Number of Properties Underwater is Staggering

The charts above were provided by Mr. Mortgage (http://mrmortgage.ml-implode.com) and illustrates just how many properties are "underwater" (mortgage balance higher than current market value of property). Note: "Near Negative Equity Mortgages" mean that the homeowner has only 5% equity in their house. This effectively means that they are underwater if your consider commissions and closing costs.

If you can't read the charts above, in California there is 1.77MM properties (27.4%) underwater and another 2.05MM "near negative" (31.8%). This translates into a whopping 3.82MM properties or 59.2% of homeowners in California who are currently underwater. Wow! Use these stats in your marketing and when talking to realtors and homeowners.

Conference Call Recap 1/21/09

Someone needs to be in charge of taking notes every week on a rotating schedule to ensure we capture everything that was discussed. But here is what I recall:

BPO Appointment
Much was discussed regarding the BPO appointment and how the magic folder contents (information disclosed to the BPO agent) affects what you need to disclose to your eventual end buyer. The consensus was that you have to disclose everything, but that you can certainly emphasize certain information or tell the same information differently depending on your audience (BPO agent or end buyer's agent).

For example, if you show the BPO agent a chart of the registered sex offenders in the area, do you also need to disclose this to the end buyer even though it's public knowledge? The answer was definitely yes if it's a significant fact that affects the property's value. However, you might point it out and dwell on it when talking with BPO agents vs. simply disclosing it to the end buyer's agent in a sea of other disclosures. I think there's still some gray area, though, if the number of sex offenders is not significant (meaning it's average vs. other areas). If it is average, it would not affect the value of the property and may not need to be disclosed. Use your own judgment.

Banks without Seasoning Issues
We've talked a few times about proactively finding banks that do not have seasoning problems to ensure your end buyer can get funded. For example, if your end buyer's lender won't fund the deal, you need to have a few lenders in your pocket without seasoning requirements that have already prequalified your end buyer. This gives you the best chance of completing the A-B-C transaction rather than just the A-C.

I still have several banks to visit, but I have found two that don't have seasoning requirements: Bank of the West and Bank of America. IMPORTANT: You don't need to just know these banks exist, but rather you need to make friends with a broker in the branch. If you get in a pinch, you don't want to have to start from square one. Get the broker on your team ahead of time and you'll be able to move quickly.

BTW.....Bank of the West is a large bank in more than 33 states and appears to have no issues whatsoever with seasoning problems. Bank of America only requires that you're not settling the A-B transaction with B of A and that you are recorded on the deed before they will fund. Usually, you can get the deed recorded in less than 24 hours but note that the first few days and the last few days of the month are extremely busy and may take longer.

***Added Bonus: When you visit these banks and meet the brokers, you're not only asking them to do business with you but also to refer business to you. Remember, these guys are getting multiple calls a day from people trying to refinance a property that's already underwater. These leads usually get thrown in the trash or sometimes referred out to a loss mitigation company. Tell them to send these leads to you and in return you'll pay them a referral fee for every house you end up purchasing.

When to Payoff the 2nd Loan (or other junior liens)
When you're negotiating more than one loan on a property, you'll likely get one of the loans settled days, weeks, or even months before the other one. But these lenders have an expiration period on thier discount payoff notices in which the loan must be settled. These can be extended a month or weeks but usually not more than a few times. So what do you do if you can no longer extend the discount payoff notice but have not yet settled other loans on the property?

It depends on the deal. If you've already recieved a counter from the lender in which you're awaiting a settlement, then you should know if this deal is going to work out or not. However, any deal can fall apart at the last minute for a multitude of reasons. If it's worth the risk and you're confident you'll be able to settle, you might agree to pay off one of the loans in advance and just concentrate on getting the other loan settled. However, you could always just let the settlement expire and then go back and renegotiate. Who knows, you might be in an even better position then as more time has passed.

Is it really OK to list a property you don't yet own?
Yes, per Provision 6G in the Option Contract. Most realtors and brokers you talk to will probably grimace at the idea of listing a house for someone who doesn't even own it yet. They'll be concerned that they're breaking DRE regulations and may put their license in jeapordy. All you can do is show them the verbage of Provision 6G, maybe make a few analogies, and then ask them to show their attorney. If they're still squirming, don't work with them. You want agents on your team that are positive, entrepreneurial and ready to grab life by the horns.

