ShortSaleMoneyMachineA ZBlueprint

short sale money machine
J osh Ca n t we l l
Strategi c Real Estate Coach
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While attempts have been made to verify information provided in this publication, neither the
author nor the publisher assumes any responsibility for errors, omissions, or contradictory
information contained in this document.
This document is not intended as legal, investment, or accounting advice. The purchaser or
reader of this document assumes all responsibility for the use of these materials and information.
Strategic Real Estate Coach assumes no responsibility or liability whatsoever on behalf of any
purchaser or reader of these materials.
2008 Strategic Real Estate Coach
Chapter 1: The Macro Perspective ........................................................ 7
What is a Short Sale? .................................................................. 10
Note & Mortgage ....................................................................... 14
Traditional Real Estate Investing ..................................................... 14
Short Sale Real Estate Investing ..................................................... 15
The Foreclosure Process .............................................................. 17
Documents ......................................................................... 17
Appraisal ............................................................................ 18
Foreclosure Options for Lenders & Homeowners ...................................... 19
Sell .................................................................................. 19
Short Sale........................................................................... 20
Repayment Plan ................................................................... 20
Forbearance ........................................................................ 20
LoanModifcation ................................................................. 20
Partial Claim ....................................................................... 21
Deed-in-Lieu ....................................................................... 21
Foreclosure Auction ............................................................... 22
Bank Owned ........................................................................ 22
Contracts ................................................................................ 22
Sellers Market Versus Buyers Market ................................................ 24
Revenue Producing Activities ........................................................ 25
Realefow ............................................................................... 27
Chapter 2: Lead & Property Acquisition ................................................ 27
Choosing a Proactive or Passive Approach ......................................... 29
Step 1: Information Mining ............................................................ 29
The List ............................................................................. 31
The Courthouse .................................................................... 31
Referrals ............................................................................ 33
Step 2: The Multiple Medium Approach ............................................. 34
Direct Mail .......................................................................... 34
Postcards ........................................................................... 34
Letters .............................................................................. 35
Door Knocking ..................................................................... 36
Cold Calling......................................................................... 37
Voice Broadcast .................................................................... 39
CentersofInfuence:Referrals .................................................. 40
Step 3: The Consistency Formula .................................................... 41
Step 4: Deal Filter ..................................................................... 41
Step 5: The Credibility Filter ......................................................... 43
The Credibility Factor: Seller Script ............................................ 44
Step 6: The Positive Results Conversation .......................................... 45
The Positive Results Conversation .............................................. 45
Marketing Wrap .................................................................... 53
Chapter 3: Working with the Banks ...................................................... 55
Understanding Your Loss Mitigator .................................................. 58
The Short Sale Package ............................................................... 59
Whats Required?....................................................................... 59
Necessary but NOT Required by the Lender ....................................... 60
The Legal Package ..................................................................... 66
Making the Offer ....................................................................... 67
Organizing Your Files .................................................................. 70
Submitting a Short Sale Package .................................................... 72
Short States ............................................................................. 74
Submission Follow Up ................................................................. 75
Getting the BPO Ordered ............................................................. 75
The BPO Appointment ................................................................ 79
Negotiating the Final Price ........................................................... 80
Liens ..................................................................................... 81
Counteroffers ........................................................................... 81
Negotiating 2nd & 3rd Mortgages .................................................... 82
Pulling Title ............................................................................. 83
Closing ................................................................................... 84
Reasons Why Short Sales Get Declined ............................................. 85
Chapter 4: Selling the House ............................................................. 89
The Short Sale Quick-Turn ............................................................ 90
The Option Contract .................................................................. 91
A Survey of Exit Strategies ........................................................... 92
Retailing ............................................................................ 92
Wholesaling ........................................................................ 93
Lease Options and Rentals ....................................................... 93
Lease Options ...................................................................... 93
The Green Light Selling System ...................................................... 94
Red Phase Marketing (Pre-BPO) ................................................. 95
Yellow Phase Marketing (Post BPO) ............................................. 95
Green Phase Marketing (Post-BPO) .............................................. 96
Staging the House ..................................................................... 99
Building a Buyers List .................................................................. 99
CentersofInfuence ...................................................................100
REIA Groups.............................................................................101
Newsletters .............................................................................101
RealefowPower-Matching ............................................................102
Investor Open Houses .................................................................103
The End Buyer ..........................................................................104
Other Items of Interest About the Contract........................................104
A to B then B to C .....................................................................105
Closing Process .........................................................................106
The Title Company ....................................................................107
Conclusion ..............................................................................108
Appendix ....................................................................................109
7
Chapter 1: The Macro Perspective
With the foreclosure crisis in the news and on the front pages, it seems as if everyone wants
tofndawaytocapitalizeonthefallingpricesofthehousingmarket.Theshortsalewasonce
an esoteric method of buying properties in default from banks only the most knowledgeable
and skilled real estate professionals understood how to set up a business centered on this
once uncommon technique. Today, short sale companies have sprouted all over the American
landscape, and everyone seems to be interested in understanding how to more effectively work
with the banks to buy properties in pre-foreclosure.
The purpose of this course is singular: to provide a how-to guide to investing in pre-foreclosures
using the short sale process.
Several years ago we built a successful real estate
business in a market considered the worst in the
U.S. outside of New Orleans and perhaps Detroit.
For many years, Ohio was one of the leading states
in foreclosures; moreover, Cuyahoga County, the
home county of Cleveland, led the country in this
sad category. The number of houses on the market
at any one time has averaged to a two year supply
meaning that if sales returned to the level enjoyed
by the rest of the U.S. a few years ago, it would take two years to sell all the available property
in northeastern Ohio.
So how did we do it? How did we build a business that gathered momentum and signifcant
earnings at a time and in a place where all of our competition closed shop? First, we didnt try to
8
cut corners. Where most of our competition sought short cuts by circumventing local and state
laws, we chose another path: that of continuing education. The real estate industry is changing
on a weekly basis. We knew early on that only by making a commitment to learning would we
put our company in a position to grow and excel in a market as unforgiving as ours. Second, we
allowed ourselves to constantly monitor and adjust our business to the needs of the area. We
didnt buy into a structure and impose it upon the market, we allowed the market to direct how
we built our business.
While many companies are now in the business of teaching others how to
complete a short sale transaction, all the companies that we are aware of
are marketing companies geared toward selling their products: they arent
investors and they arent currently doing short sale transactions.
While we are in the business of teaching others how to do what we have
done so successfully, we are also still acquiring, negotiation, and closing
our own deals every week.
What we have learned about real estate is that with the right tools and understanding investors
cancreateabusinessthatrefectstheirneedsandtheirdreamswhethertheyincludebuilding
a company that operates on a national level or a smaller mom and pop business that operates
locally. Before reading Short Sale Money Machine, consider reading The Short Sale Manifesto
(www.shortsalemanifesto.com), which will provide a broad summary of what a short sales business
entails. The Short Sale Money Machine has been written to provide more in-depth information
on topics discussed in The Manifesto. Real estate investing is a dynamic industry for which
the only constant is change. By using the basic ideas in this text,
investors will have an outline as to how to conduct a short sale
transaction.
I have got to tell you, it was
OUTSTANDING! It is the best program
I have seen. They give you the real
deal, the meat and potatoes. I highly
recommend that you sign up. YOU
WILL NOT BE DIAPPOINTED!
~Charise Stone, Sterling VA
9
Understanding the short sale process requires knowledge
beyondtheusualtransactionsthatdefnearealestatebusiness.
Traditional real estate investing entails locating property, buying
property, rehabbing property, managing property and selling
property. These styles of investing offer enough complexities to
keep any real estate investor busy. The short sale will dramatically increase the number of balls
that the investor needs to juggle.
Despite the complexities and the additional knowledge that is required, learning short sales has
several distinct advantages that will be discussed later. Of primary importance to any investor
concernsfndingsellerswhoarenotonlymotivated,butalsowillingtoselltheirhouseforasteep
discount. Short Sales allows the investor to do both, with minimum expense. More importantly,
unlike traditional real estate investing when a seller accepts a low-ball offer, theres is no issue of
taking equity because a short sale has no equity.
Negotiations are done directly with the lending
institution that holds the note.
While at frst intimidating, the process of
understanding how to negotiate with the banks
is one of the best ways to learn about real
estate. Some investors might say short sales
take too much time, and theres not enough
proftwhichiscertainlytrueifaninvestordoes
not understand how the short sale business requires a more expansive skill set. Not just anyone
can succeed in this business: its not for average investors; however, for those investors willing
to challenge themselves to think about real estate differently, as well as how they organize their
We attended the meeting in Orlando
(and) we found it VERY helpful and
EXTREMELY right to the point. To
quote Dr. Phil here, Greg and Josh Just
get it. If you really want a dynamic and
informative program, then I think this is
the event you need to come to!
~Forestview Group, Dale Bjordahl
10
businesses,theshortsalebusinessisnotonlyhighlyproftable,itsfun.
Whatever your goals are for investing in real estate, there are two
important lessons to keep in mind right from the get go:
Establish a goal and identify the benchmarks needed to keep 1.
you on track; and
Create and implement an effective strategy to get you where 2.
you need to go.
In any job it is easy to get caught up in the day-to-day struggle and
forget where it is you ultimately want to go. Its also too easy to forget the reasons why you
undertook the responsibility of running your own business that is what you are doing not just
investing in real estate but creating a business.
What do you want to have happen?
Isittoachievefnancialindependence?
Isittocreateasteadysourceofpositivecashfow?
Is it to leave behind a legacy?
What is a Short Sale?
A short sale takes place anytime a property is sold for less than what is
owed on the mortgage and the lenders who own the underlying mortgages
accept less than full payoff as a settlement. This allows the property to
transfer to the buyer even though the lenders did not receive everything
they were owed. Short sales usually take place during the foreclosure
(the event was) straight
forward, direct, had access
to experts, 3 days of solid
training! Good information
no bait and switch or tease
and sell a second deal. BEST
SHORT SALE TRAINING I
HAVE SEEN TO DATE!
~Bob Deschnor
11
process when a buyer is trying to buy a property and the purchase price will not cover the payoff
of the mortgages in full. Most often these properties are bought and sold after the foreclosure
process has started but before the process is completed through a sheriffs or trustees auction
sale. This stage is called the pre-foreclosure
stage.
Lenders and mortgage companies have
departments of loss mitigation whose
responsibility is to deal with properties
in foreclosure. The main assignment
of this department is to fnd solutions
for homeowners and for lenders to the
foreclosure problem. Foreclosing on a
property is a problem for everyone the
lender, the homeowner and the community. Lenders who own mortgages on houses in foreclosure
do not want to foreclose and repossess the property. They would prefer the homeowner make
themortgagepayments.Mortgagecompaniesproftgreatlybylendingmoneyoutandreceiving
interest payments in return. Once a homeowner stops paying the mortgage the underlying lender
has no choice but to foreclose. This is the only way the lender can get their original loan back. By
forcing the property to be sold at auction the proceeds from the sale will go back to the lender. If
the property is not sold to a third party the lender will repossess the property and then sell it as a
bank owned property through a real estate agent. Once the
property is sold to an end buyer the original lender receives
whatever monies are left after the sale. The proceeds paid
to the mortgage company are almost never the full amount
they originally loaned. In most cases lenders lose about
$60,000 to $80,000 per foreclosure. In addition, lenders
The reason that I am with SREC is because
they get things done When you have a
good plan and you do the things you say
youre going to do, good things happen.
Thats exactly what Greg and Josh do. If
there is an event that you go to, make it the
SREC event!
~Jake Jordan, Ft. Worth TX
12
only recover about 50 percent of their original loan amount.
Because lenders lose money during the foreclosure process they will entertain alternative
measures. One alternative is to sell the property during the foreclosure process even if they
do not receive the full loan balance, otherwise known as a short sale. If a lender calculates
that a short sale will provide them more money than repossessing the property the lender will
approve the short sale. They willingly accept a loss on the sale (short
sale)becausetheyperceivethistobeabetterfnancialdecisionthan
foreclosing.
The best way to explain a short sale opportunity is to provide this
example:
The homeowner owns a property valued at $250,000. 1.
Lender(s) has a mortgage(s) against the property which were 2.
recordedwhenthehomeownereitherboughtorrefnanced
the property.
The homeowner owes a total of $240,000 on a 1 3.
st
and 2
nd
mortgage.
The homeowner loses job and is experiencing a divorce. 4.
The homeowner misses the 1 5.
st
mortgage payment because of a lack of funds to pay
the mortgage.
The payoffs on the underlying mortgages increase each month a payment is not 6.
made.
Thehomeownerisunabletofndabuyerwhowillpayenoughtocoverthefullpayoffs 7.
on all the mortgages.
The homeowner misses 3 8.
rd
payment.
The underlying mortgage company fles the foreclosure lawsuit and starts the 9.
foreclosing process.
Josh and Greg are very good
speakers; providing (us with)
much detail and they really
retain (our) interest. Their
honesty and integrity shines
through the presentations
and the work they do. It is
obvious that they spend
much time preparing for the
weekly coaching calls and
have a deep commitment to
their coaching students. They
are innovative and they think
outside the box!
~Mary Ann Heindorf:
13
The homeowner receives notice in the mail that the underlying lender is trying to 10.
repossess the property by foreclosing.
The Foreclosure notice is posted in public records. 11.
The pre-foreclosure stage has begun and property can be bought through a short sale 12.
negotiation.
The homeowner continues to miss additional payments. 13.
Thelenderreceivesfnalapprovaltoforecloseonthepropertyandauctiondateis 14.
set.
The sheriff or trustee (depending on state law) completes exterior drive-by appraisal 15.
to obtain value of subject property.
The sheriff or trustee sets opening bid price at 2/3 of exterior appraisal. 16.
