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Huge Profits From Short Sales – Fantastic Pre-Foreclosure Tool For Savvy Investors

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Louisville realtors, investors and debtors facing foreclosure ask me from time to time how short sales work. Consider this a primer.

I recently brokered the sale of a house for $85,000 to an investor. The house appraised for $120,000, giving the investor substantial immediate equity. The lender took a $60,000 loss. The owner/seller was forced to sell his house, for which he received not one red cent, and had to move into rental. How is it that all parties walked away from the closing table satisfied?!

In the beginning…

When a home owner owes his lender more than he has borrowed, he’s said to be “upside down on his mortgage”. This can come about in many ways, the principal amongst them occurring when he simply stops making mortgage payments, often because he is in serious financial difficulty. If his mortgage payment is $1,000 per month, and he stops paying, or pays intermittently, the fines, interest and principle can rack up pretty quickly. And if the owner can’t pay the mortgage, chances are he hasn’t been able to make necessary repairs to his home. This situation is almost invariably accompanied by despondency, which again leads to neglect of the house.

Stir into the mix bankruptcy, and perhaps divorce, and you’ll understand it’s not surprising to find the homes of these owner/debtors are often seriously degradated. That leaky roof is probably the last of the owner’s problems.

The “F” word

Foreclosure. It’s not a happy prospect for the lender or the borrower. Lenders have different tolerances for late payments. However by the time the debtor is late for the fourth consecutive month the vast majority of lenders begin foreclosure proceedings. In Kentucky the foreclosure sale of the home by public auction takes generally anywhere from 6 months to a year from the time the foreclosure procedures began. It can take longer – I saw one artful debtor drag on the foreclosure proceedings for more that 20 months! Her mortgage payment was $1,300 a month. After 20 months that became a significant debt compounded by late fees, interest, legal costs, and the potential cost of selling the property at a public foreclosure sale. To say nothing of the continuing, moment by moment deterioration of the property. By the time she moved out the bank had written off in excess of $80,000.

The lender’s and borrower’s conflicting interests

Capitalism is a wonderfully contrived system. It hands not only the power-barons a potent array of weapons with which to fight, but also the poor and destitute. Though the battlefield is nowhere near even, double digit interest thrust too deeply down an indigent debtor’s throat may precipitate his “nuclear” retaliatory option – Chapter 7 bankruptcy. And so these two, symbiotically entwined, are locked in an elegant dance, teetering between dividends and disaster, profit and poverty. One serious mis-step, and the band stops playing.

Thus, from years of bitter experience, lenders have learned that it’s often better (cheaper) to attempt to gain the cooperation of the owner and have him agree to voluntarily sell and vacate his home, rather than evict him under foreclosure. Lenders also understand that the chance of ever recovering the money owed to them by the debtor is slim. But many debtors choose not to sell because, around the time they realize they will never catch up on their payments, they often have another “Ah Ha!” flash of insight: that if they stop paying their mortgage and just wait for the foreclosure axe to fall (or better yet, engage in a hatfull of tricks to keep that axe at bay) they can live “rent free” for at least 6 months. So now the debtor turns from borrower to squatter, perceiving it to be in his best interest to prevent the foreclosure for as long as possible. And if the house, the lender’s “security”, should fall apart in the meantime, so be it.

The solution

The lender is in a position to offer the borrower a very important concession for his cooperation: to write off the entire debt if the borrower finds a buyer to buy the house at a price and terms acceptable to the lender, within the time stipulated by the lender. This is the essence of a short sale. Lenders set their own guidelines for what they will accept. They may say they need to get fair market price, but will in fact often be prepared to sell for much less. They do not want to chance selling this house at auction and risk receiving a very low price. Or worse yet, receive a bid so low that the property does not meet their reserve price, and they end up owning the property. In this case the property is administered by the lender’s REO (real estate owned) department, which will then list the property with a realtor. And the cycle begins again……