***Side Note: The key agent on my team works for Prudential, a very big but conservative brokerage. The manager at the office read my Option Contract and initially turned it down. I asked to speak with him directly and after 5 minutes on the phone, I realized where the sticking point was. Being in the real estate business for more than 20 years, he ASSUMED that I was doing a "simultaneous" close (meaning that I'm using the end buyer's funds to close the A-B transaction) like a land trust. When I clarified that I was doing two completely independent, fully disclosed, transparent transactions funded by my own private money, he dropped the issue in a second. It's currently being reviewed by Prudential's legal staff, but everything looks good so far.

BTW.....Even though the office manager initially grimaced at me and even copped a little attitude, I tried to view this as an opportunity. And it just may pay off. Think about it. If I can convince him that what I'm doing works and makes money for his office, he might just champion me to his entire staff. As they say, if you can turn your biggest critics into believers, they will in turn be your most vocal advocates.

What to Do if Your Loss Mitigator Is Stalling
There was some discussion that you might be able to threaten them with a lawsuit. If they have all the necessary paperwork in order and a reasonable offer on the table yet do not act decisively, they could ruin someone's credit particularly if the property forecloses. Your case might even be stronger if the bank then sold the property as an REO for less money than the original offer.

HOWEVER, the group agreed that while this might be plausible, it's just not smart business. You have the best chance of getting your deals approved when you become the loss mitigator's partner rather than his enemy. Worst comes to worst, you can always nicely ask to talk to their supervisor and explain the situation.

Helping Homeowners After They've Vacated the Property
I believe Karl mentioned that he tries to put some of his defaulting homeowners into lease options in other properties in which he owns. They desperately need housing and want to own rather than rent, so Karl helps them along and eventually sells them the property when they've got their credit back in order. What a fantastic idea that's a win-win for everyone (as long as they don't default on you :-)).

That's all I can remember, so please add anything I have forgotten.

Conference Call Recap 1/15/09

I'll try and recap what we discussed last week. This is from my cluttered memory, so please add things I have forgotten.

When to List Property as Seller/Owner
We had some discussion about when and how to switch an existing listing on the MLS over to your name as the seller/owner. I think we all agreed that after the BPO was completed (possibly even when your offer is countered) was the ideal time to switch the listing over to your name. You do this by having the existing listing agent withdraw the MLS listing and then relist it with your name as the seller/owner.

When to List on MLS
This is a balancing act that must be evaluated on a house-by-house basis. The key is having a very good idea on the 30-day quicksale value of the house. If you know this, you know what price to list the property at. Why list the property at this price? Because you want offers flowing in the second you list it to capitalize on the "newness" and excitement when a house first gets listed.

Nathan J. (aka The Short Sale Kid) insists that you should list it on the MLS quickly to best gage the market value of the house and give it as much time as possible to get offers. You then simply counter and manage any offers that are submitted using a weeding out process to ensure the buyers will "stick" (more on this in another post). The challenge in listing the property so early that your listing gets stale while you're negotiating 2-3 months or longer. This is the balancing act you must walk based on the marketability of the property and your comfort level in the 30-day quicksale price.

Seasoning Issues
It still doesn't look like anyone's figured out seasoning problems for FHA (or VA) loans. One strategy is just to move out of the way and make a little money by completing the A-to-C transaction. Another way (pushed by Jason Medley & Nathan J.) is to refer these buyers to bankers who don't have seasoning issues. Jason & Nathan stipulate on thier listing that any potential buyer must prequalify with their bankers. This gives them a backup plan in case the buyer's lender (FHA or otherwise) has a seasoning issue.

How do you find these buyers? Refer to one of my earlier posts where I pasted Jason Medley's video on this very subject.

Turning Over New Rocks
We as investors are always looking for new ways to find homeowners in distress. One of the new ways discussed was to work with short sale brokerages. Who knew there were brokerages out there that only do short sales.....and close a very high rate of them. We, as investors, need to make friends with these realtors and capitalize on all the marketing dollars these firms are spending to get distressed homeowners to call.

Elevator Speech to Realtors
We talked about some ways to get realtors on board with what we're trying to do. Personally, I've had luck lately by positioning things something like the following...
--You can either be a realtor that lists short sales and then tries to find an end buyer OR you could be a realtor who brings an investor to the table from Day-1 to get the deal closed quickly. Which is more powerful?

The Magic Folder
We talked about the "magic folder" I give to the lender's BPO agent and some other content ideas that may be helpful to include. I've now given this to three BPO agents and believe it's been extremely successful in getting the BPO to come out low. Look back a few posts on the blog to see what is included in this folder and how to deliver it.