The property is auctioned off at public foreclosure or sheriffs auction to highest 17.
bidder with bidding starting at 2/3 of sheriffs exterior appraisal.
When public foreclosure or sheriffs auction has been completed the opportunity 18.
to complete the short sale purchase has ended (Exception: certain states have a
redemption period permitting the sale of the property through a short sale for an
additional time).
The investor buys the property at 19.
auction OR the foreclosing lender buys
property back if bids fail to be high
enough to satisfy lender requirements.
The redemption period begins, providing 20.
a last chance for the homeowner to
retain possession of the property (varies
from state to state).
During redemption period, the homeowner can pay off back payments or entire loan 21.
amount and keep the property (depends on state law).
14
The redemption period ends and property is transferred back to the bank through a 22.
sheriffs deed.
The property becomes Real Estate Owned (REO) by the bank. 23.
The bank sells property through real estate agent to end buyer or investor. 24.
The lenders net proceeds from REO sale are the total proceeds they receive back from 25.
the original loan amount. (On average 50 percent of original loan amount.)
Note & Mortgage
Every time a property is either bought with a loan or
refnancedwithaloanthetitleorescrowcompanyhandling
the closing is responsible for recording a note and mortgage
that describes the terms of the loan. Immediately after a
closing the title company records the note and mortgage in
the public record for all to see. This note and mortgage is attached to the property so that when
thepropertyissoldorrefnancedlater,theexistingnoteandmortgagewillhavetobepaidin
full.
Terms are included in the mortgage allowing the mortgage company to foreclose on the property
if the mortgage payments are not made on time. This is what allows the mortgage company to
pursue foreclosure as a means of forcing the loan balance to be paid off.
Traditional Real Estate Investing
Traditionalrealestateisbasedaroundtheideaoffndingandbuyingpropertiesatadiscount:
buying right in other words. Typically, buying right means buying the property at around 65
percent of the as-is value. The as-is value is determined by taking the after repaired value and
15
subtracting the repairs needed.
Example
Mortgage Amount: $210,000
House Value: $200,000 after its been fully repaired (ARV).
House Needs: $20,000 in repairs.
ARV: $200,000 repairs = $180,000 as is value
Buy Price 65% of 180,000 = $117,000
Thenextstepinthetraditionalrealestateinvestingmodelistorehabandfxthoseproperties
to get them back to full market value. The last step is either to sell the property for a handsome
proftortocreatecashfowbyrentingthepropertytoatenant.
Traditional real estate requires several skill sets. The three most
important skill sets include marketing to acquire properties,
structuring the deal and selling properties. The traditional real
estate investing market is competitive. Many new investors
believe the process is simple and the transactions easy. Hence
they gravitate towards this model because it has a low barrier to
entry. Buy, Fix, and Sell sounds simple, but a new investor needs
to put together a solid team for a good start.
Short Sale Real Estate Investing
Like the traditional real estate investing model, short sale investing is based around the idea of
fndingandbuyingpropertiesatadiscount.Moreover,buyingrightisalsoimportantintheshort
sale business. The primary difference between the two models concerns the exit strategy used to
proftonthedeal.Themostcommonexitstrategyintheshortsalebusinessisadoubleclosing
The event was GREAT! I learned
a lot and I have been implementing
a lot of this into my business. A
breakthrough that I have had is that
Im learning to systemize everything,
which is AWESOME because
youre not just quitting your job and
becoming a business owner and
working IN your business, but youre
learning how to get yourself OUT of
your business and that is the real
spirit of a true entrepreneur.
~Melissa Carver, Michigan
16
where a property is bought and sold in the same day. This reduces the need to buy at 65 percent
of the as-is value because there are no rehab or holding costs. As a result, investors are left with
more options regarding properties that can be pursued and therefore have more opportunities to
generate more business.
Heres an example: the subject property is in
foreclosure and the mortgages are equal to or
close to the ARV.
Example
Mortgage Payoffs: $210,000
ARV: $200,000
Repairs: $20,000
Offer price: $130,000
Accepted offer: $140,000 (what the lender accepts and the investor pays)
Resale price: $168,000
Proft: $28,000 minus closing costs
In this example you can see that the property was not bought at 65 percent of the as-is value
($200,000 $20,000 x 65% = $117,000) because the exit strategy allows for transactions to be
completed at higher levels through a double closing. This may be the single most important
characteristic about short sales. If the property can be bought at roughly 65 percent then an
investor can make the decision to buy, fx and sell. If a property cannot be discounted to 65
percent, a proftable transaction can still be completed that the investor would not normally
pursue. The use of a double close allows this potential deal to happen and the investor to
capitalize on a deal they otherwise would pass.
17
One attractive aspect of short sales is the limited exposure they offer the investor in the terms of
risk. The reason is because the primary exit strategy (or selling strategy) for short sales investing
is through the purchase and sale of the property in the same day, otherwise known as a double
closing. This eliminates holding costs and the uncertainty of buying a property with the hopes of
sellingforaproft.Ifstructuredcorrectlyashortsalepropertycanbeacquired,negotiatedand
sold in such a way that the investors risk level is minimal. In essence, a property is bought only
when its already being sold, meaning that the risk to the investor is nearly eliminated!
Traditionally, investors looked for properties with equity to be bought at a steep discount,
rehabbed and sold. Properties that are candidates for short sales are in foreclosure and have no
equity and thus most investors do not pursue them. The opportunity to buy and sell properties
in foreclosure through short sale negotiations is huge. With the
collapseofsub-primelending,thepossibilityoffndinghousesto
buy using the short sale method have never been more plentiful.
For this reason short sales have become a buzzword in the real
estate industry. Take away the risks associated with traditional
investingtheholdingcosts,contractors,rehab,fnancingandaddtoittheabilitytoquickturn
properties and its no surprise that short sales have become so rewarding.
The Foreclosure Process
Documents
Each state and county has their own rules and laws pertaining to real property. Likewise, each state
also processes a foreclosure according to their procedures and laws; however, some uniformity
does exist. Most investors live and work in a judicial foreclosure state while some work exclusively
in a non-judicial foreclosure state. A judicial foreclosure state is one where a lawsuit (called a
complaint) is required to start the foreclosure process. Attached to the complaint are other
You always have fresh, new
content at every event! The
information is always on point.
THANK YOU for the Property
Launch Formula info!
~John H. Grant:
18
documents that are also served on the homeowner. These additional documents include a copy
of the promissory note signed by the borrower or homeowner, along with the mortgage signed
by the borrower or homeowner. Promissory notes are the IOUs: this is what is really valuable.
The mortgage backs up the IOU as collateralized by the real estate. The promissory note and
mortgage are exhibits on the foreclosure complaint. If you
are working a short sale, get those papers. Information such
as the interest rate, when the loan was originated, and all
sorts of other valuable information are on those papers.
Thelawsuitstartswhenfledatthecourthouse,butcannot
move forward until the homeowner, or borrower are served
with the complaint and other papers. This is usually done
by certifed mail, a sheriffs deputy or a process server. Once the papers have been served,
the lawsuits clock begins to tick. The bank prefers to move quicklyusually 20 to 28 days but
investors will need additional time to negotiate a deal with the lender.
Appraisal
Appraisals are more than a shot in the dark, but they are hardly accurate.
Hire any three appraisers to evaluate a property and you will be given
three different values that end up representing a broad range.
Once the ordered appraisal has been completed, the property is scheduled
for public auction with the minimum bid being two-thirds of the appraised
value. One of two things will happen at the public auction: 1) The house
will be sold; or 2) It wont. If the house is sold, its either the bank or
somebody else whos buying it it cannot be the homeowner. Homeowners
are legally prevented from being a bidder at the sale. An investor ready to
put 10 percent down, cash, may make an offer on the property being auctioned. Usually what
I have been a real estate
investor for about four
years and I have chosen
SREC because a lot of
people have said that the
riches are in the niches
and with all of the sub-
primes and the amount
of mortgages that are
defaulting its something
that I HAD to add to my
business model. This is
another great tool in my
toolbox!
~Michael Moulten,
Charlotte NC
19
happensisthatarepresentativeofthefrstmortgagebidsonthepropertyanddrivestheprice
up.Thefrstmortgagordoesnotneedtoputanymoneydowniftheirbidisaccepted.They
simply take the property back and hire a Realtor to list it as a real estate owned (REO) property
for sale.
Sometimes a foreclosure or a house will go to sale with no bidders. This means that either
nobody was at the sale or that the lender wanted too much money for the house. Usually, its the
latter. What does the court do? They will go back and get a new order of sale, a new appraisal
at a lower value, and then they run it through the auction process, again. This can happen two,
three, even four times before the house is fnally bought back by
the bank. For a while, some lenders were using a strategy whereby
theydrefusetobidthefrsttimeinthehopethattheymightfnd
a buyer and recover all of their money. With the downturn of the
housing market nationwide, this strategy is no longer effective. In
the North lenders will often ask the court to postpone the sale,
if during the winter months, because they want somebody in the
house. A vacant houses in the winter usually means ruptured water pipes.
Foreclosure Options for Lenders & Homeowners
Once a homeowner misses a payment and then moves on to missing a second and then a third,
thelenderflestheforeclosurenotice.Whenthishappensthelenderandthehomeownerhave
a few options.
Sell
If the property has equity the homeowner can simply sell the property outright and keep whatever
equity is left over after closing costs and real estate agent commissions are deducted. In most
What I enjoyed the most
The concept of revealing
the nuts and bolts of your
company, the idea of not
holding any facet of this
business back, and the
feeling that you want us to
SUCCEED!
~Dania Fadeley
20
foreclosure cases the homeowner has no equity.
Short Sale
The homeowner could sell the property to a buyer and negotiate a short sale on the mortgages
and liens provided the purchase price is not enough to cover the full loan balances or all mortgages
and liens. The amount owed on these liens might have to be negotiated to allow the property
to transfer. Otherwise the full payoffs of the loans would cause the homeowner to be up side
down on the loan balance. In this case the homeowner or seller would have to bring funds to the
closing table to pay off the loan in full.
Remember, a short sale takes place any time a property sells for less than
what is owed and the lender accepts a discounted settlement payment, even
though it may not be enough to cover the full loan balance. A short sale
must be an arms length transaction. In most cases the homeowner is not
allowed to receive any money from the short sale. In a few selective cases
the homeowner may receive compensation from the foreclosing lender. The
short sale approval letter issued by the mortgage company will stipulate if
the homeowner is allowed to receive any money at closing.
Repayment Plan
The third option for the lender is to work out a repayment plan of some kind. Forbearance plans
andloanmodifcationsaretypicalrepaymentsplans.
Forbearance
A forbearance plan would consist of a written plan to repay the back payments (arrears) that
are owed based on the mortgagors ability to pay the new installment payment. A forbearance
plan payment typically includes the current planned payment plus a percent of the arrears owed.
Through SREC I learned
many, many different ideas
about marketing, BPOs,
negotiations, selling the
properties and running
the short sale business
as a true business where
I can actually have a life,
freedom, and (just) grow
my business to the next
level.
~Rafal Zawistowski,
New Jersey
21
In almost every case the homeowners payment will increase dramatically. Most forbearance
plans fail. Homeowners simply do not have the extra money to make the larger payment.
LoanModifcation
Anotherformofrepaymentplanisaloanmodifcation.Aformalloanmodifcationisapermanent
change in the terms of the mortgagors loan. An example would include a change in the interest
rateoftheloan.Anotherexamplewouldbeanextensionoftheloanterm.Loanmodifcations
cause a re-amortization of the loan with a new payoff
schedule. It structures the loan is such a way as to give the
homeowner a payment they can afford. Lenders do this to
allow the homeowner to get back on their feet and begin
the mortgage payments again.
Partial Claim
A partial claim is an advance of money to the homeowner or mortgagor for the payment of the
arrears. This money would be applied to the past due balance and reinstate the delinquent loan.
A subordinate mortgage and note in the amount of the loan is then attached to the property as a
junior lien. This option is only available for HUD loans. (See www.hud.gov for additional details)
Deed-in-Lieu
Another Option for the lender is to pursue a deed-in-lieu of foreclosure. A deed inlieu is a plan
whereby the homeowner gives the deed to the property back to the foreclosing lender. This
program ends the civil lawsuit against the homeowner. In some cases the homeowner will receive
compensation from the foreclosing lender for participating in this plan. A written report of the
condition of the property must also be signed off by both parties. In the deed-in-lieu program the
foreclosinglenderisabletosaveasignifcantamountoftimeandmoneybecausetheforeclosure
process ends quickly. The disadvantage for the homeowner is that this program is still considered
EXCELLENT INFORMATION! Youre
approachable, and thats cool. Thanks
for sharing so much real and applicable
info, strategies, and energy. Youre all
GREAT!
~Paul Vyhnalek
22
a foreclosure and will damage their credit report. A deedinlieu is truly a last option if a short
sale fails.
Foreclosure Auction
If all of those options dont work, the lender can force the
auction of the property and liquidate the house to the highest
bidder. This is typically done through a sheriffs or trustees
sale. In most areas of the country these auction style sales
are conducted on a monthly basis. In major markets these
auction sales are done weekly. The bidding starts at 2/3 of the sheriffs or trustees appraised
value in most areas. The value is determined by an exterior drive-by appraisal.
Bank Owned
Last, the bank can repossess the property if the
auction does not generate a high bid. In this
case the lender would repossess the property
or buyback the property at auction. The
property is then considered real estate owned
by the bank or an R.E.O. The lender would
then hire a real estate agent to sell the property. In
most cases the buyer of these REOs is an investor willing to take on the
risk of rehabbing the property.