The Lender initially said The Willows house was worth $120,000, and wanted it sold at about that price. It got the $120,000 figure from someone it had hired to do a BPO. BPO is short for “Broker’s Price Opinion.” It is similar to a CMA (Comparative Market Analysis) and serves the same purpose: to arrive at a fair market value for a property. Most are done as a “drive-by,” meaning that the “driver” (usually a realtor, maybe an appraiser) drives by the outside of the property, takes one to three photos and leaves. He then completes the lender’s BPO form on-line and e-mails it with the picture. Sometimes an “internal” is requested, in which case the realtor goes into the property, takes about 3 internal and 3 external photos and sends these through to the lender with the completed BPO form.

When the debtor had realized he would not be able to save his house in The Willows, he contacted me to see if I could help. He did not want a foreclosure on his credit report, which would have prevented him from getting a conventional mortgage for three years. Even with a Chapter 7 bankruptcy, the wait period is only 2 years from dismissal. He also wanted to have his debt forgiven. I was able to accomplish both these goals, saving him about sixty thousand dollars.

The short sale process

As a Realtor, the first thing I did was explain to my client all his theoretical options, including deed in-lieu of foreclosure, loan renegotiation and others. He settled on short sale. I listed The Willows property, and had him sign an authorization for me to contact the lender to see if it would agree to a short sale. Remember, when I list the property, the owner/debtor is my client (not customer). This means I must always act in his best interest. The lender is not my client and I owe it no such duty. In a normal sale the seller and buyer have greatly divergent interests: the seller wants to sell at the highest possible price, and the buyer wants to buy at the lowest. In a short sale there is no such contest between the parties: the seller wants to sell at any price the lender will accept, and will generally agree to any price offered, contingent upon the lender’s acceptance. So in a short sale, the lender takes on the mantle of “seller” vis-a-vi the buyer and these are really the parties who negotiate the contract. Now get your head around this one: as listing agent in a short sale I am often in the peculiar position of actively attempting to negotiate for the sale at the lowest possible price acceptable to the buyer! (But always with the caveat that this is in the seller’s best interest, and does not jeopardize the sale). This anomaly has many ramifications for the way I conduct and negotiate these transactions.

Price, Terms and Timing

Price: So how much will the lender lop off that price? I’ve generally found that as the day of auction approaches, lenders become more malleable. Pretty inefficient, because they loose a lot of time and money that way. I supplied the lender of The Willows property with objective material indicating that the drive-by BPO was inaccurate, given the condition of the house. The lender then had an internal BPO done. That was key to getting this particular deal done. I also sent off photos and comps of my own. In some cases I’ve sent the lenders well over 100 photos. Pictures speak louder than words, and it’s critical, when the property is damaged, that the lender understand the shape it’s in. Remember – the BPO realtor may be doing up to 50 BPOs a week – he could care less about this one deal. But as listing agent I need to keep the lender informed of all issues that coincide with my client’s best interests. The second Willows BPO came back at $100,000, and the lender initially tried to obtain that figure. Ultimately, with the foreclosure sale due to occur the next day, it reduced that amount to 80% of the $100,000 plus $5,000 to pay off non-mortgage related liens. At 4.50 pm the lender agreed to stop the foreclosure sale scheduled for 11.00 am next morning.

But hey, it ain’t over ’til the fat lady sings! Because the loss on this loan was $60,000, and because the lender had authority to settle up to $30,000 only, we had to wait for final word from the mortgage insurance company, which we eventually obtained, but not without many hours additional work.

As you see, the price of The Willows property was determined by the lender looking at the bottom line – how much net it would receive. And in order to get this number, all lenders in short sales request a “fake HUD-1” or a “net sheet” submitted simultaneously with the offer. In a normal real estate transaction the HUD-1 is drawn up at the end of the transaction, after agreement is reached. – in a short sale the title search is performed immediately upon listing, even before there’s an offer, so that the figures can be applied to the net sheet as soon as needed.