What to Do with Ugly Properties
Dave brought up the question regarding what to do with properties needing to be rehabbed that an end-buyer's lender won't finance. In this environment, most lenders don't want to risk taking back an unmarketable property into their portfolio. Dave threw out the idea of finding investors to finance your purchase and rehab costs (therefore not a quick-turn). Because you're buying the property so far below market value, the loan-to-value should be low enough to attract the attention and meet the requirements of investors.

That's all I can remember right now, we'll have someone take notes next time. Too much good stuff not to record.

Items to Bring to BPO Appointment

Wondering what to bring to your BPO appointment? Me too, but I just had one today that I thought went very well so I thought I'd share.

First, some background info...
BPO's are now often ordered the day the lender receives the short sale package, before a loss mitigator is even assigned to your account. They do this to streamline things for the the loss mitigator so he/she is all set to go once they get assigned. Once a BPO agent is called, they try and make an appointment within 24 hours. As my BPO agent put it, you get the call at 1pm and then at 3pm you get an email asking if it has been completed yet.

My Story...
The BPO agent assigned to my case was a really nice guy who called me yesterday trying to schedule an appointment for today. I followed SREC's coaching and agreed to the appointment but made it seem like I was doing him a favor. I told him the owner usually needs much more notice but I'll see what I can do. I waited 10 minutes, called the guy back and told him I convinced the owner to let him in the house. The guy was grateful. For all those keeping score at home, that's Jordan +1.

The appointment was to take place at 3:30pm today, however, the BPO agent called me a few minutes early and told me he would be late because of traffic. Again, I made it seem like I was doing him a favor by saying I had to cancel an appointment, but I would stay and wait for him because it was important the BPO get done (of course, I didn't really have an appointment to cancel). He showed up around 4pm, apologized for being late, and thanked me for canceling my appointment so he could get in the house "for 10 minutes, just to take pictures of every room". Score that Jordan +2.

Again, using SREC's suggestions, I started to plant the seed while standing on the driveway before we even went into the house. I said "Did the lender tell you the situation with the homeowner who owns this house?" He replied, "No". I said, "The house is in preforeclosure, it's a really sad and unfortunate situation." I then went on to dramatically tell him the sad story of the homeowner, "business failed, divorce, husband took all the $ leaving a single mom with 3 kids to raise". He started to empathize for the homeowner. Score Jordan +3.

I then gave him a manilla folder with a bunch of documents designed to make his life easy. My basic comments were that the lenders already have all this information but I thought I'd pull it together for you so you know what they're looking at. He was pleasantly surprised, thanked me, and put it in his car so he wouldn't forget it. Score that Jordan +4.

The contents of this folder were the following:

1) MLS listing of subject property
2) CMA with low comps
3) Independent BPO I had already done on the property
4) Property Summary Report
- This is a report I put together after getting some ideas from some of the paperwork the IRS requires to get a property discharged from an IRS lien. It's basically a letter intended to give a quick and accurate account of the current conditions of the subject property and the circumstances regarding its present owner. I addressed it to the lenders and wrote it in a very independent, objective voice.....kind of like, here are the facts. It covers a lot of ground and basically does all the hard work for me (unfortunate situation with homeowner, property not selling, finally an offer on the property, property needs major repairs, etc.)
5) Repair estimates (generated with HammerPoint)
6) Hardship letter
7) Map of the REOs and preforeclosures in the immediate area (generated by RealQuest)
8) Map of the registered sex offenders in the immediate area (info from megan's law)
- If you've never looked before, you'd be surprised how many registered sex offenders are in every community. I made a map with a house icon for the subject property and sprinkled icons that looked like men at their reported addressed. When I showed the BPO agent this map, I just said that my company is asked to put together all kinds of things like this for lenders because consumers do their research and know everything about a house. He wasn't surprised.

Anyway, I then left him alone to take pictures stopping him only occasionally to take note of some important repair areas the homeowner had told me about (I don't want him to miss these areas). Other than that, I just tried to make conversation about anything other than the house so it wouldn't seem like I had any real interest in what he was doing. When he was finished, I tried to close our conversation by redirecting his focus back on the homeowner's situation and away from the house (per SREC coaching) by saying: "The seller is really in distress and will appreciate the time and effort you put into this evaluation". He left satisfied and said he'd turn it around in 24-48 hours.

I don't know about you, but I thought it went almost TOO well. Jordan +4, BPO agent happy and satisfied. Well have to wait and see. I plan on emailing him a thank you note tomorrow and calling him on Tuesday to try and find out the BPO number he came up with. If he doesn't give it to me, I may ask him to come out and do another BPO on the property for me :-). We'll see, that's pretty balzy.