Contracts
Taking advantage of real estate as an investment depends largely on the way the transaction is
I love outsourcing (because) I dont want to
negotiate the short sales, so I hand it all over
to them. They lay it all out there, nothing is
held back, all questions (are) answered and
easy access to them for any questions or
problems that you may be having.
~Julia Jordan, Dallas TX
23
structured. Transactions are made through purchase and sales agreements
that allow the buyer or seller certain rights. The preferred contract to use
during the short sale process is a special version of an option contract. This
option contract gives the buyer certain rights and privileges. Some of those
rights and privileges provided during the short sale process include: the
abilitytoinspecttheproperty,negotiatethefnalshortsalepricewiththe
lender, ways to back out of the deal if the investor cannot buy at the right
price, list and sell the subject property to another buyer and close on the
property if the price is right.
The option contract for purchase and sale of a foreclosure property is the tool used to structure
the short sale purchase and the resale of the property when using a simultaneous close as the
exit strategy.
The option contract method is useful on many levels that will be discussed later. It provides to
the investor the option of buying the house if the bank approves the initial offer. If the bank
agrees to a discount, but the price is still too high to make sense to the investor to buy and hold,
the investor has the option to market and sell that property to an end buyer who is willing to
paymore,creatingaproftspreadbetweenthepurchaseandresale.
Theabilitytomakeachoicegivestheinvestorfexibility.Weonceworkedwithanationalcompany
that was adamant about buying property at an extremely low discount. When the banks failed
to approve their offers, the investors were stuck and had to move onto the next deal. That lead
was wasted and the homeowner left with few options. In the above scenario, the investor makes
an offer that he or she hopes that bank will approve, while understanding that as long as the
bank provides a reasonable discount (dependent upon local market conditions), the investor has
another avenue to bring revenue into their business.
I am so excited and happy
that I came to be a part of
the SREC event. They are
really hands on and they
tell you everything that
they know about short
sales. Everybody on the
team is outstanding and
I know that anyone who
gets involved with SREC
WILL BE PLEASED!
~Rhonda Cook,
Detroit MI
24
Sellers Market Versus Buyers Market
Certain economic criteria will show whether a market is a buyers or a
sellers market. For instance, in a sellers market good deals are hard to
fnd; interest rates are falling; and consumer confdence leads to a rise
in demand with increased spending due to an increase in discretionary
income. Likewise, there are relaxed lending guidelines and more buyers
than properties. This was the case from 2000 through 2005 when average
people with no real estate experience or training
begantofoodthemarket.Theywerelookingfor
the quick dollar and the easiest way into real estate
and would buy almost anything with the hopes of
resellingquicklyforahandsomeproft.Wehaveall
seen or read countless stories of how get-rich-quick
schemers bought condos and beachfront property
at full market value just hoping that the market
would continue to appreciate. Many investors were
lured into buying properties during pre-construction
phases hoping to sell once the construction was complete and lost their money.
In a buyers market the economic criteria is the exact opposite: rising interest rates, reduced
discretionaryincome,reducedconsumerconfdence;housessitwithlittleornoactivity;tighter
lendingguidelines;andmorepropertiesthanbuyers.Todaysmarketin2008qualifesasabuyers
market.
Markets tend to shift quickly. When investors realize that they are in a certain market they may
It was great that Josh and
Greg were up on stage
often to teach the material.
It was also great to have a
loss mitigator from a bank
join us. You really leave the
seminar more equipped to be
successful in the short sale
business. I loved this seminar.
The SREC team RULES!
~Florissa Regnoso
25
fndthatthemarketisabouttochangeagain.Makingafortuneinrealestatethankfullydoesnot
depend on shifts in the market place. Its not like stock investing in which most people only make
money when the market goes up. In the case of foreclosure investing and short sales the market
does not determine success. You do. Your creativity and drive will determine the outcome of your
real estate investing practice.
Revenue Producing Activities
In any business there are activities that produce revenue and then there are all the other
necessary tasks to perform. After identifying what revenue producing activities are important, it
is important to structure your business so that those activities are the focus. Revenue producing
activities drive the business and create new opportunity. Often, young businesses struggle
because a large amount of effort is devoted to ancillary activities that while necessary, may not
be crucial. Real estate involves a great deal of paperwork, and organizing the clutter can take
precedence over more important tasks.
The four most important revenue producing activities in the short sale investing business are the
following:
Seeing properties and meeting with homeowners 1.
Successfully managing a BPO appointment 2.
Marketing and selling house 3.
Problem-solvingwaystoachievegreatereffciency 4.
Understand that theres a big difference between working in your business as opposed to
working on your business: the latter gives a much better shot at success, while the former
will cause a business to wane.
I have found that Greg, Josh and
the whole team are THE most
committed people that I have been
involved with. Whenever they tell
us that they have a new tool, they
make it available for us. I just dont
think that the timing could be any
better than right now to get involved
in the short sale business.
~Rogie Robinson, San Diego CA
26
Three people types are necessary to the create an effective business: task oriented people,
project oriented people and process oriented people. All are essential to the success of any
business, but its good to know who falls into each category if there are two or more individuals
in a real estate investing business. An entrepreneur is more inclined to focus on the big picture
by identifying the steps needed to grow the business in a certain direction. Conversely, someone
who is project-focused is good at managing
several tasks at once. As a result, think
abouteventuallyhiringanoffcecoordinator
to handle all the non-revenue producing
activities that are distracting (i.e., all the
administrative work).
Besides helping run the offce, an offce
coordinator can spend time on research
going to the courthouse to obtain a list of
names of people in foreclosure, or working with the list provider to get all the leads into the
computerasspreadsheets.Offcecoordinatorsarealsoresponsibleformarketingprogramsand
mailing campaigns, paperwork, listings, communicating with sellers.
Forparttimeinvestorsattemptingtomanageashortsalebusiness,anoffcecoordinatormight
notmakesense;however,forfulltimeinvestorsanoffcecoordinatorisessentialtokeepthe
gears moving, especially if you are depending solely on your business for income. While the costs
associatedwithanoffcecoordinatormayseemprohibitive,theupsideofhavingmoretimeto
address those aspects of the business that produces revenue should not be understated.
Ifyouareaparttimeinvestor,runningalargerbusinessbyyourselfmaybecomediffcultunlessyou
27
canhireparttimehelp,oryouhaveRealefow(seewww.realefow.com).WedesignedRealefow
tostreamlineanddefnerevenueproducingactivitiesandnon-revenueproducingactivities.
Realefow
Asmentionedabove,wedesignedRealefowtohelpinvestorsstayfocusedonrevenueproducing
activities.RealefowcombinesseveralhelpfulproductsapowerfulCRManddatabasemanager,
a comprehensive marketing system, an automated forms creator, a virtual business advisor, a
robust project manager, and high quality lead generation websites to create the worlds most
powerful real estate business management system.
Realefow brings some exciting new products to the industry. As such, they are pioneering
creative ways to think, manage and execute a real estate investment business.
Sophisticatedandsmart,Realefowintroducesasimpleandeasytouseinterfacewithatabbed
flingsystem,intuitivecontrolsandabeautifuldesign;itletsyouhaveaccesstotheinformation
you need, when and where you need it. Never has the real estate investment industry had a tool
soeffcient,sobroadinscope,andsopowerful.Realefowwillnotonlyredefnethebusinessyou
have,butthebusinessyouareworkingtocreate.(ForademovisitRealefow.com)
Chapter 2: Lead & Property Acquisition
One of the many advantages that a short sale business has over conventional real estate companies
is the limited amount of dollars it takes to create an effective marketing campaign.
The number one reason why businesses falter is a failure to control costs. Dont assume that
just because you are going to spend thousands on advertising that the business generated will
28
beconsistentandproftable.Beultraconservativeanddeterminewhereyourdollarisgoingto
have the most affect.
When we started our real estate company, we knew from prior experience in other industries
that we would need to determine a couple of things:
What kind of business did we want to have; and 1)
What systems would we need to have in place to achieve our objectives? 2)
Initially, my business partner, Greg, and I did a little of everything. Of course, our duties
overlapped and we butted heads. We found ourselves making some of the same mistakes that
we had made earlier, so we decided to clearly
defne what our roles and responsibilities would
be. Greg took responsibility for the front end
of our business the marketing and advertising
as well as acquisition of properties, while I took
responsibility for the back end the short sale
negotiation, reselling the properties, and working
with the title company to manage closings. The
results were immediate; within a couple months
Greg had us working on 35 deals and I could focus
solely on negotiating those deals and getting them sold and closed. That one decision, the
willingnesstoacceptcertaindefnedroleshasmadeallthedifference.Insodoing,weallowed
ourselves to become experts in one or two areas, instead of several while we quadrupled our
businessinthesecondhalfofourfrstyear.
29
Choosing a Proactive or Passive Approach
A highly effective marketing plan will need to be developed with the
purpose of separating your business from your competition and providing
asteadystreamofqualifedleads.Twotypesofapproacheswilldefne
your strategy: passive lead acquisition and proactive lead acquisition.
Passive lead acquisition is exactly that: Money is spent on television, radio
and billboards and leads just come in. This form of lead generation is costly, but
it saves time and allows the investor to address other areas of the business.
Developing a marketing campaign based on the cheapest form of advertising,
direct mail, combined with referrals, cold calling, and door knocking is the smart
approach.
The framework that we use in our approach to marketing is called
The Helping Hand Positioning Process. It positions us as the leader
in our area for helping people with problem properties, such as
those with houses in default.
Step 1: Information Mining
Identifyandimplementtechnologicaltoolstofllyourpipelinewithqualityleads.
The overall philosophy to marketing the pre-foreclosure list is analogous to what advertisers refer
toastheshotgunversustherifeapproach.Withpostcardsbroadswathscanbetargeted,as
ifusingashotgun,togeneratedleads.Thefrststepistoidentifytheareasinwhichyouwant
to acquire houses. Keep in mind those regions in the market where youll have the best chance
30
to sell property once negotiations with the
lender are resolved.
When we began our business we were forced
by a lack of funds to minimize our expenses.
We also understood that by investing in
television, radio or billboard advertising we
would have less control of where our leads
were generated. Hone your focus more
specifcally.Focusonthebestpartsoftowntobuyandsellhouses(identifyyoursweetspot).
Research your market. Talk to neighbors and look into school systems. Look for areas in which
people are trying to move. What parts of town have development planned? What areas are the
best parts to live? Once you decide the best areas to sell houses then deciding where to acquire
houses is easy: Its the same area.
Referrals, cold calling and door knocking are tactics that should be implemented to aggressively
pursue houses that are golden opportunities. Through these approaches youll be able to
successfully target area markets, keep costs down and brand your name. Referrals are also an
important source of leads. The more business you do, the more chances your company has of
being referred from one distressed homeowner to another, but you still need to wait for the
phone to ring, in other words, you will still be stuck in that passive lead acquisition mindset. A
great goal would be for your company to obtain 50 percent of your new short sale leads from
referrals. The best referral sources are real estate agents, attorneys and mortgage brokers.
Remember that the best anyone achieves with most direct mailing is a 1-2 percent response rate.
What has proven to be effective in most short sale real estate investing marketing programs
is not any individual approach, but rather the whole of all methods combined. Be consistent.
31
Send out postcards. Make cold calls to houses in good neighborhoods regularly.
Stop by some houses and door knock. Build your business and
reputation. Network with other professionals and referrals will
begin to come your way.
The List
The fastest approach to acquiring leads of those individuals in
foreclosure is to buy a list. Many list companies will sell the names
and addresses of people going into foreclosure. The trouble is accuracy:
How old is the list? Likewise, one can never be sure how comprehensive
the list is for their area; perhaps the list is only providing half of all the
foreclosures in that region? Access to lists of individuals in foreclosure will
vary from county to county and state to state.
The Courthouse
The most accurate approach to acquire a list of prospects
is to take names directly from the courthouse foreclosure
list. In most cases the information is either online at a
countywebsitedesignedspecifcallytolistthenewforeclosuresorin
thephysicalfleatthecourthouse.
Checkthecivilcaseflings.Inmoststatestheforeclosureprocessisacivillawsuitbetweenthe
foreclosing lender and the homeowner who has missed their payments.
The information needed to obtain an accurate list is the following:
name
address
32
city
state
zip code
lender
datetheforeclosurewasfled
If loan amounts are recorded, copy that, too. However, searching for the name of people who
have been served a lawsuit is not the only list to be generated. Investors would be wise to
develop a list of those individuals who have received their sale notice and have an auction
date set. The order of sale
isthefnalnoticethatthe
foreclosure process has
already run its course and
the foreclosure auction
date has already been set.
These people tend to be
highly motivated once they
realize that the auction is
going to take place in the
next few weeks.
In conclusion, one of the most attractive elements of a real estate business is that it requires
little in the way of sophisticated marketing and expense. When investors master the basics
of generating lists, developing a direct mail campaign, cold calling and door knocking, their
businesses will begin to thrive. Of course, its important to recognize that each area has its own
skill set. For instance, some individuals may be more comfortable working the telephone, while
others like to get in front of people and really enjoy knocking on doors.
33
Investors whove made the commitment to have a business probably have the social skills and
discipline necessary to perform these tasks. If not, then its important to hire a buyer who can.
Acompanysapproachtomarketingneedstorefectthetypeofcompanythattheywanttobe:
Itneedstobeorganized;itneedstobeconsistent.Mostimportantly,itneedstobespecifcto
the areas where the investor has the greatest chance of success. This means the areas with the
greatest chance to sell the house.
Referrals
Referrals are the number one most preferred way of obtaining new leads to pre-foreclosures. By
obtaining a favorable introduction to a seller in default you bypass the need to build credibility.
By being introduced to someone you are already brought into the situation as credible because
you are being introduced as the expert. If a real estate investment business is set up the right
way opportunities to buy properties will consistently present themselves through referrals.
