Shoestring to Millions

Mark’s Experience- His First Short- Part VII

Posted on: August 18, 2009

Short Sales are not easy. This runs through Mark’s head as tries (yet again) to call Sam’s lender.  Eureka! At long last, the lender has received Sam’s short sale package!

Mark is giddy with joy!—But his giddiness is short lived. He is advised that the short sale process can only begin once a short sale negotiator has been assigned to the file. Mark requests an approximate date from the customer service representative and he is advised that it may take 14 to 20 business days for a negotiator to be assigned, due the large volume of short sales files the bank is already processing.

Mark is once again put into the waiting zone for the short sale process. Mark ,like a prudent investor, decides that during the wait period he will get the property listed with Jay (the Realtor) and start marketing the property to help locate an end buyer.

TIP: When investors have a property “ locked up” they should market it immediately to in order to locate multiple end buyers. Marketing take various mediums in the world of real estate marketing: it can range from simply placing the property on the Multiple Listing System (MLS) with a realtor to putting together a direct mail marketing plan to holding a open house.

Mark decides to utilize the “gunshot marketing plan approach” for selling the property.  Mark not only has the property listed with his Realtor to place it onto MLS, but he also places the property into online classified advertisements and in print in the local newspaper.  Mark puts his marketing plan into place and starts to show the property to potential end buyers.

TIP: The greater the exposure you can get on the property the better your chances are for selling. Along with exposure in today’s market, it is important to work on creating specific seller held or creative financing programs if possible to allow for a greater percentage of buyers in the market to be able to buy your property.

Over the course of a few weeks of showing the property, Mark realizes the difficulty he has in deciding a sale price for the property without completed his short-sale negotiation. His strategy is to price the property at 7% below current market value and explain to all buyers that this is a short sale and so the final price acceptance depends on the bank (legal point- please make sure you make that disclosure to the buyers to ensure that you as the investor do not walk into legality issues).

TIP: When selling a property in a declining market or a buyers market. It is very important to under price the property by 5 to 10% under the market value and your competitors in order to ensure that your property gets the proper buyer traffic that will help you sell the property.

As weeks go by, Mark finally receives a call from the lender informing him that a negotiator has been assigned on the file. Mark starts to talk with the negotiator, outlining the current situation of the homeowner. Mark explains that the homeowner needs to sell because he can longer afford his mortgage The negotiator asks why the homeowner doesn’t try a loan modification on the property.

Explanation: Loan Modification is a modification made to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.

TIP: The rule of thumb for loan modifications: the bank will ideally want the new mortgage payment (Principal Interest Taxes and Insurance) to be 33-35% of the total household income (Gross or Net but that depends on the lender guidelines). If the lender can obtain a good return on the modified mortgage payment then they will usually approve it because they have an incentive from the federal government to do so. It is to be noted that the lender is under no obligation to accept a loan modification request from the borrower.

Mark explains to the negotiator that the homeowner has too many other obligations and does not wish to attempt a loan modification and rather opts to sell the property to reduce his liabilities. Based on this, the negotiator rejects the loan modification puts in a request for a BPO as the next step in Short Sale review process.

Definition: The BPO, or Broker Price Opinion, is a tool used by lenders and mortgage companies to value properties in situations where they believe the expense and delay of an appraisal is not necessary. Real estate brokers are given an order conduct a BPO by the lender, mortgage company or loss mitigation company. The broker does either a Drive By BPO or an Internal BPO in most cases.

Mark is now on wait again until the BPO agent schedules his appointment. What will the BPO reveal? Can Mark as an investor influence the BPO agent in any way? How can Mark beef up his marketing efforts to sell the property or can he get more creative?

Check out next week’s blog.

MARKS NET WORTH as of August 17th, 2009:  $72,500

Equity in home: $55,000

Savings: $4,000

401K: $13,500

Written by Ankit Duggal

Investment Director: www.rernj.com

RER is a boutique real estate investment company based in Clifton, NJ

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  • 2: Great City Mortgage Literature Sources ... Our foreclosure listin [...]...
  • Dennis's mortgage market guide: Great tips and info. namely on tax assessments.
  • krishna: Hey thanks a lot for posing this topic. I was preparing a paper presentation about this topic and i got many points about a real estate investor.

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