specifically for those who have lost a home to foreclosure and who want to buy a new one.
BECU, another large credit union based in Washington State, is about to present a program to fellow lenders, ''How to Lend to the Newly Credit Impaired.”
Source: The New York Times, Ron Lieber (03/14/2009)
How Will Foreclosure Effect Credit Scores?
The amount of damage to a credit score caused by foreclosure, deed in lieu or a short sale during 2008 and 2009 may be mitigated by the slower economic times, say some credit and legal experts.
FICO may have to adjust its credit scores to lessen the impact of a foreclosure in the last two years, says Todd J. Zywicki, a professor of law at George Mason University.
''It just seems obvious that a foreclosure in 2008 or 2009 doesn't have as much information value as a foreclosure five years ago,'' he says. ''To the extent that foreclosure doesn't predict future behavior as much as it did in the past, you'd expect that the FICO algorithm would change to adjust for that.''
One of the country’s largest credit unions Golden 1 has already figured out a way to lend to people with a foreclosure on their record by offering a mortgage repair loan specifically for those who have lost a home to foreclosure and who want to buy a new one.
BECU, another large credit union based in Washington State, is about to present a program to fellow lenders, ''How to Lend to the Newly Credit Impaired.”
Source: The New York Times, Ron Lieber (03/14/2009)
Monday, March 9, 2009
Conference Call Recap 3/09/09
We tried a new day/time last night (Mondays at 5PM PST) and I'm happy to report that we're back to more than 10 people joining the conference call. The lifeblood of these calls are the experiences shared by those participating on the call. So I'm happy we're back on track and I welcome many more of you to speak up during the calls and share what's going on with your business.
It's been a few weeks since I recapped the learnings from the calls (although there was some really good stuff discussed), but here's the main discussions we had this evening:
Answering Questions from the End-Buyer's Realtor
Ok. You're all excited because you just countered all the offers received on your property for sale. But now the buyers' realtors are all reading the attached counter offer addendum stating that this sale (B-C) is contingent on a short sale approval. Wait a minute.....an investor is selling the property?
SREC actually has a good video on this topic (Module 6, video 3). You basically have to communicate to these realtors that their client is very fortune to have the opportunity to buy your house at such a great price. As the investor, you are going through the hassle of stopping the foreclosure process and removing all the liens so you can present "clean and clear title" to the end buyer at a price below market value. You are doing them a service and can close very quickly without the lender holding up the process. No more buyer's walking or waiting for the lender's approval. You can close immediately.
Lenders with Seasoning Requirments - Myth or Reality?
One of the first and scariest things you learn about purchasing and flipping short sale properties is to be weary of lenders with seasoning requirements. Everyone knows that FHA and VA lenders do have seasoning requirements and will not fund an end-buyers loan unless the seller has been on title for at least 90 days. But what about conventional lenders?
From my experience, I don't believe many conventional lenders do have seasoning requirements. As long as their appraisal is equal to or above their end-buyer's purchase price and all the docs are in order, they'll go ahead and fund the loan. While I'm sure there are some conventional lenders that follow FHA guidelines and have seasoning requirements, it would seem that most do not. However, I'd recommend that you ALWAYS BE PROACTIVE in calling lenders who are funding your end-buyers to make sure. Ask to talk to an underwriter, not a loan officer and be completely straight-up with them about what you do.
Fiduciary Responsibilty of Realtors in a Short Sale
I think there are a few different points of view regarding this topic. Some people say that realtors have a fiduciary responsibility to present the highest and best offer to lenders. Others say that their responsibility solely lies with the homeowner and it is the homeowner who decides which offers are submitted. Either way, to answer this question you have to understand the different dynamics and party relationships that take place in a short sale transaction.
When an investor records the Notice/Memo of Option Contract at the county courthouse, the investor establishes equitable interest in the property to market and list the property for sale. Any offers submitted on the property can be accepted by the investor at his/her discretion. These offers are not intended to buy the house from the homeowner, but to buy the house from you the investor. There is no fiduciary responsibility in this regard since the investor is acting as the owner.
The most common time fidiciary responsibility rears its head is when talking with more savvy realtors/brokers and attorneys in regards to tax implications. This is because the debt forgiven in a short sale is reported as taxable income for the homeowner. However, there are many ways to get this income discharged (see "Mortgage Debt Relief Act" post on this blog). Taxes are important, but the principal and most urgent need of distressed homeowners is to avoid foreclosure. Sometimes you have to remind these realtors of this point and pursue the most efficient and effective action to achieve this result (which is an investor getting the process started immediately and purchasing the property).
Using Bird-dogs to Grow your Business
I have recently taken on a bird-dog (although I refer to him as an assistant) and my business is moving on to the next level. It's just a matter of time before all the new leads, realtors and other sources of information I now have in front of me everyday start to materialize into real deals. In exchange for teaching him about the business, he's saving me all kinds of time and freeing me up to concentrate on more revenue-producing activities. Win-win for both of us and something I recommend you implement in your business if you want to get to the next level.
Offer Too High to be a Short Sale
What if you're offer on the property is higher than the 1st loan balance? Will the lender still consider it a short sale? Chances are no. But then how do you proceed? The easiest answer seems to be to lower your offer to a point in which the first lender is shorted. Seems a bit strange and counter-intuitive from the lender's point of view, but who said lenders make the best financial decisions. They are simply trying to liquidate the property and satisfy their delegated authority requirements. Sometimes lowering your offer to meet these guidelines does just that.
Okay, my brain is fried. Hope you soaked up some good learnings and please make sure and join us on the next call. Or at least sign up as a follower to this blog so you're updated as to new posts.
