Conference Call Recap 2/4/09

Thanks for a very productive and thought provoking call last night. The following are the main learnings discussed:

Don't Let the Banks Waste Your Time - Offer Lower
After spending hours faxing in 50, 60 or even 100 pages of documents making up the short sale package, some banks will claim that they lost your paperwork or never received it. One method used by Karl is to lower your offer price. His thinking is that it sends a message to the loss mitigators implying that he's not going to play these types of games and that they better take his offer seriously. Interesting approach.

Upcoming SREC Vegas Conference
Most of us have heard that the upcoming SREC Vegas conference will cover much of the same content as the previous conference. If this is truly the case, does it make any sense to attend? Although for networking purposes most of the group thought it would be helpful (including getting some new members to add to our discussion), it appears that most people will not be attending if it's the same content rehashed again. Of course, it would be great if we had at least one person from our group attend the conference to network.

Talking to Brokerages About What We Do
I made it a priority recently to get into the larger brokerages and talk to realtors about what I do. However, I soon realized that many office managers weren't warming up to the idea of having another "short sale guy" coming into the office. After digging deeper, I realized that they were assuming that I was either a short sale realtor vying to get some of their unwanted short sales or a loss mitigation company. However, when I finally got their attention I was able to explain that I am the BUYER, have nothing to sell, and want to work with them to turn their office into a short sales machine. More like a coach rather than someone selling thier services. Very effective.

Karl said something last night that helped me immediately and may also have helped you. Because realtors (including office managers) often have egos and don't like to be told that they don't know how to do something (i.e. short sales), approaching them as a short sales expert may not be your best move. A better way to approach them is by using what he calls the "Columbo Angle". Columbo, the TV and movie detective, was very successful by coming at things from a point of understanding, being disarming and exercising humility rather than trying to come across an expert. According to the Columbo Angle, you might say something like "Let me try to understand how your office is currently doing short sales and see how I can improve upon it in any way." I personally think this can only help you.

Tax Consequences of Short Selling
We had some good discussion about the tax consequences for the homeowner of completing a short sale. While I recommend everyone ask their CPA to be sure because I can't give tax advice, our understanding was that the Tax Reform Act of 2007 gave tax exemptions to homeowners as long as it was their primary residence and they hadn't refinanced. If it was an investment property or there was a refinance, the homeowner would have to prove insolvency or be subject to paying taxes on the 1099.

Getting the BPO Value
Some lenders will straight up tell you the BPO value if you ask, but many will not because it could compromise thier negotiation leverage. However, there are several ways you can use to get the BPO value:

1) Ask the BPO agent
2) If the BPO agent won't tell you, ask them some other questions ("The offer on the property is $xxx,xxx. Is this at all close to the BPO value? Is it in the ballpark?")
3) If the BPO agent still won't tell you, ask them to do a BPO for you on the same property address. Of course, it will come out the same. If it doesn't, you can always call the lender and tell them the BPO agent is committing fraud.
4) Wait for the counter offer from the lender. Usually the counter is the BPO value.
5) Ask the homeowner to call the lender and ask for it. Someone last night mentioned that it's possible that the lender will tell the homeowner the BPO value since they own the property. Worth a try.

Making Friends with Loss Mitigators
Rather than thinking of loss mitigators as your adversary, try to think about them as a team member. One approach Karl recommended might be, "How can we work together to get this off your chest so you can meet your quotas?" Again, I think this approach can only help you.

Email vs. Faxing in Short Sale Package
Julio mentioned that he now tries to email the entire short sale package into lenders rather than faxing it in. This could save you a considerable amount of time if you have a fast scanner. But how do you get the email address of the loss mitigation department (many won't give it to you)? Julio tells them that he's tried to fax it in numerous times and he keeps hearing that no one has received it. He then asks them for an email address and sends everything while he still has the person on the phone so he can confirm they received it. Better yet, he has a record they received it (even if they say they did not) if his email goes through. If he has to fax it it, Julio stamps each page with the loan number.

Is emailing better than faxing? That's a personal decision. But we all agree that it's better to send everything all at once then piece by piece. This way all the documents of the short sale package are together and it's harder for them to "lose" any.

Seller Concessions - Yes or No?
Should you ask for seller concessions on the HUD? Some people say that concessions are simply your own money that you're asking the lender to return to you. If this is the case, why ask for more money back from the lender thereby making it harder for them to approve the deal? The other side of the argument is that it could make your gross purchase price higher (which can look better) if you adjust for concessions OR give you a chance of getting more money back from the lender if you don't raise the purchase price. There's a good argument for seller concessions in our current state of the market including the need to entice the buyer and pay for unforseen repairs.

Drawing the Line of Fiduciary Responsibility
Very good discussion on this topic. Some realtors say that it is their fiduciary responsibility to send all offers to the lender. If they hold offers, they are not acting in the best interest of their client. We hashed it out and all agreed on the same conclusion. The realtor only has a fiduciary responsibility to the homeowner, NOT the lender. No offers are to be submitted to the lender unless the homeowner agrees, even if that means the property forecloses and you had a good offer in hand. The homeowner makes the decisions, not the lender, and he/she is whom you have a fiduciary responsibitly to.

However, when you as an investor record the Memorandum of Option Agreement, you take equitable interest in the property. Equitable interest in the property gives you the right to act on behalf of the homeowner to market, list and sell the property. It is therefore up to you (the investor) to decide which offers get submitted to the lender. And guess what? The realtor (who is now your listing agent when you list the property) has a fiduciary responsibility only to you.

When to Disclose Your Option to End Buyer's Realtors
Good question here with no obvious answers. When you relist the property on the MLS, some realtors might ask questions. Or when you counter their offers on the property, some realtors might ask how the lender is approving their offer or if it has even been submitted. I think it's best to be as straightforward and honest as you can at this point and emphasize the positives which include:

--Your client no longer has to wait for months to get the deal approved; it can be approved immediately and escrow closed within 30 days.
--Your client wouldn't have the opportunity to purchase this property if it wasn't for the investor; it would have gone to foreclosure
--Your client is getting this property below market value, with built-in equity
--The entire short sale process has been cut nearly in half because of the investor's actions - your buyer may have walked if it took the normal time to get a deal approved

At some point, this is a conversation you're going to have to have with realtors. Better off having it earlier than later and coming from a confident, normal course of business standpoint rather than having realtors think something shady is going on, which of course it's not.

Whew! That's it for this week. See you all on the phone next week with hopefully some deals closed.