Terms: The most common terms distinguishing these deals are that the lender often requires terms such as “sold as is” and “proof of finance or funds required with offer”, and to protect the seller, the realtor should insert terminology indicating seller’s acceptance is subject to release from all liability for debt. None of this is carved in stone, and I’ve negotiated repairs and other concessions from lenders. Each case is unique. Paper will suffer any indignity – write the offer!

Timing: The REO, Foreclosure and Bankruptcy departments often appear to be understaffed and overwhelmed, so don’t expect instant responses. Some will take weeks to reply. Make sure the buyer and seller understand this. But once a deal is struck, the lender will often expect an unreasonably quick closing, and will attempt to penalize you with days interest for closing after a certain date. This all goes back to the net sheet calculations; because you have informed the lender how much it will receive by a certain date, it then attempts to hold the line at that date, even though they are generally very slow to respond. The Willows lender, after having not responded to multiple contacts, gave us just 2 days within which to close! Fortunately we well prepared, but it was very close.

Closing Note

The tax consequences of short sales fall outside the scope of this article. If you want info on how to handle competing offers, dual limited agency within this environment, or need a copy of the net sheet I use, you may contact me.

Update

Here’s a new twist. A couple of weeks ago I submitted a $235,000 offer to a lender on a short sale, (Seller owes about $275,000) which the lender ultimately accepted. However, in it’s acceptance letter, at the very bottom of the sheet, the lender stipulated that it retained its right of recourse against the seller/borrower (my client)! And this despite seemingly contrary language in the main body of the letter. I explained to the lender that the ONLY reason my client had agreed to the short sale (and not to jerk the lender around in the bankruptcy proceedings) was because he expected to obtain a complete release from all liability at closing. After a weeks or so of wrangling, attorneys etc, the lender “saw the light” and agreed to the release.

CMA

Though the information provided is considered reliable, it is not complete, nor warranted accurate. Always consult your broker or an attorney.

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Elite League of Legends Teleport Tricks to Destroy Your Friends

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Every day, thousands of gamers log onto League of Legends to play Riot Games’ free DOTA-style video game, unfortunately most of them get crushed by the elite few that know all the tricks of the trade. The most popular tricks often involve one of the lesser used summoner spells in public games; the incredibly useful but oft-ignored teleport spell, and while these tricks can take weeks to master, it only takes a few moments to read on and learn them.

1. Fiddlesticks’ Surprise — If there is one sound that strikes fear into the heart of every experienced League of Legends player, it’s the horrifying “Caw! Caw! Caw!” of Fiddlestick’s monstrous ultimate, which is nothing less than an area of effect spell of doom for everyone caught in its wake. The problem with this spell, of course, is its two-second channel time that requires you to be smart about when you’re ready to attack. Surprisingly, few players realize the power of this ultimate when combined with the utility of the teleport summoner spell.

An awesome way to get the drop on your opponents with Fiddlesticks, is to lay a ward down in the farthest bushes on the top or bottom lane of the map. When done correctly, you can teleport in behind your opponent and out of sight, waiting for the right time to launch from the bushes and strike. This is particularly effective if for some reason you are playing Fiddlesticks in the lane, as you can recall base before quickly teleport behind them to create mass confusion.

2. Nunu’s Trap — Nunu is well-known in League of Legends to have one of the strongest ultimates in the game, capable of swallowing entire teams in its large radius and exploding them into a million bits. Unfortunately, this is perhaps the most difficult ultimate to land in the game as it has a long stationary channel that is easily interrupted and even more easily stepped out of…. that is, of course, unless you have the teleport summoner spell.

With the teleport spell at your disposal, Nunu can quickly become a frightful player for the opposing team. Try sneaking a ward right into the middle of the middle lane to teleport to later, and wait until your opponent’s solo mid steps by it. When he does, teleport in and quickly ice-blast him for the slow effect, pop your ultimate and watch as he explodes with the help of a teammate already in that lane. This is an awesome technique because you will actually give yourself an additional second or so for your ultimate to go unnoticed, as your opponent will be extremely confused as to how you appeared next to him out of the middle of nowhere.