Anyway, that's my story. Hope you all got something from it and wish me luck. I'd love to hear your thoughts/ideas on this approach and some of your stories.

Conference Call Recap 1/5/09

From now on, I thought it would be helpful if someone posted a recap on the blog of each conference call so those who couldn't attend get the learnings and so our learnings every week are not lost. I suggest we all switch turns on doing the recap. I'll volunteer to do the first one from what I recall. Please add things I forgot. Sound good?

Recap of 1/5/09
Dealing with 2nd Mortgages
- Send the same paperwork to the 2nd mortgage lender as you did the 1st mortgage but with different cover letter.
- Tell the 2nd lender that the first mortgage has accepted (or is going to accept) considerably less than what's owed on the first mortgage and there is little funds available to other lien holders.
- However, it's best to play it nice and be the mediary. Don't rub it in their faces.
- Be the 2nd lender's hero by positioning yourself in their eyes as fighting for them to get more money from the 1st lender.

What Marketing is Working?
- I (Jordan) gave some results of different marketing lists and letters I've been using to market my business.
- Predictive NOD lists (pulled using a variety of credit sources and predictors) have not been successful. I find many of these homeowners are not anywhere near default and not at all motivated.
- Pre-NOD lists (30-60-90 day; homeowners behind in payments but not yet received NOD) can be successful. I got many calls from these lists and some people I may be able to work with. I think these lists would have been much more successful with a more clear (rather than vague) letter about what I do.
- NOD lists did not produce many calls. The calls I did get were all last ditch efforts with a trustee's sale scheduled within 1 week. Possibly a more creative letter would have been more effective.
*Note: I have recieved about 130 responses from the 1500 letters I sent out (almost 9%). Half of the letters said something like "I will buy your house" and half were from my realtor saying "I have a buyer who's interesting in buying your house". The former got more calls.
**Learning: I used a phone number on my letters that went straight to voicemail and emailed me when someone called. However, about 60% of callers did not leave a voicemail. If they had called my cell phone, at least I would have had a chance to speak to 60% more homeowners.

Effective places to find homeowners in default
- Several people (including myself) seem to have had some success with subscription-based investor/home posting websites. I'm guessing 95% of investors aren't willing to pay a little to get access to such websites. This leaves the door open. My experience is that most of these people have never been called.
- Most cities offer homeowners relief information and services one Saturday a month outside the City Housing Division. This can be a great place to find homeowners seeking assistance.
- Mortgages brokers. They get called every day from people who want to refinance their home but can't because they have no equity. These people drop off their radar but can easily be referred to you.
- Real estage agents with existing short sale listings. Keep trying, many are skeptical. I've personally found several agents who will probably give their next short sale property to me as a result of a 15 minute conversation over coffee.

Influencing the BPO
- Think of the things that would completely turn you off from buying a house if you were the end buyer and then do some research on the Web to find these things in your property's area.
- Sexual predator lists
- Narcotics anonymous meetings
- Sober living housing
- Crime indexes or recent crime reports
- You also might want to remind the BPO agent of the new law that went into effect Jan. 1 about it being illegal for BPO agents to inflate a BPO, force the property into foreclosure, and then hopefully get an REO listing (see the blog posting).

I know there was MUCH more we discussed, but that's all my exhausted mind can remember right now. Please add to this post by commenting on it. Thanks!

DRE Can Discipline Licensee for Inflating BPOs:

New Law Just Passed (from the Dept. of Real Estate)

Beginning on January 1, 2009, the DRE can suspend or revoke a real estate license if the licensee generates an inaccurate opinion of value (Broker Price Opinion or BPO) for a short sale of residential real property to manipulate the lender to reject the short sale or to acquire a financial or business advantage, such as obtaining a listing agreement. This new rule aims to preclude a self-serving agent from inflating a BPO in hopes that the lender will reject the short sale, foreclose on the property, and give the BPO agent an REO listing. Senate Bill 1737.

This may be something you can use to your advantage at the BPO appointment. Can't hurt to ask the BPO agent if they know about this new law. More incentive for their BPO to come out low.

Finding Lenders Without Seasoning Requirements

Check out this video Jason Medley just posted on YouTube.com regarding the need for short sale investors to proactively find lenders that don't have seasoning requirements. This can save your B-to-C transactions and I think it's a really smart strategy I plan to incorporate into my business tomorrow. Here's the link:

http://www.youtube.com/watch?v=JeGrA2rsj94

How To Stop a Trustee's Sale NOW

I trust you guys will tell me the truth....