Many times a referral source will be compensated at closing. Please verify with your attorney
the best way to pay a referral or consulting fee. If you are able to buy and sell the property
for a proft usually a referral fee will be paid at closing if the source of the referral is not a
real estate agent. As mentioned above, the normal referral fee is between $500-$2,000. This
depends on a few things: The relationship between the investor and the referral source and the
expectations of the referral source. Setting the expectations up front is necessary so that there
isnt a miscommunication when the deal closes. If a referral source could bring multiple deals
to an investor the investor should be sure to compensate the referral source at a rate that will
ensure that they will refer again: $500-$2,000 is usual and customary.
OurapproachtoobtainingreferralsonaconsistentbasisiscalledCentersofInfuence.What
CentersofInfuence would be helpful to you in building your business? How might you use their
34
knowledge, skills and contacts? What techniques do you need to develop to get what you want?
Illgiveyouahint:attorneys,Realtors,andmortgagebrokerscouldfllyourpipelinesofullof
leads that you would literally have to turn the faucet off to control the chaos. We have developed
a complete system based on this approach. Note: Real estate agents cannot receive a consulting/
referral fee. They must receive a commission on the HUD.
Step 2: The Multiple Medium Approach
Capture consumers in default based on varied responses in different advertising mediums.
Customize your message and apply it to several forms of advertising as a way to ensure a greater
reach. Homeowners will think of your company when they are ready to take action.
The bottom-line, learn what blend of strategies to rely on to keep a steady stream of leads
coming in. Dont just depend on one source.
Direct Mail
Sending out direct mail is an effective way to market to the pre-foreclosure list. Direct mail
includes postcards and letters and generally achieves and average response
rate of 1-3 percent. Not exactly fantastic, but as a backdrop to
other marketing campaigns direct mail is useful in bringing
in an assortment of leads each month.
Postcards
Sending postcards to your list is the most
common method found in direct mailing,
and the one that will be most used by your
competition. Each needs to have a targeted message and a call to action for the recipient.
35
The postcard colors and graphics are not nearly as important as the message it conveys to the
seller. The postcard calls the homeowner to action and tells them they need to do something
immediately.
The frequency of the mailings will depend greatly on the time it takes to foreclose in your target
market. In a target market where the foreclosure period is only three months its necessary to
send out postcards more frequently. Sending out seven pieces of mail over three months would
include sending out a postcard about every other week.

In a target market where the foreclosure period is longer its more important to send out postcards
at the beginning of the process. Then follow up monthly until it gets closer to the auction date.
Continue to send postcards when the auction date has been posted.
Letters
Sending letters to homeowners in foreclosure is another great
way to acquire favorable leads on potential short sales. The
idea of letters is a little different from postcards. The letters
that get the best response are the ones that appear to be
handwritten and personal in nature. The envelope needs to
appeartohavebeenhandwrittenaswell.Thesetypesoflettersgetopened,whichisthefrst
step. Letters that do not appear to have been handwritten typically do not get opened because
they appear to be junk mail. Letters with labels and type written print will be confused with all
the other junk mail individuals receive.
The best way to differentiate direct marketing letters is to send a letter that appears personal
and handwritten. Ask yourself, What mail do I open? The letters that look personal you probably
open just like everyone else.
36
Door Knocking
The ultimate in proactive lead acquisition is door knocking. If a real estate
investorwhoisinterestedindevelopingashortsalebusinesswantstofllup
their deal pipeline fast, and cheap, this is by far the most effective approach:
for some, its also the most terrifying. The skill needed to successfully approach
distressed sellers by going to their front door is not an easy thing to learn.
Generally, the process is the same as that found in any other sales approach:
build rapport, identify pain, and provide an easy way out. The goal of the real
estate investor is to create an opportunity to introduce to the homeowner the
services provided by their company. The actual appointment to inspect the
property will take place later. Listed below are some key ideas. Each one by themselves could
be a one-day class. This list is meant to provide a constructive framework for those investors
interested in adding door knocking to their marketing repertoire.
Rejection: 1) Investors who brave the front door will be rejected, so they need to prepare
themselves mentally. If the investor or the buyer theyve hired is sensitive or easily
offended, then the responsibility should be given to someone else in the organization.
Otherwise, excuses will be made and success doubtful.
A Numbers Game: 2) Simple rules of sales apply. The real estate investor should set a
goal each time he or she hits the streets to door knock. Buyers that we have worked
with often try at least 20 properties that theyve approached. For every ten contact
points made (where the homeowner responds), if the buyer is able to walk away with
two appointments or follow-ups, he or she is doing well. Likewise, having situational
awareness while out in neighborhoods keeping an eye out for vacant properties, a
FSBO, or a neighbor can result in a few extra deals, too.
Invading the Prospects Space: 3) To be successful at door knocking, the buyer must
37
understand that he or she is invading someones safe haven. Building rapport with
someoneinadistressedstateisdiffcult.Yourgoalshouldbetopresentyourselfasnon-
threatening, understanding that for many people being confronted at their front door
aboutanembarrassingissueisnotpleasant.Yourpresencemaybethefrsttimethatthe
realityofthehomeownerssituationisbeingconfrmed:respecttheirpain.
What new investors will often do is go over the top in providing information either on the phone
or in their drop off packets. Never attempt to impress the seller with information: Remember
that less is more. Your goal is to have the seller call . . . it is not to answer every question they
may have concerning foreclosure before they call you.
Another common mistake is that new investors will often create a one page description of their
company and attempt to personalize it by either emphasizing their religious affliation or that
they have a family. Potential sellers dont care if you are an Eagle Scout or if youre involved in
the PTA. They arent looking for a friend, they are looking for someone to help them out of their
situation. Keep any company one page you develop professional and on point.
Cold Calling
Cold calling may be another source of leads. What makes cold calling so
diffcult is that most homeowners have the technology to screen
their calls either with caller ID or with voice mail, so just getting
throughtosomeoneissomuchmorediffcultthaninyears
past. Moreover, there is a natural awkwardness in
contacting a stranger concerning an issue as personal
as foreclosure. Having the right mindset counts for
everything. Remember, you are calling to see if the
homeowner is willing to sell their house. Through the
38
sale of the house, you are also presenting the homeowner with a way to resolve the foreclosure
inamannerthatwillcausetheleastamountoffnancialdamagetothem.Manyinvestorsare
concerned that by cold calling they are violating Do Not Call Lists. Keep in mind that those lists
were designed to limit the number of sales calls consumers were receiving. As a homebuyer, you
are not selling anything you simply want to buy their house!
Witheachpersonthatyoutalktoitsimportanttofndoutexactlywhatitistheyaretryingto
accomplish. Ask them open-ended questions. Qualify them and learn about their situation. Once
a homeowner has contacted you or you contact them they are now able to become educated on
their options.
Here are the rules of engagement when it comes to cold calling:
Gather 30-40 names off of your pre-foreclosure list.
Call between 6-8 p.m. on Mondays or Tuesdays.
Call by 8 p.m.
Expect to reach 20 percent with good phone numbers.
Remember that its a numbers game.
Heres the target ration: call 40; reach 8; set appointments with 4; view 4
properties; convert 3 to potential deals; obtain 3 short sale packages; and close
1-2 deals.
Objective is to qualify homeowner, qualify property and set an appointment with
the homeowner to view the property.
Ask open-ended questions.
Example:
I was calling to see if you received my letter. Did you receive it?
I wrote you about buying your house and I thought you might be interested in
39
selling it. Are you interested in potentially selling?
I noticed the bank is giving you a hard time about your house. Have you thought
about selling?
I drove past your house the other day I am potentially interested in buying it.
The most common objections are as follows:
I have it all taken care of.
IamflingBK.
My attorney is handling it.
I am working on a repayment plan.
Whats in it for me?
I am not in foreclosure.
Voice Broadcast
Voice broadcast is a technique that typically would not be used singularly; however, it is an
excellent way to reinforce your other marketing plans. What is voice broadcast? Record a message
that youd like all the people on your list to hear. Then send out the recorded message to each
person at the same time. The voice message is only played once. When the homeowners voice
mail picks up it will leave the following message:
Hi,thisisToddStuffebean.Irecentlysentyousomeinformationaboutyourhouse.I
also drove by the other day and I am interested in potentially buying it . . . if you are
interested in selling it. If you are, please call me at 555-1234. Thanks.
Theideaofvoicebroadcastiseffciency.Itwouldbegreattobeabletocalleachhomeowner
on your pre-foreclosure list, but that is nearly impossible. Instead of calling everyone, use voice
broadcast. Record a message, upload your list of phone numbers once they have been skip traced
40
and have one message sent out to all the homeowners on your list. Other examples of voice
broadcast messages:
The Voice Broadcast provider that we recommend is Automatic Response Technologies (ART).
Their website is www.automaticresponse.com.
CentersofInfuence:Referrals
Marketing through postcards, direct mail, cold calling and door knocking are effective; however,
the best form of marketing, and the least
expensive, is the referral.
Once a lead is obtained through a referral,
credibility has already been established. If
you are introduced as the expert who can lead
the homeowner or seller in the right direction
then the seller already views you as the right
choice.
Several different types of real estate professionals exist who can refer homeowners in foreclosure.
Networking with other real estate professionals can bring in a multitude of leads with little or no
marketing expenses.
Below is a list of potential referral sources.
Real estate agents
Attorneys: bankruptcy, divorce and real estate
Title Companies
Construction crews
41
Friends
Family
Other investors
Real Estate Investment Associations, Groups and Clubs (REAIs)
Others in foreclosure
Step 3: The Consistency Formula
Being consistent is an important trait that will separate high performers from everyone else.
Streamlining your message and delivering it in a consistent and repetitive way will establish your
brand quality and trust. By maintaining the same steady outreach, your marketing will position
your business to dominate the market.
The key is being consistent. Dont send out mailers and wait three months. Implement a program
and give it time. After tracking its affect, you can adjust with better insight later.
To achieve this, business owners need a system that will automate the complex task of maintaining
multiple levels of marketing. This marketing needs to be implemented in an organized manner so
that all strands work together to generate as many true contacts as possible.
Step 4: Deal Filter
You need to be able to check out your leads quickly and see if they are worth your time. The
DealFilterisatoolinRealefowthatprovidesashortsalescoringmodelandaproftanalyzer.
The scoring model provides a formula that helps investors identify what deals to pursue and what
deals to avoid. Likewise, the proft analyzer provides information useful in exploring possible
exit strategies while identifying the one that makes the most sense. ( See www.realefow.com
42
fora demo)
The Deal Filter is a point and click interface that provides answers at a moments notice. The
purpose of this tool is to teach Realefow users how to differentiate between time consuming
deals that dont payoff versus deals which offer the best chances of closing with the most lucrative
results.
It is important to develop formulas and tools that can be used as both a means of evaluation and
identifcationofpotentialdeals.
Properties with the following characteristics tend NOT to be good short sale opportunities:
Condos of any kind
Townhouses located in a subdivision by themselves
Brand new construction with new construction being developed nearby
Houses with loans that are 12 months old or less
Houses in the tough parts of town
Properties with the following characteristics tend to be better short sale
opportunities.
Houses in solid resale neighborhoods
FHA loans
Comparable sales near low offer price
A 1
st
and 2
nd
mortgage
The 2
nd
mortgage is 30k or more
The loan is 6-years-old or older
The house is vacant
Anendbuyerhasalreadybeenidentifed
43
Step 5: The Credibility Filter
In the frst 90 secondsof meeting someone new, both parties form an opinion that is hard to
break.Wecallthistheanchoringprinciplebecausefrstimpressionscanweighyoudownlikean
anchor. This is why its so important to come across as professional, knowledgeable and credible
immediately. The marketing you use, the clothing you wear, and the words from your mouth will
measure your credibility. Whether its setting response times or general estimates, your clients
will be evaluating and determining their faith and trust in your abilities.
When you are setting up your day, consider whom you might be interacting. What parts of town
will you be passing through? What appointments are scheduled? How well you dress should
depend on what parts of town you are working in that day.
You need to monitor and adjust your behavior based upon the actions and mannerisms of the
seller. Investors should present themselves as a source of information that can help the seller get
theirarmsaroundtheprocessandmakeitlessdiffcult.Beabletoanswertheirquestionsand
alleviate some of their stress.
A big factor in achieving credibility is setting the right expectations with the seller. We dont
promise the world, but we do commit to trying to help homeowners resolve their real estate
issue in a way that will best meet their needs. We also try hard to contact each homeowner we
are working with every week to give them an update on the status of their case. This consistent
efforttoestablishandmaintaincommunicationisessentialtoreaffrmingthecredibilitywehave
established. In addition, a great way to establish credibility is to join the Better Business Bureau
(BBB).
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The Credibility Factor: Seller Script
The seller script is a series of questions to ask the homeowner to qualify them
and their house. Once a seller is engaged through the phone, cold calling or
doorknockingitisimportanttogetafrmunderstandingoftheopportunity.
By asking the questions on the below seller script the investor can evaluate the
potential of the property.
Whatareyoumostinterestedindoing?Selling,refnancingor
keeping the house?
How much is the property worth?
Are you in foreclosure?
Whatdatewastheforeclosurefled?
Who is your 1st mortgage lender?
What type of loan do you have? FDMC, FNMA, FHA, VA or conventional?
Do you have PMI? Y/N
Roughly what is owed on your 1st mortgage?
How many payments are you behind?
How much are your payments?
Do you have a second mortgage?
Who is your 2nd Mortgage Lender?
Roughly what is owed on your 2nd mortgage?
Would you sell the property for what you owe?
If I buy your house, how long would it take you to move?
Appointment Date:
Repairs needed?
Has the property been listed with a realtor? Y/N
Have you declared bankruptcy?