This is also an effective technique at grouping hot-spots, like Baron, Dragon, or a short distance in front of your middle tower. Placing a ward a bit in front of your middle tower is particularly rewarding, as once you teleport in and cast your ultimate while your opponents are attacking your tower, they will be pinched in and be forced to move into the tower where all your teammates await, or back toward you for an icy surprise of ultimate death.

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How to Play Spoons Card Game

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How would you like to play a game that could be enjoyed by the entire family regardless of age? Sounds pretty fun, right? Well, we’re going to teach you about just that game. It’s called spoons, and it’s one of the more popular card games. It’s really simple to play, and it’s really enjoyable! So just follow these simple steps.

What you’re going to need:

  1. Spoons ( You need one less spoon than there are players. So let’s say that there are 5 players, you need six spoons )
  2. Deck ( Full Deck of Cards )

Game Set Up

To set up the game, you’re going to need to count the number of players. Let’s say that there are six players in your group. You’re going to need six suits of cards. You don’t need to use the whole deck.

Now, at this point, you’re going to need to put the spoons in the center of the table and pass out an equal number of cards to each player. Then you’re ready to go!

Game Play

Once each player has a hand of cards, it’s time to get started. The object of the game is to get a suit of hands in your card, so what you’re going to do is select one card from your hand and pass it to the player on the left. At this point, the player on the left, the one receiving the card, has the option to take that card into his hand, or he can pick a card from his hand and pass it to the player on his left. This continues until one player has an entire suit of cards in his hand.

Once that happens, his goal is to sneakily grab a spoon from the center of the table. If other people find out he has an entire suit, they could inadvertently make him the loser, so don’t let that happen. Once you’ve grabbed the spoon you reveal your hand to the other players.

They then have to hastily grab their own spoons. The player who is left without a spoon is then declared the loser and removed from the game. The game play continues until there are only two players in the group. At which time, they are both declared the winner.

Get Your Game On!

As you can tell, spoons is a real simple game, and it is perfect for those family game nights. So we recommend you give it a try! We guarantee you won’t be disappointed.

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Dog Training Academy – How to Create Obedience in Your Dog

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Training a dog can be a frustrating act but not anymore with the Dog Training Academy e-course. Dogs tend to be unruly at times with excess of barking and whining along with aggressive actions towards visitors. It is high time to start training your dog using well established and proven methods when you find him reacting in a non responsive manner to your commands.

Lack of training can lead to behavioural problems in your dog and this can turn them into a disobedient pet. An unruly pet can end up tearing furniture or behaving in an uncontrollable manner. It is hence necessary that you take the right measures to control behavioural problems and to train your dog. This is where Dog Training Academy can help you get the perfect pet by bringing in obedience in your dog. The training course is a 7 day series that consolidates tips and tricks on training your dog on obedience matters.

Training a dog is not an easy task, but the job now becomes simple for you now with this free training e-course. The methods of training and the skills of the owner and pet normally determines the time taken to train a dog, but this training e-course can resolve all your problems in just about 7 days. They provide you with many widely practiced professional methods of obedience training to bring in fast and effective behavioural changes.

Basic bonding and effective communication is required between you and your dog before you can start training on obedience. This kind of essentials that needs to be obtained before the dog can respond to your basic commands and orders are detailed in the Dog Training Academy course.

There are many ways of training your dog other than the e-course methodology. One such way of obedience training your dog is by taking him to a training school. Such schools provide professional help offered by expert trainers who can handle any kind of dogs. But is it necessary to check whether such schools are recognized ones before your enrol your dog. Such kind of schools also charge a hefty amount for a complete training spanning around 3-4 weeks time as compared to the free course.

A proven training plan and a step-by-step guide of the plan can make you feel the difference in your dog’s behavior in just a week time. The training plan can bring in more obedience and security in your dog at the end of the course. Enrol for the Dog Training Academy course and you no longer need to worry about torn furniture or garbage in your living room.

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