Do I have a sign around my neck that says "Call me if you're a homeowner in default with a trustee's sale scheduled in less than a week?" If I do, then I must also have a sign on my back that says "Kick me because I'm going after leads that I can't save."

In the last 2 weeks, I've dealt with homeowners with a trustee sale scheduled the next day, in 2 days, in 3 days and now have another one in one day (tomorrow). Couldn't save the last 3 because the lender had already postponed the trustee's sale once without a payoff and was a little pissed off. Pretty much ran into a stonewall no matter what I said after putting on my best debater hat.......

"I have a very strong cash offer that can close in 15 days..."
"You're going to lose far more $$$$ if the property forecloses..."
"This homeowner is in serious financial hardship. Just lost his job, death, etc. and all he's asking is for you to consider the offer presented?..."

If you research articles/blogs on the Web, most experts say that there's almost nothing you can do if you get within a 5-day window of the trustee's sale. However, I've talked to investors who've said they've stopped them within the last hour so I know it's possible. Anyway, I remember Josh Cantwell saying one option is to have the homeowner file for BK and then pull the BK off the table within 21 days. Seems pretty drastic.

I have some ideas for my latest case (Trustee's Sale scheduled for tomorrow at 11am)...

Got the call yesterday (New Year's Eve) at 5pm from a letter I had sent out to a Pre-NOD list. Two guys living in a beautiful 3,200 sqft. Craftsman home they restored in a hip area of Pasadena. The realtor on the property (who also lives in the house) gave me a call as a last ditch effort because my letter said I wanted to "buy your house" and got their attention because it was handwritten and seemed sincere. He said the trustee's sale was scheduled for January 3 and was willing to give me a shot to save it. Of course, I later confirmed that the trustee's sale was scheduled for January 2 with Wells Fargo being closed on New Year's day. Just fantastic, right?

Side note: I'm pursuing most anything these days because I've now learned that: 1) you never know what might be a good opportunity until you spend some time investigating and 2) it's a good learning experience for me dealing with homeowners and trying to make something happen. Maybe there's a last minute niche I got going here :-).

Anyway, I met the guys at the house at 8PM last night (New Year's Eve). GREAT house that just got certified as a historic landmark by the City of Pasadena, terrible lot (about 100 sqft. bigger than the house), no garage and located on a busy street. The property has been listed on the MLS since July at a price of $1.495MM with not much interest.....go figure. My best guess for a 30-day quicksale value (based on the comps) is about $825K.

So what's up with the high list price? Turns out the homeowner owes $950K to Wells Fargo and then $250K to Countrywide and was thinking he could make some extra cash with the sale of the property and roll it into another renovation project. I guess he should have actually looked at what the market was bearing :-)......Although, there have been a handful of $1MM+ homes sold in the area in the last 6 months.

After having them ask a lot of questions, sign all the paperwork and make copies of everything, I didn't get out of there until 11:15pm - just in time to drive by all the crazies camping out on the street in their armchairs for the Rose Parade the next morning. Ran some low comps this morning to include with the paperwork and wrote a cover letter with the following plea:

"This is a formal request for a pre-foreclosure short sale on the above referenced property. A very strong cash offer has been submitted on the property and is attached, but there is a pending trustee’s sale scheduled for January 2, 2009. We are asking that you postpone the trustee’s sale so you can do your due diligence in reviewing and evaluating the attached offer.

The property has been certified as a HISTORIC LANDMARK BY THE CITY OF PASADENA who has expressed interest that it NOT be foreclosed upon if at all possible. However, it has lost considerable value because the City would not let it be converted back into a duplex, deemed the parcel of land a “substandard lot” due to its very small lot size (3,292 sqft.) and busy street location, and will not permit a garage on the property.

The offer on the house is by a company on the Board of the Pasadena Cultural Heritage & Preservation Committee who has support to see the house preserved. Please consider this when evaluating the trustee’s sale postponement.

The homeowner, XXXXX, diligently pursued a loan modification with Wells Fargo months ago and was given the impression a workout plan would happen. Only in the last few weeks, did the loan modification get declined leaving him little time to pursue a short sale. We now have a strong cash offer on the house, relative to recent comparable sold historic homes, which the homeowner has accepted."

All above is true. This is in addition to my "URGENT" message and circles all over the fax cover page. I faxed everything into Wells Fargo (who is closed today) this morning with an offer price of $675,500. I'll let you know what happens tomorrow by submitting a comment to this post. Wish me luck with this case and better luck in the New Year reaching clients earlier in the process :-).