Chapter 7 Bankruptcy?
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Chapter 13 Bankruptcy?
Discharge Date:
Has an auction date been set? Y/N
Step 6: The Positive Results Conversation
Identifying the need of the homeowner or seller and creating a compelling and actionable solution
that is valuable to both is critical to cementing a deal. You must discover the key need of the
homeownerorsellerandspecifcallywhatismostimportanttothem.Onceestablished,youcan
createasolutiontofulfllthatneedwhileachievingyourresult.
But how does one begin to do this?
Forourbusiness,wehaveusedascriptwhenspecifcallyworkingwithpeoplefacingforeclosure
or dealing with a problem property and have experienced tremendous success in resolving the
issues a particular homeowner faces. Any well-written script will be just as effective for you,
regardless of the type of business you pursue as a real estate investor.
These six steps just reviewed represent the core of The Helping Hand Positioning Process. If you
use the above as a guideline, you will not only see more dollars come into your business, youll
begin to position yourself in your market as an expert.
The Positive Results Conversation
ThefrststepinconvertingahomeownertoaselleristhroughThe Positive Results Conversation
and is used on the frst face-to-face appointment with the seller. This conversation is set up
to answer questions and objections before they arise. This allows the investor to look like a
seasoned professional and put the homeowner at ease.
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When frst meeting the seller it is important to explain who you are, what you do, and how
you might be able to help. What Id like to do is show you how we use The Positive Results
Conversationonafrstappointment.Thisistheactuallanguagethatwetrainouremployeesto
use. By the way, this is copyrighted material, so go ahead and use it with sellers, just DO NOT
reproduce it, share it or teach it to others! Thanks.
Imagineyourselfdrivinguptothepropertytoviewitforthefrsttime.Youknowthehomeowner
is in foreclosure because you talked to them on the phone and went through the seller script.
They told you what was going on with their house and that they were in foreclosure. During the
callyousetanappointmenttogoseethehouseforthefrsttime.Nowyouareonyourway.
Once you arrive at the property be aware of the situation and the sellers mental state. They are
most likely exasperated. They have little if any money. They are emotionally drained. They are
hoping you will step in a buy their property. They are also hoping you will buy the property for
what they owe.
You cant do that. You cant buy the property for what they owe because most likely they owe
what the property is worth or in many cases more than its worth. You cannot make money doing
that. However, you know the lender will potentially take a discount off of what they are owed
and you can buy the property at a discount. Now all you need to do is convey this message to
the seller.
When you walk up to the front door the seller will meet you there. They are probably thinking,
Please buy my house. You are thinking, Id love to buy this house if I can get it for the right
price.
The next step is to walk around the house with the homeowner and get a feeling for their
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situation.Confrmwhattheytoldyouoverthephone.Theyareindeedinforeclosure.Review
the mortgages and the interest rates. Take a look at the condition of the property and note any
major repairs that are needed.
ThefnalstepistomovetothekitchentableandwalkthemsellerthroughThe Positive Results
Conversation. Below is an example:
To the seller:
So Mr. Smith, let me explain how we might be able to help. Main Street Properties is
aresidentialredevelopmentfrm.OurcompanyisregisteredwiththeBetterBusiness
Bureau and we are well respected. Our business primarily concerns the acquisition, and
redevelopment of homes throughout Northeastern Ohio. We buy around 10 to 15 homes
per month, and the majority of our work is in the pre-foreclosure market.
You mentioned that your lender is Wells Fargo; we happen to be an approved investor
withthem.ThatdoesntmeanthatweareaffliatedwithWellsFargo.Itjustmeans
that we can hopefully take advantage of the relationship we have with them. It means
that we do a great deal of work with them every year.
Believe it or not, Wells Fargo does not want to own your house and foreclosing home is
a losing proposition for everyone involved.
There are two ways that we can help. First, we can bring some clarity and hopefully
some closure regarding this situation. Second, by helping you avoid a foreclosure we are
also helping you to save your credit. Theres nothing worse on your credit report than a
foreclosure.
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Review: The points that you need to make sure you convey to a prospect are as follows:
Better Business Bureau
Youre an approved investor
A foreclosure is a losing proposition for everyone
To the seller:
Our process is simple. We approach the bank and tell them that we are interested
in buying the house, and that youre interested in selling the house to us, but that we
need to agree on a price. You see, most banks are dealing with a tremendous amount
of foreclosures, so theyve set up loss mitigation departments. These departments are
responsible for handling short sales and pursuing any alternative to the sheriffs auction.
The preferred method favored most banks for selling a property in pre-foreclosure is
called the short sale. This is when the lender agrees to accept less than whats owed on
the property as a full-payoff, and they may consider the account closed.
Like I mentioned earlier, almost all of our work is in this niche, and we are experts
inthisfeld.Banksdonotwanttoownrealestate;theydonotwanttobeinthereal
estate business. Strict federal guidelines exist on how many bad loans a bank can
have on its books at one time. If a certain percentage of their outstanding loans are
consideredbaddebt,theycanbefned,sanctionedandfederallymandated.Sothey
are eager to get rid of a property before they have to take it to sheriffs sale. This is
where we come in, as an approved investor we have a strong likelihood of getting the
job done.
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Banks establish loss mitigation departments to handle this issue.
Banks are regulated and can only have so many bad loans on their books.
To the seller:
If the property does go to sheriffs sale the bank is going to have a drive-by appraisal
completed based upon the exterior of the property; the opening bid will be two-thirds
of this amount.
What we do for our initial offer is to try to guess what the appraised value might be,
which is usually a little bit lower than the actual value of the property, and then we
offer the bank around what the opening bid might be at auction. This initial offer is
almost never accepted, and the bank will usually make multiple counteroffers back to
us.
After we make our initial offer to the bank, the next step is for the bank to order an
interior inspection on the property. This is called the BPO (Brokers Price Opinion), and
its the estimate of the quick-sale value of the house in its current as-is condition. This
is not an elevated appraisal of the property, but rather a strong indication of what the
property is worth right now.
If the property is in tough shape, that can help us. Each bank is different, but every
bank has a different formula that they use to determine what percentage of the BPO
they will accept to pay the property off. Usually this number is 85-95 percent of the
BPO.
As long as the BPO is favorable, we have a strong chance of being able to buy the
house.
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The process behind making the offer
The importance of the BPO
To the seller:
Id like to take a minute and explain what the bank is likely to say after they complete
the BPO. One of three things is going to happen: Plan A would be where we submit our
offertothebank.Thebankcompletestheinteriorinspection,andnotifesusthatwe
can buy the property at our initial offer prices or slightly higher.
However, there are times when the BPO does not come in at a low number, so we go
to Plan B. This is where the bank does the BPO and they agree to take a discount off of
the balance, but the discount is not large enough for us to take the risk of buying the
propertyandthenfxingituptoresell.Sointhiscasewemustfndabuyerasfastas
we can.
Plan C occurs when the bank responds and refuses to do a short sale. This is unlikely.
Forty percent of the time, Plan A works. Another 40 percent of the time Plan B works.
We come up short on an average 15 to 20 percent of our deals, which is extremely low
in our industry.
Review: You need to make sure you convey to the homeowner the possible outcomes
identifed:
Plans A = investor will buy the house
Plan B = Investor will help sell the house
Plan C = Short sale will not work out and the homeowner should work with a
realestateagenttofndanewbuyer
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Each situation is different and only through thoughtful dialogue can a solution be created. At this
stage we will create a blueprint to the future, and we work with the seller to get a game plan. It
might be keeping the house or it might be selling the house . . . but we know that we can help
the homeowner.
To the seller:
Do you have any questions or concerns at this time?
To continue we will need for a few things to happen. First, you will need to gather
documents that we will use to create a short sale package to send to the bank. The
bank needs this information to begin processing our offer.
We will also need to complete paperwork for the purchase and sale of the property.
Thisfrstcontractisjusttogettheballrollingwiththebank.Theformsthatyoullbe
askedtosignincludeapurchaseagreement,addendum,noticeofoptionthatIflewith
the county, and disclosures.
WhenIflethenoticeofoptionwiththecounty,IamannouncingtotheworldthatI
have an interest in this house and that we have an agreement. You will remain on title
during this entire process. If for some reason that bank doesnt approve an offer that
will allow us to buy the house, this paperwork gives us the ability to market the house
andfndabuyer.
Do you have any questions?
When would be a good time for us to get back together to collect the short sale
package and paperwork?
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Our approach to how we have established brand equity has been through what we call The Problem
Property Solution. This is a process that we follow in working with each client or potential client.
It offers a systemic approach designed to help people who are experiencing real estate related
problemsthathavebecomefnanciallyandemotionallydraining.
Notice, theres nothing in the above statement about being a real estate investor as mentioned
before,thisdoesnothingbutsendupredfags.
Again, The Problem Property Solution offers a systemic approach designed to help people who
are experiencing real estate related problems that have become fnancially and emotionally
draining.
Note the absence of anything relating to Fast CASH! or CASH in 24hrs!
We present ourselves as a residential redevelopment company. Our business is buying houses.
The Problem Property Solution is our outline for how we operate; its also how we set seller
expectations.
Its the theme behind our brand and the main piece used for how weve positioned ourselves in
our market.
The result, our market is no longer contained in one small corner of Ohio, but extends coast to
coast.
The focused message of The Problem Property Solution combined with the automation of our
advertisinginitiativesintheAlphaMarketingSystemofRealefowhasmadethosestruggles
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we faced in the early years of our business seem distant.
Weve learned how to position ourselves so that we can be the professionals that people turn to
in our marketplace
Weknowourbusiness.Realestateisaconstantlyevolvingbusiness,butweareconfdentthat
no one surpasses us in those areas of the business that we specialize.
Finally, through the automation of our systems and our marketing, weve been able to garner a
tremendous amount of positive associations with our brand name so much so that our business
runs almost entirely on referrals.
Realefowusershaveaccesstothesameresources,frombrandmarketingtovanguardinformation
that we have used to create our highly successful real estate business.
Whether you are a small one-person operation or an established company with several employees,
we have the market brand initiatives you need to take your business to the next level.
Marketing Wrap
In each of your markets you are going to have many opportunities to chase properties headed into
foreclosure. Whats important is that you invest your time and energy into pursuing deals where
people want to live. Just as important are the price-points of the houses and the percentage of
potential buyers who can afford them. In other words, dont work on deals that will only attract
a small percentage of buyers. High-end houses are great. Its a rush to hit a monster home-run
from time to time. Unless you live in an area where high-end homes sell quickly then stick to your
sweet spot (price range) where there are many potential buyers.
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When you get the lead, check the
neighborhood comps to get a quick idea
about whats happening on that street. For
example, if the average or median home
price in the neighborhood is $150,000, you
should attempt to sell the subject property
for $130,000 or $135,000. By discounting off of
the average street value the subject property
will standout. If listed on the MLS it will drive more buyers, because theyll think, Hey, this is
the neighborhood that we want to live-in, its the price range that we can afford and its a good
deal.
Your business needs to be transaction oriented. Instead of looking to hit a home run on several
properties a year that will give you a big payoff, focus on those properties that you can do each
month in volume. From time to time it might make sense to work on a high-end property, but
make these the exception, not the rule. Likewise, avoid picking up houses in areas where there
are plenty of sellers, but few, if any buyers. Develop a business plan that values hitting singles,
doubles and triples over home-runs and youll see your batting average increase. By the way,
singledoublesandtriplesare10k,20kand35kproftdeals.
Initially, as you learn the business your closing ratio on deals is going to be low, but lets optimistically
plan for 40 percent. As you gain more experience at identifying quality leads, managing the BPO
appointmentandfndingbuyers,yourratiowillincreasetoroughly70percent.
Lets say you want to earn 50k gross per month for your business. You would need to close three
deals worth 17k per deal. To get to those numbers you would need to put into the system eight
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newcasespermonth.Onaverage,ifweareworkingwitha40percentsuccessratio,fvewill
wash out.
How many people you process to bring those eight deals per month into the system depends on
what approach you take in your marketing plan. If you rely solely on the use of postcards, forget
it. If you use a letter campaign combined with a door knocking campaign, the odds increase.
If you establish relationships with several Realtors, acquiring new cases almost becomes a non-
issue. Marketing is not an event its a series of processes. You need to consider what systems
you can put in place that will keep your marketing consistent. What blend of strategies is suitable
to your market that will generate a steady stream of leads coming?
The crucial element is being consistent and not relying on any one strategy to generate leads.
Dont send out mailers and wait three months. Implement a program and give it time. After
tracking its affect, you can adjust with better insight later. To achieve this, business owners need
a system that will automate the complex task of maintaining multiple levels of marketing. This
marketing needs to be implemented in an organized manner so that all strands work together to
generate as many true contacts as possible.
Chapter 3: Working with the Banks
When a property falls into foreclosure the lender (or investor who holds the note) is usually going
to lose money; its not a matter of if they will lose money, just how much. Lenders have three
options when a property is in foreclosure. They are as follows:
The lender will facilitate pre-foreclosure sale. 1)
The lender will foreclose and sell the property at the sheriff or trustee auction. 2)
The lender will repossess the property after the auction and then list with a real estate 3)
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agent and sell as a bank-owned property (REO).
Understand that most people who are facing
foreclosure have little to no equity in their house.
This is largely because of the number of loan
products made available in recent years that
promoted homeownership through programs with
zero down payments and interest only loans. Of
course, its no secret that lenders abused many of
these programs as did mortgage brokers who sold
loans like hot cakes with little regard for the people who trusted them. Now many of these
people are losing their homes. Without equity, sellers facing foreclosure have no way to pay for
theclosingcostsorcash-out.Theonlyalternativeforsellersistofndawaytomaketheback
payments, sell the property as a short sale, or let it go to auction.