It's been a few weeks since I recapped the learnings from the calls (although there was some really good stuff discussed), but here's the main discussions we had this evening:
Answering Questions from the End-Buyer's Realtor
Ok. You're all excited because you just countered all the offers received on your property for sale. But now the buyers' realtors are all reading the attached counter offer addendum stating that this sale (B-C) is contingent on a short sale approval. Wait a minute.....an investor is selling the property?
SREC actually has a good video on this topic (Module 6, video 3). You basically have to communicate to these realtors that their client is very fortune to have the opportunity to buy your house at such a great price. As the investor, you are going through the hassle of stopping the foreclosure process and removing all the liens so you can present "clean and clear title" to the end buyer at a price below market value. You are doing them a service and can close very quickly without the lender holding up the process. No more buyer's walking or waiting for the lender's approval. You can close immediately.
Lenders with Seasoning Requirments - Myth or Reality?
One of the first and scariest things you learn about purchasing and flipping short sale properties is to be weary of lenders with seasoning requirements. Everyone knows that FHA and VA lenders do have seasoning requirements and will not fund an end-buyers loan unless the seller has been on title for at least 90 days. But what about conventional lenders?
From my experience, I don't believe many conventional lenders do have seasoning requirements. As long as their appraisal is equal to or above their end-buyer's purchase price and all the docs are in order, they'll go ahead and fund the loan. While I'm sure there are some conventional lenders that follow FHA guidelines and have seasoning requirements, it would seem that most do not. However, I'd recommend that you ALWAYS BE PROACTIVE in calling lenders who are funding your end-buyers to make sure. Ask to talk to an underwriter, not a loan officer and be completely straight-up with them about what you do.
Fiduciary Responsibilty of Realtors in a Short Sale
I think there are a few different points of view regarding this topic. Some people say that realtors have a fiduciary responsibility to present the highest and best offer to lenders. Others say that their responsibility solely lies with the homeowner and it is the homeowner who decides which offers are submitted. Either way, to answer this question you have to understand the different dynamics and party relationships that take place in a short sale transaction.
When an investor records the Notice/Memo of Option Contract at the county courthouse, the investor establishes equitable interest in the property to market and list the property for sale. Any offers submitted on the property can be accepted by the investor at his/her discretion. These offers are not intended to buy the house from the homeowner, but to buy the house from you the investor. There is no fiduciary responsibility in this regard since the investor is acting as the owner.
The most common time fidiciary responsibility rears its head is when talking with more savvy realtors/brokers and attorneys in regards to tax implications. This is because the debt forgiven in a short sale is reported as taxable income for the homeowner. However, there are many ways to get this income discharged (see "Mortgage Debt Relief Act" post on this blog). Taxes are important, but the principal and most urgent need of distressed homeowners is to avoid foreclosure. Sometimes you have to remind these realtors of this point and pursue the most efficient and effective action to achieve this result (which is an investor getting the process started immediately and purchasing the property).
Using Bird-dogs to Grow your Business
I have recently taken on a bird-dog (although I refer to him as an assistant) and my business is moving on to the next level. It's just a matter of time before all the new leads, realtors and other sources of information I now have in front of me everyday start to materialize into real deals. In exchange for teaching him about the business, he's saving me all kinds of time and freeing me up to concentrate on more revenue-producing activities. Win-win for both of us and something I recommend you implement in your business if you want to get to the next level.
Offer Too High to be a Short Sale
What if you're offer on the property is higher than the 1st loan balance? Will the lender still consider it a short sale? Chances are no. But then how do you proceed? The easiest answer seems to be to lower your offer to a point in which the first lender is shorted. Seems a bit strange and counter-intuitive from the lender's point of view, but who said lenders make the best financial decisions. They are simply trying to liquidate the property and satisfy their delegated authority requirements. Sometimes lowering your offer to meet these guidelines does just that.
Okay, my brain is fried. Hope you soaked up some good learnings and please make sure and join us on the next call. Or at least sign up as a follower to this blog so you're updated as to new posts.
Friday, March 6, 2009
Ever Wonder What an NOD Looks Like?
Many of us talk about Notice of Defaults (NODs) and other legal documents pertaining to the foreclosure process as if they were second nature. However, I realize many of you reading this blog may not have actually seen one first-hand and I thought it might be helpful and more tangible if I just posted one up here. So here's a typical NOD issued to a homeowner in default in the state of California...
ATTENTION: Meeting Day/Time Change
Please note that we have changed our weekly meeting day/time to Monday's at 5:00pm PST beginning on March 9, 2009. See you all on the call.
Wednesday, March 4, 2009
Mortgage Debt Relief Act
Make sure you know the provisions of the Mortgage Debt Relief Act. This information is VERY helpful when talking with savvy realtors, office managers, brokers or attorneys about the tax consequences of a short sale to the homeowner - particularly if you're buying the property significantly below market value. Read all about it at:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
http://www.irs.gov/individuals/article/0,,id=179414,00.html
Thursday, February 26, 2009
Realtor Magazine Article on Short Sales
Click on the link below and read the article that was just published in Realtor Magazine (Realtor.org) about short sales called "Short Sales: The New Wild West". This is what realtors are reading and it's important you stay up-to-date on what information is out there.......Note: As you'll read, the information sheds a negative, scary, one-sided, law-suit ridden light on what we do as investors.
http://www.realtor.org/rmosales_and_marketing/articles/2009/0903_shortsales_wildwest
http://www.realtor.org/rmosales_and_marketing/articles/2009/0903_shortsales_wildwest
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