This chapter is meant to provide the broad brush strokes for how to negotiate with the lender.
Its important to realize that what seems like a linear process can take many twists and turns. No
matterhowmuchyouwantthebankstobeeffcient,theysimplyarent,especiallyastheyadjust
to the overwhelming number of foreclosures hitting their loss mitigation departments.
When you make an offer to the bank, you need to present a rock-solid case why the short sale
makes sense for the seller, the bank, and the buyer.
The process of loss mitigation or negotiation can be as simple or as complicated as you want to
make it. More than once during a negotiation, a lender will do something so inexplicable all you
can do is scratch your head. You need to make sure that the seller understands this . . . that
youre both at the mercy of the bank when it comes to successfully negotiating a deal; however,
57
by working with your company, you are giving the seller the best chance they have to resolve this
issue and move forward.
The seller expectations that you set are huge in terms having good weeks and bad weeks during
the negotiation process. Sellers need to understand that you cannot call the bank everyday and
that lenders sometimes take several days or even weeks to return phone calls. Make sure to
convey to the seller that you will be in contact with the lender often but that the seller need not
call you everyday for an update.
Regarding banks, its also important to realize that the investor and the loss mitigator are on the
same side, although at times it will feel far from it. Each deal has its own complexity, and the
investor and loss mitigator need to work together to get the deal done . . . theres just no other
way.
Someoftheselossmitigatorsarehandlingover200fles,whiletheyareworkingonyours.Dont
expectthemtorememberyourname,oryourflenumber.Dontexpectthemtobehappyifthe
package you submit isnt complete.
Seven major steps are a part of negotiating a short sale. Here are those steps in order:
Obtain a complete short sale package from the seller 1)
Submit a complete short sale package to the lender 2)
Contact the lender to make sure that the case has been assigned to a loss mitigator 3)
Explain to the lender why they need to order an INTERIOR BPO 4)
Conduct an effective BPO that validates your offer 5)
Negotiatethefnalpriceandgettheapprovals 6)
Close the deal 7)
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Before discussing the process of negotiation, there are three things that we are going to
assume:
First, the property has no equity, needs work (in almost every short sale weve ever done the
property needed work even if it was only minimal) and the only real exit strategy for the seller
is a short sale.
Second, the investor has already explained to the seller all of their options (deed in lieu, workout
plan, etc) including how the short sale process works and the seller is comfortable with the short
sale approach.
Third, the seller has agreed to sell the property.
Only when the buyer and the seller understand these three things we can continue forward.
Understanding Your Loss Mitigator
Realize that banks are scurrying to train and expand their mitigation departments. They can be
underpaid and under-trained, facing an insurmountable task and the job is relatively thankless.
Lossmitigatorsareburiedunderapileofflesthattheyneedtosomehowresolve.Meanwhile
they are being bombarded by phone calls and submission packages that are made by wannabe
investors and Realtors who dont understand the process. Moreover, their supervisors change
their protocols for how they conduct business monthly: its a recipe for a huge headache.
Accept that frustration is a part of the business . . . for both sides. After all, how many times do
you think a loss mitigator is told by an investor that they have a deal and then the investor fails
to close on the agreed upon closing date?
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If you are making your business in real estate, then you already understand that the only security
you have is the potential to make more money than you would in most non-skilled jobs. We
get rewarded for risk. Whats true for rehabbing a home is true for the banks whatever can
go wrong on a deal, usually will. Whats important is to have the system and the knowledge
necessary to circumvent problems.
The Short Sale Package
To begin negotiations with a lender, you need to gather information that will be organized into
ashortsalepackage.Lendersrequirecertaindocumentationtovalidatethesellersfnancial
situation.
Whats Required?
You will need to gather the following documents from the seller.
#1 Option Contact for Purchase & Sales Agreement: needs to be signed and dated by the
seller and buyer. Make sure that if the seller is married or separated, that both spouses sign
the contract. You need to make sure that the seller understands that to begin the negotiation
process, the lender needs to see a contract and a price. This price will be subject to change
as negotiations continue. Do not simply write in The fnal price will be negotiated debt at
closing.Lenderswillred-fagthisandyourdealisasgoodasdead.Lenderswanttoseea
writtenofferprice.Understandthattheinitialpriceisonlyastartingpoint;thefnalpurchase
price will be determined later.
Likewise, you will need to add a few additional terms, conditions, and addendum to the contract
when working a short sale.
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a. The words Subject to lender approval need to be written into the
section for additional terms and conditions.
b. ThewordsThefnalpurchasepricewillbethetotalofallnegotiated
mortgage balances, liens, and closing costs need to be written into the
section under the written purchase price.
c. The words Closing contingent upon written short sale approval acceptable
to buyer need to be written into the section for closing terms and conditions.
NOTE: If using our contracts, this language is already included.
DISCLAIMER: REVIEW ALL PURCHASE AGREEMENTS AND LANGUAGE WITH YOUR STATE CERTIFIED
ATTORNEY. WE ARE NOT LAWYERS NOR DO WE CLAIM TO BE. CHECK ALL LEGAL DOCUMENTS
WITH AN ATTORNEY.
#2 Authorization to Release Information: an informal document that needs to be signed and
dated by the homeowner. By signing this document the seller is agreeing to allow the buyer (you)
to talk to the lender about the short sale offer and anything else pertaining to the purchase and
sale of the property. This allows the buyer to order payoffs, pull title, send in purchase offer
and negotiate the deal. Lenders require this document. They want it faxed to them and posted
in their system before anything else can take place.
#3 Two Years Tax Returns: FULL TAX RETURNS; NOT JUST W-2s
#4 Two Months Bank Statements
#5 Last Two Pay Stubs (1 month)
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The tax returns, pay stubs and bank statements are required so that the lender can get an ac-
curateideaofthehomeownersfnancialpicture.Thelenderistryingtodetermineiftheseller
hasextramoneyorapositivemonthlycashfowsotheycanusethatmoneytowardspaying
the mortgage. The lender is also looking at a year-over-year comparison. The loss mitigator is
trying to read between the lines to see if the seller had a reduction in income or increase in
expenses.
#6 Freddie Mac Borrowers Financial Form #1126: is an informal budget that shows the sellers
cashfowincomeversusexpenses.
a. If the form is not fully completed, the lender will call the homeowner.
Completing the form correctly for submission will expedite the process.
b. If pay stubs show money going into 401k, the seller needs to give best
estimate of the amount in the 401k. Lenders will overlook a small amount,
but if 100k or more, lenders might press to see if they can get some
money (possible forbearance).
c. Negativecashfowisimportant,butasmallpositivecashfowwontkill
the deal.
d. Lenders will pull all three credit reports, so whats stated in the
fnancialstatementneedstobeconsistentwithwhatisstatedonthe
credit report.
e. Severalbankshavetheirownfnancialformtheymaywantcompleted.If
theyrequesttheirownforms,dontputupafght:fllthemoutandsendthem
in.FreddieMachasafnancialformthatisuniversallyacceptedbymost
major lending institutions. A sample is included in this handbook at the end.
#7 The Hardship Letter: The purpose of the hardship letter is to inform the bank that the
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homeowner will no longer be able to make payments on the property and to explain why. Banks
require this document because they want to know why the homeowner has fallen behind on their
mortgage, in detail: It must be true and factual. The letter should include events that caused
thefnancialhardship:divorce,lossofjob,bankruptcy,reducedhoursatwork,illness,deathor
disability. Moreover, if any documents are missing in the short sale package (tax returns, pay
stubs, etc) the homeowner should reference their absence in this letter. In addition, include the
repairs needed to bring the house up to the neighborhood standard. The lender should be aware
of the work estimates to repair any damage. The seller should list any major repairs.
The following format for the letter is offered as a suggestion:
To Whom It May Concern:
1st paragraph
I can no longer afford the property at _______________________________________.
2nd paragraph
Describe at least three reasons that you will no longer be able to make payment. If you do not
have a job, tax returns or a bank account this needs to be included and explained. The paragraph
should be no longer than 4-6 sentences. Make sure to reference the ideas expressed above.
Sincerely,
Necessary but NOT Required by the Lender
#1 Copy of Mortgage Statements (all mortgages, liens): will give a general idea of the principal
and interest owed and the last time the seller made a payment. Mortgage statements are also
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necessary because they provide the customer service numbers and the loan account number.
Youll need the customer service number to get started with the short sale submission. The
mortgage statements may also reveal what type of loan it is (FHA, VA, etc.). Recent mortgage
statements are crucial because loans are sold regularly and phone numbers change.
#2 Repair Estimate: is important to the short sale process because the lender usually has no
idea of the repairs that are needed inside the property. Usually the lender will have ordered a
drive-by exterior appraisal. This appraisal is based on comparable sales alone and any needed
repairs are typically overlooked. This is why having a repair estimate to submit to the lender
and the BPO agent is valuable. The lender and the BPO agent need to understand that the offer
is based on as-is condition and that the repairs are necessary to get the property ready for
retail.RealefowuserswillbeabletouseatoolinRealefowcalledTheHammer-pointProject
Estimator that creates professional looking repair estimates in several minutes.
#3 Listing Agreement: if an agent has listed the property, the lender will want to know. If the
property was previously listed with an agent but is not currently listed then it is advantageous
to submit the previous listing agreement to the lender. This shows that the homeowner tried to
sell the property at a previous time but did not get a satisfactory offer.
#4 Comparable Sales: Properties that sold in the area near the subject property help determine
the value of that property. Find the comparable sales that are near your offer price and submit
those to the lender along with the short sale package. You will also want to give these comps to
theBPOagent.Thesecompsreaffrmorvalidateyourofferprice.Severaldifferentcomparable
software tools are available to help. Some examples are Haines (www.haines.com), RealQuest,
Zillow (www.zillow.com), and the MLS in your area.
#5 Current Market Analysis (CMA): is a report, typically generated by a licensed real estate
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agent that accurately depicts the value of a property. The report has four main sections. The
frst is a collection of comparable sales based on sold properties.The second is a collection
of comparable sales based on properties on the market. The third is a collection of pending
comparable sales. Last, this report includes a list of repairs needed. This analysis is similar to
an interior BPO. The CMA should be withheld from the original offer and short sale package
submission so the investor has some additional ammunition to give the loss mitigator for
fnalnegotiations.TheCMAcanalsobeusedtoargueagrosslyinfatedinteriorBPOthatwas
submitted to the bank.
#6 Pictures: Grab your digital camera and take pictures of the damage in the house. Submit
these to the lender to show the repairs that are needed. These pictures will help to get a BPO
ordered.
#7 FHA Specifc Deals: FHA loans require the following two additional documents for short
sales. FHA also has several rules and regulations with short sales that need to be followed.
a. APPLICATIONTOPARTICIPATE(Form90036):isself-explanatory.Justfll-in
and sign.
b. HOMEOWNERSHIP COUNSELING CERTIFICATE: this needs to be preformed by
aHUDcertifedcounselor.HUDkeepsalistofcertifedcounselorsontheir
website.Thehomeownerneedstocallacertifedcounselorandsetupan
appointment. The appointments only take about 30 minutes. The objective
is to have the counselor explain to the person in foreclosure their options
(forbearance,deedinlieu,loanmodifcationandshortsales).
At some banks the loss mitigators have been trained to provide counseling
and they will do it over the telephone just as a standard HUD counselor would
if the seller made an appointment in person. Go to www.hud.gov/ to
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download the forms.
Three additional items, developed by the investor, must be submitted with the short sale
package: the preliminary HUD 1, the cover letter and the pre-approval letter.
#1 The Cover Letter: is a written explanation of the offer and the short sale package. The cover
letter should have the account number, address and sellers name near the top. The body of the
letter should be the explanation of the offer and the sellers situation. Bullet points are best. The
bottom of the letter should explain that the buyer is a cash buyer, has keys to the house for the
BPO and can close in 7-10 days. A sample copy of the letters is included in the appendix. The
cover letter needs to tell a short story about the deal and the homeowner.
#2 The HUD1: is an accounting spreadsheet that breaks
down all the fees and expenses to close the transaction.
The HUD 1 explains who will get money at the closing
table. The HUD 1 that is submitted with the offer is called
a preliminary HUD 1. The fnal HUD 1 will be completed
by the title company or closing attorney. For the purposes
of negotiating, a preliminary HUD 1 with projected fees and
expenses will be good enough. The HUD 1 must show that the
seller is receiving no proceeds from the sale. The HUD 1 must also
have the same price as the P&S agreement. The HUD 1 can and
will vary widely based on the negotiations with the banks. All the
lenders have different policies regarding fees they will allow.
#3 Pre-Approval Letter or Proof of Funds Letter: required by most
lenders. It states that the buyer has the cash or is pre-approved for a loan
US Department of Housing and Urban Development
A.
OMB No. 2502-0265
6. File Number
7. Loan Number
8.Mortgage Insurance Case #
C. Note:This form is furnished to give you a statement of actual settlement costs. Amounts paid to and by the settlement agent are shown.
ltems marked "POC" were paid outside the closing; they are shown here for information purposes and are not included in the totals.
D. NAME AND ADDRESS OF BUYER:
"Address"
"Address"
E. NAME AND ADDRESS OF SELLER:
"Address"
"Address"
F. NAME AND ADDRESS OF LENDER:
"Address"
property address with city state and zip
PLACE OF SETTLEMENT
23775 Commerce Park Drive, Beachwood, OH 44122
J. SUMMARY OF BORROWER'S TRANSACTION
K. SUMMARY OF SELLER'S TRANSACTION
100. GROSS AMOUNT DUE FROM BORROWER
400. GROSS AMOUNT DUE TO SELLER
101. Contract sales price
100,000.00
401. Contract sales price
100,000.00
102. Personal property
402. Personal property
103. Settlement charges to borrower (line 1400)
1,544.00
403.
104
404.
105.
405.
Adjustments for items paid by Seller in advance
Adjustments for Items paid by seller In advance
SE
T
T
L
E
M
E
N
T
ST
A
T
E
M
E
N
T
I. SETTLEMENT DATE
G. PROPERTY LOCATION
O
ld School Title Com
pany 216-831-1177
"Buyer#1" = LLC
B. Type of Loan
1. [ ] FHA 2. [ ] FmHA 3. [) Conv. Unins.
4. [ ] VA
5. [ ] Conv. Ins.
60 days out
CASH
DISBURSEMENT DATE
60 days out
H. SETTLEMENT AGENT
"Buyer#2"
"Seller#1" = Mr nd Mrs Smith
"Leave Blank"
"Leave Blank"
"Seller#2"
"Leave Blank"
106. City/town taxes
107. County taxes
407. County taxes
108. Assessments
408. Assessments
109. Maintenance Fee Proration
110.
410.
120. Gross Amount Due From Borrower
101,544.00
420. Gross Amount Due To Seller
100,000.00
200. AMOUNTS PAID BY OR IN BEHALF OF BORROWER
600. REDUCTIONS IN AMOUNT DUE TO SELLER:
201. Deposit or earnest money
501. Earnest Money Deposit
0.00
202. Principal amount of new loan(s)
502. Settlement charges to seller (line 1400)
10,565.00
203. Existing loan(s) taken subject to
503. Existing loan(s) taken subject to
204.
504. Payoff of first mortgage loan to :
86,635.00
205.
505. Payoff of second mortgage loan to
206.
506. Payoff 3rd mortgage
207.
507. Seller Concessions
208.
508. W
ater Hold
300.00
Adjustments for Items unpaid by seller in advance
Adjustments for Items unpaid by seller in advance
211. County taxes
"Date to Date"
2,500.00
511. County taxes
"Date to Date"
2,500.00
212. Assessments
512. Assessments
220. Total Paid By/For Borrower
2,500.00
520. Total Reduction Amount Due Seller
100,000.00
300. CASH AT SETTLEMENT FROM/TO BORROWER:
600. CASH AT SETTLEMENT TO/FROM SELLER:
301. Gross Amount due from Borrower (line 120)
101,544.00
601. Gross amount due to Seller (line 420)
100,000.00
302. Less amounts paid by/for Borrower (line 220)
2,500.00
602. Less reductions in amount due Seller (line 520)
100,000.00
303. Cash [ ] From [ ] To Borrower
99,044.00
603. Cash [ ] From [ ] To Seller
0.00
___________________________________________
_________________________________________
Borrow
er:
Seller:
HUD-1 (08/02)
RESPA, HB 4305 2
Page 1 of 2
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to buy the subject property. Just about any mortgage broker or banker can get
you a pre-approval letter to submit with your short sale package.
The Legal Package
The legal package is the set of documents that the homeowner signs that
will engage and obligate both buyer and seller to transfer the property. The
legal package refers to the purchase and sales agreement and the other legal
documents that are executed to allow the property to be sold from homeowner to the investor
or buyer.
When starting the short sale process with a homeowner the goal is to obtain an approval from the
mortgage holder(s) so that the investor can buy the property at a discount. The mortgage holders
andlienholdershavetoagreetothefnalpricetoallowthistotakeplace.
When starting a short sale on a new property the investor should always go into the transaction
withthemindsetofquick-turning(buyingandselling)thepropertyforaproft.Theprocessof
quick-turningthepropertyforaproftcantakeafewmonths,afewweeks,afewdaysoraslittle
as a few hours; however, this exit strategy takes much skill and expertise.
The legal package is designed to set up the investor to be able to quick-turn the property in one
day. In other words the legal documents, if executed accurately, will allow the investor to buy
andsellthepropertyinthesamedayandwalkawayfromclosingwithahandsomeproftcheck.
The legal package is also designed to set up the transaction in such a way as to circumvent any
seasoning issues or problems with the end buyers lender. The legal documents essentially set
up the investor to control the property, negotiate a short sale discount and then close to buy
and sell the property in the same day without seasoning headaches or problems from any of the
COMPANY
Phone:

To Whom it may concern:

________________________, a Private buyer for __________________, is
pre-approved for a mortgage loan with __________ Investments for an
amount not to exceed $250,000. _____________________ Investments is
located at __________________________

Sincerely,

________________________
President
67
parties involved.
The Legal Package consists of the following documents (see Appendix):
The Authorization to Release Loan Information
The Option Contract for Purchase and Sale
The Notice of Option Contract
AffdavitofUnderstanding
As stated earlier, the purpose of these documents is to set up the investor to be able to buy and
sellthepropertyinthesamedayandmakeaproftfromthetransaction.
Investors should always plan on quick-turning any potential deal. If the investor decides to buy
and hold the property or buy and rehab the property he or she will be able to do so as an exit
strategy. By starting the process with a quick-turn mindset you will allow yourself a multitude of
exit strategies and options.
Making the Offer
So how does an investor make a smart offer?
Forget about formulas. When making a low offer to the lender, the investor needs to make sure
that he or she has evidence validating their offer. The best evidence to use, if available, are the
low-end comps for the subject property. For example, if an offer is made on a house that has
a mortgage balance of 450k, and that offer is 300k, the investor will have a much easier time
getting the offer accepted if other houses in the neighborhood have sold near the offer price.
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With the collapse of the market, and the tight lending standards, houses are not selling; therefore,
investorsmayhavesomediffcultyfndinglow-endcompstosupportmostoftheiroffers.
Remember, the purpose of the offer is to get the lender to order the BPO. Lenders order BPOs
because they want a third party opinion of not only what the house is worth, but also what is
taking place in the market.
If a double close is the exit strategy, then the investor needs to assign a price to the house that
will attract enough buyers to make a quick-turn possible. A good way to set this price is to think
about what it will take to sell the subject property in two to four weeks. This is another example
of where a good Realtor can be helpful they know their market, and they know what the market
will support in the way of an asking price. Therefore, one approach to identifying the offer is
projecting out where the market will be in three to six months and asking a Realtor his or her
opinion for the price necessary to sell the house in two to three weeks.
If a good Realtor cant be found, some investors have gone ultra conservative in their approach
to making the offer. In this market, it is better to go too low, than be too high. After the value
of the house has been projected out three months, some investors will offer a range of 50 - 65
percent of that value to the bank, depending on the market trend and what evidence can be
used to validate the number. For example, if a property has a balance of 450k, but the market
forecast calls for a quick-turn price of 330k, the offer would be 215k.
Will the bank accept that offer? No. Will they order the BPO? Possibly. If not, then another
purchase and sales agreement may be sent with a higher offer.
The crucial step in the process is not the initial offer, but how the investor manages the BPO
appointment.
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Finally, new investors often feel awkward when discussing their offer to the homeowner. For
many homeowners, their house is their prized possession and they may have just received a high
appraisal a couple of years earlier that validates in their mind what the house is worth. Investors
needtoexplainthataswithanynegotiation,thefrstofferisnotthebest,itsimplyneedstobe
enough to get the BPO ordered. For more on this subject, please reference The Positive Results
Conversation.
Making the Offer Recap:
Run comps and establish a range of highs and lows. 1)
Identify what price the Realtor (or investor) will need to sell the house in two to four 2)
weeks from that point in time. This may be the as-is value that was determined above,
but usually it will be lower.
Dependingonthestrengthofthemarket,takethatfnalnumberandmultiplybyarange 3)
of 50-65 percent. This will be the initial offer made to the bank.
Gather the evidence you need to validate the offer. 4)
For those investors who have trouble conceiving an offer from the above then a formula can be
used. The following formula is meant as a guideline only. Each house is different and comparable
properties and repairs will vary. The formula is:
1) Determine the after repaired value (ARV or the value in great condition)
2) Subtract repairs needed
3) Multiply by 65%
Example:
$300,000 = ARV
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$25,000 = Retail repairs needed
$275,000 = As-is value
X 65%
$178,750 = Offer price
Organizing Your Files
Whenwefrstbegannegotiatingshortsalesourfrstroadblockwaskeepingallofourinformation
in one centralized location. We attempted to keep things organized by using fle folders and
keeping handwritten case notes. Next, we tried using Excel spreadsheets, but that wasnt
satisfying,either.Withinoneyearofnegotiatingourfrstdealwewentfromfveto60deals.
Earlyon,wecouldgetbywithourcrudesystemforkeepingfles,notes,etc.,oneverycase:
Itwasineffcient,butitworked.Whenwefoundourselvesworkingon60cases,thevolumeof
information was just too much for us to handle; over time we knew that wed need a better
solution.
Our solution was to begin working on a web-based
CRM application to keep track of all our deals and all
the information that went into those deals. Two years
later we developed the worlds greatest business
management system for real estate investors. We
named it Realefow: a name loosely based on the
idea of Real Estate Work Flow.
As we negotiated more and more deals we realized that each deal had several of the same
characteristics with a few minor adjustments. The name of the seller and the bank might have
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beendifferentbuttheworkfowoneachdealwasthesame.
If youve tried negotiating several deals at once, then you know that keeping track of where you
are in the process can be challenging. Another issue is retaining accurate contact information
forallthepartiesinvolvedineachtransaction.WedevelopedRealefowtosolvethis,andinthe
process have expanded its capabilities far beyond what we frst envisioned. Check out www.
realefow.com for more information.
Realefow combines seven amazing products a powerful CRM and database manager, a
comprehensive marketing system, an automated forms creator, a virtual business advisor, a
robust project manager, revolutionary power tools, and high quality lead generation websites: to
create the worlds Most Robust real estate business management system.
Althoughwerarelyhaveaneedtogobackintothehardcopyflesanymorewedohaveasystem
for keeping them. Its always a good idea to keep hardcopies accessible in case something comes
up.Tokeephardcopyflesorganized,youshouldbuythefollowingfourcoloredfolders:
Manila folders are used to keep all the other folders organized. This will be your master
fle.Westaplethemortgagestatements,payoffsandtitlesearchestotheinsidecover
of this folder.
Yellow folders are used to organize the short sale package. This includes the sellers
fnancialforms,taxreturns,bankstatements,paystubs,hardshipletter,fnancialform,
cover letter, HUD 1 and pre-approval letters.
Red folders are used for the deed package. The deed package consists of the option
contracts, bill of sale, disclosures, and any addendum.
Green folders are used to keep the Green Light Selling System information used to
market the property. The green folder will have retail comparable sales, a current
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marketanalysis,listingagreementandanymarketingfyersorads.Oncetheproperty
is sold, the purchase and sales agreement for the end buyer will also go in the green
folder.
Keep the red, green and yellow folder neatly inside the manila folder so that you know exactly
where everything is when you need it.
Keepalltheflesalphabeticallyinaflecabinet.
Submitting a Short Sale Package
A major obstacle to the success of so many short sale attempts is that so many investors submit
packages that are not complete.
Below is a list of the documents that make up the short sale package in the order that they should
be sent.
Fax Cover Sheet 1)
Authorization To Release 2)
Short Sale Package Cover Letter 3)
P&S Agreement 4)
HUD 1 5)
CounselingCertifcation(ifFHA) 6)
Application to Participate (if FHA) 7)
Listing Agreement (if applicable) 8)
Financial Form (Budget Sheet, FDMC form is universally accepted) 9)
Hardship Letter 10)
Last 2 Pay stubs 11)
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Last 2 Bank Statements 12)
Last 2 years Tax Returns 13)
Pre-approval Letter or Proof of Funds Letter 14)
Theprocessofsubmittingafletothelendertonegotiateashortsaleisrelativelysimple.The
only tough part is the follow up. There are three steps to follow when submitting the package to
the short sale lender.
Post Authorization to Release: Call the lenders customer service number right off the 1.
mortgage statement. Explain to the customer service representative that you are a third
party calling on the account. Tell them you have an authorization to release information
(ATR) and that youd like to send it to the lender so that you can discuss the account.
Order Payoff(s): Ask the customer service representative how to order a payoff. Most 2.
banks have a dedicated fax number for ordering payoffs. Some banks require the payoff
be ordered from their attorney. Most banks require a written request for the payoff. Fax
a general fax cover letter with request for payoff written across the top. Make sure to
include the loan number and your return fax number so they can fax the payoff to you
once it is ready.
Fax the Short Sale Package: Explain to the customer service representative that you 3.
have a short sale offer that you want to submit. Ask them what department handles
short sales. It will be one of three departments: the loss mitigation department, the
workout department or the loan resolution department. Also ask for the phone and fax
number for that department. Last, ask if anyone has been assigned to the account and
ask if you can fax the short sale package directly to them.
The goal is to get the short sale package up to the bank and assigned to a loss
mitigatorquickly.Untilthefleisassignednooneisgoingtolookatyouroffer.
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Short States
Moststatesfollowthejudicialforeclosureprocess.Whatthatmeansisthelenderhastoflea
civil lawsuit against the homeowner to repossess the property and force a foreclosure sale. Some
statesfollowanon-judicialforeclosureprocess.Thesestatesdonotflecivillawsuitstorepossess
property. In lieu of the lawsuit the lender has to prove to the state foreclosure trustee that the
homeowner has not made their payments. Once the lender proves this to the trustee the trustee
will set a foreclosure auction date for 21-45 days into the future. This process obviously moves
much more quickly than the judicial process.
Short states are also known as deed of trust states. They are as follows: Texas, Georgia,
Missouri, Michigan, Maryland, and Tennessee.
Workingonshortsalesandpre-foreclosuresinthesestatesisabitmorediffcult.Thereasonis
that the timeline for obtaining the lead, making an offer and submitting the short sale package to
the lender is extremely short. If a short sale offer has been made by an investor in a short state
(deed of trust state) then a letter requesting a postponement of the trustee sale (auction) must
be made at same time as the offer. The cover letter must request that the auction be postponed
for at least 30 days to work out a suitable solution. The solution could be a short sale.
Even though short states are more diffcult to work in they can still be proftable. We have
successfully negotiated short sales in Texas, Georgia and other short states before the trustee
auction.
Theentireshortsaleofferhingesuponthelenderpostponingtheauction.Youwillsignifcantly
increase your chances if you can tie down the short sale package and offer quickly and submit it
to the lender at least 10-14 days before the auction.
75
Submission Follow Up
Thefnalstepofthesubmissionprocessistomakesuretheshortsalepackageisassignedtoa
loss mitigator. With so many lenders completely overwhelmed, what seems like a simple thing to
do may become quite frustrating. Some lenders will claim they never received your package or
that you faxed it to the wrong fax number. We have done deals where we have faxed the short
salepackagefvetimesbeforethelendertoldusithadbeenreceived.
Ask the bank contact:
When will this get assigned?
Howlongwillittakeforalossmitigatortobeassignedtothisfle?
Who is assigned to the account?
What is the next step?
When are you going to order an interior BPO?
LendersandloanservicingcompanieslikeASCneed30daystoreviewthefle,setitupintheir
systemandhavethefleassigned.Usuallywithpersistencetheflecanbeassignedinlessthan
twoweeks.Makeatasktocallbacktothelenderevery2-3daysandseewheretheflestands.
Getting the BPO Ordered
Out of all the pieces of the puzzle that make up
the short sale process, the piece that is without
question the most important in determining if a
deal will be successful is known as the Brokers Price
76
Opinion (BPO). A real estate investor may be great at pursuing leads and putting together the
short sale package, but if the BPO process is not clearly understood chances are that the deal
will come to an unhappy conclusion. On the other hand, if the investor learns how to work with
theBPOsuccessfully,hisorherbusinesswillconsistentlybeproftable.Thepurposeofthis
report is to prepare the real estate investor for success in this crucial step of the short sale
process.
A BPO stands for Brokers Price Opinion. Thats exactly what it is: An opinion of the value of
apropertyinitsas-isconditionbyarealestatebroker/agentorbyacertifedappraiser.An
assumption is made that the person doing the BPO has an extensive real estate background and
is capable of valuing a property accurately. The accurate value of a property is determined by
using various resources that suggest what a willing buyer would pay for a particular property.
The BPO is a written report created by a real estate professional that is supposed to accurately
state the as-is value of a given residential property.
When a property goes into foreclosure, the lender will look for ways to reduce their loss. Once
a property is in the foreclosure process its not a matter of if the mortgage holders will lose
money, but how much. If an investor/buyer has submitted an offer to buy the property during
the pre-foreclosure stage this may become a viable option for the mortgage holder to liquidate
the property and get out of the foreclosure process. If a lender can approve a short sale offer
and lose less money than from foreclosing, they will approve the short sale and take the loss
now.
When a bank receives a short sale package with an offer from an investor, the lender will
identify the true value of a property by requesting a BPO. This is an attempt by the lender
toidentifytheas-isvalueofthehouse.Usuallythelenderthatholdsthefrstmortgage
will order the BPO through a third party, such as a Realtor or an appraiser. Although rare, the
77
second mortgagor may order an appraisal as a way to clarify their position.
Banks are not in the business of selling real estate and as a regulated industry they can only
keep so many liabilities (non-performing assets) on their books. If the mortgage holders
foreclose,theloanonthepropertyusuallycreatesahugefnanciallosstothemortgage
company.OncetheBPOhasbeensubmitted,thebankcanbetterevaluateitsfnancial
options. The lender has a few options when a property is in foreclosure: They will either accept
the short sale, attempt to sell it at sheriffs auction or list it with a Realtor as Real Estate
Owned (REO) after it has been repossessed by the lender at auction sale. In most cases the
bank will take back the property and list it with a Realtor as an REO. Such a property can sit on
the market from one year to eighteen months costing the bank even more money while waiting
for it to sell. The buyer of an REO property is typically an investor.
TwotypesofBPOsareusedbyfnancialinstitutionstodeterminevalueinteriorandexterior.
An exterior BPO is often completed when a house goes into foreclosure and again at various
points during the foreclosure process. A real estate investor may meet with a lender that
wants an exterior BPO to better see the value of the property as it relates to the offer. This
type of BPO consists of an agent doing a quick drive by appraisal and taking a few pictures.
The agent will often not even get out of the car. The exterior BPO or appraisal is based upon
comparable sales only. These exterior reports do not take into account the repairs that are
needed on the interior of the property and do not take into account the situation of the seller
being in foreclosure. DO NOT negotiate with a lender based on exterior BPOs. An exterior BPO
doesnotrefectthetruevalueoftheproperty.TheinteriorBPOistheonlyvaluethattruly
andaccuratelyrefectsthevalueofthepropertyinitsas-iscondition.
When beginning a short sale with a property in foreclosure, explain to the loss mitigator the
need for an interior BPO to get a true value. The reason an interior appraisal/BPO has to be
78
completed is that an exterior BPO will usually come in high. Likewise, it is not uncommon for
a loss mitigator, upon receiving a package, to declare the offer too low and that the BPO is
already in hand. If youre not sure what type of BPO has been completed, ask: they may share
the value. Often, the BPO being referred to is an exterior appraisal. The investor needs to
clarify what type of BPO was completed and get the interior BPO ordered.
Rarely will an exterior BPO will be returned to the LM that validates the offer that was made by
the real estate investor. If this were to happen, an interior BPO should not be ordered because
approval of the offer may be delayed and the offer may be acceptable as is.
Negotiating a short sale comes down to persuading the lender to order the interior BPO and
then being able to validate the offer to the BPO agent/appraiser that the lender hired to
determine the as-is value. If an investor can validate his or her offer and the BPO comes in near
the offer price, chances are good of getting an approval. The primary objective is three fold 1)
gettheinteriorBPOordered2)validatetheofferand3)negotiatethefnalapprovals.
In setting the expectations with the seller regarding the BPO appointment, make sure that they
understand the purpose of the appointment and its importance. The house should be seen in
its as-is state, meaning that the seller should not be concerned about cleaning the property
or making any repairs. Likewise, while the seller may be present during the appointment, their
profleshouldbelowandinthebackground.Moreover,therearetimeswhenaBPOagent
will contact the seller directly to see the property. If this should happen, the seller needs to
makesurethatwhentheBPOisscheduled,itisscheduledthroughtheoffceoftherealestate
investor.
When the lender orders an interior BPO, it is important that the real estate investor meet the
appraiser at the subject property to manage the appointment. Remember, the number that the
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appraiser submits to the bank will determine whether the offer made is accepted. When an
appraiser sees a property, they are not necessarily aware of why the house is being appraised,
infact,mostassumebasedonrecenthistorythattheappraisalisforaloantorefnancethe
house; therefore, appraisers will tend to appraise at a high number. The purpose of managing
the appointment is to inform the appraiser as the reason for the appraisal.
AlenderexpectstheBPOreporttobebackintotheiroffcewithinthreedaysaftertheorder
has been made. Moreover, a BPO is always a rush order. The mortgage holders are always in a
hurry to learn what value the BPO has assigned to the house. Make sure you are prepared and
have access to the property so that when the BPO does call to schedule the BPO you can allow
them access quickly. If the BPO agent cannot get into the property quickly they may become
upset and value the property negatively.
For this reason, when BPO agents call, they will have a sense of urgency they know if they
cant get in soon the lender may pull the order. Begin building rapport immediately by quickly
explaining the situation and by being compliant. Remember, underwhelm . . . When you
fnallymeettheBPOagentattheproperty,donttalkaboutproperty,buttellstoryofthe
homeowner; attempt to reach that BPO agent on personal level.
The BPO Appointment
Arrive to the BPO appointment 15 minutes early and bring the BPO packet.
The BPO packet includes the following: the purchase agreement, the low comparables, the
work estimate or contractor estimate, and the hardship letter. Give these to the BPO agent on
arrival and provide a brief explanation of each (see dialogue). The goal of the BPO appointment
is to provide material that will validate the offer: the lower the BPO value, the better for you
80
and your client.
Additional items to include are as follows:
Awellcraftedcoverletterbriefyoutliningthecircumstancesoftheproperty
A Map of the REOs and foreclosures in the neighborhood
Use Realquest to look up FSBOs in the area. FSBOs are not included on the MLS. These can
be useful in supporting the offer.
Pull up property history to check to see if previously listed
Here are a few tips:
The loss mitigator needs to know that you are the contact for the BPO agent, and that you 1.
have access and can get into the property quickly.
BPO agents hate it when they get a BPO order and then cannot get into the property. BPO 2.
orders are always a rush order, meaning that the BPO needs to be completed within 24
hours and returned to the lender within 48 hours. Just be ready. Make sure you have keys.
Make sure the seller is aware is what is going on.
Always show up early. 3.
Bring the BPO package with you. 4.
Negotiating the Final Price
Once a BPO has been completed it will take anywhere from 2-14 days for the BPO value to get back
to the lender. Many lenders have an internal appraisal review department. These departments are
set up to reevaluate the completed BPO. The internal department may double and triple-check
the comparable sales that were used. They may double-check the repairs that were included in
the value. They may recheck the market time to see how long it takes to sell properties in the
same area as the subject property. Time, duration and results vary depending on the lender.
81
It is important to check with the loss mitigator every 1-2 days. Be pleasantly persistent. If they
do not answerwhich is often the caseleave a message. Bombarding the loss mitigator with calls
and messages will only hurt your chances for a successful conclusion to the negotiation. Use email
when you can: email is less invasive.
Once the lender has the value back they will sometimes call the investor and let them know if the
BPO has come back. They may be very direct and suggest that the offer and the BPO are close
in value. If the BPO and the offer are close in value the loss mitigator may present the offer for
approval right away.
Liens
Liens can stop a deal dead in its tracks, so its better to know sooner rather than later what, if
anything, has been attached to a property. While some homeowners will be candid about the
liens that are on the property, others may simply not know.
Ask your title company who the contact is for the lien holders. Typically its the attorney. Call
the lien holder. Offer them 5% of their balance owed. Send the lien holder the P & S agreement,
HUD1 and copies of your approvals from the other mortgage companies.
Counteroffers
Short sale lender occasionally may not counter with a number. They may say, You need to raise
your offer, its too low or We cannot counteroffer. You need to send up your highest and best
offer.
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Theinvestormusttrytogetafrmresponsetothistypeofcounteroffer.

Whatever the bank says is the ballpark number is most likely the BPO number or close to it.
Heres an example of a property that we worked on a few months ago. The key to this property,
just like any other, was the BPO.
Payoffs
1
st
mortgage $117,000
2
nd
mortgage $18,000
Investor = FHA
BPO price $84,000
1
st
mortgage approval $68,800 net to lender
2
nd
mortgage approval $2,000
Purchase price $75,000
Resale price $127,000
Repairs $18,900
Proft $21,345.21afterclosingcosts

Negotiating 2
nd
& 3
rd
Mortgages
In a cases where a property goes to foreclosure auction, the 1st mortgage often does not receive
their full payoff: they typically lose money, especially in states where the foreclosure process
takes several months the lender can lose tens of thousands of dollars. When the 1st mortgage
does not receive their full payoff, the 2nd mortgage has received nothing from the sale. The 2nd
has lost all the money they were owed. In a case where there is a 2nd mortgage, they are better
off getting something rather than nothing. This is why most 2nd and 3rd mortgages, as well as
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lien holders, will accept 10 percent of what they are owed to payoff the lien. Ten percent of
something is better than nothing.
Once the 1st mortgage does their BPO, try to lock down the approval letter from the 1st mortgage
immediately and have them fax it to you. Next, fax the full payoff from the 1st mortgage plus the
short sale approval with the discounted payoff to the 2nd/3rd/liens.
Once the junior lien holder realizes that the 1st mortgage is taking a discount they know they
are in trouble. They know that if the property goes to foreclosure auction the chance of them
receiving any money is slim.
The full payoff and the discounted payoff are important. Thats the proof that the junior liens
need to see to show the potential loss they will incur.
Pulling Title
Once title is pulled, review the report. If all issues have been addressed, then keep the report
in a folder to get ready for closing. If something pops up on title, see if the title company can
review the report and get it removed. At times invalid liens will be on the property, which can
easily be removed by the title company. There are other times when a lien is on title and its
problematic.
Liens can include property taxes, income taxes, credit cards, medical bills, mechanic bills, utility
bills, and anything else that has gone unpaid. Your title company will be able to provide you the
contact information to the lien holder and their attorney. Negotiating discounts on liens usually
is done with the attorney who represents the lien holder.
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Real estate property taxes cannot be discounted. If the title report shows past due property
taxes those must be paid current at closing. Sellers must pay their property taxes up to date at
closing so thats something the lender will have to pay out of the gross purchase price.
Income tax liens can be negotiated. Youll have to contact the agency responsible for the lien and
make them an offer. Federal, state and local income taxes can all be attached against a property
as a lien. Income tax liens can typically be handled like any other lien and can be discounted to
10percentofwhattheyareowed.Mostfederal,stateandlocalagencieshavetheirownspecifc
formsthatneedtobeflledoutwhennegotiatingthem.
When making an offer to a lien holder youll need to send them the ATR, P&S agreement, HUD
1 and cover letter. You do not need to send the entire short sale package. Once you receive the
discounted approvals from the 1st, and/or 2nd mortgage make sure to send those to the lien
holders so they know whats going on with the more senior lien holders.
Closing
Closing short sales with title companies and/or attorneys is more complex than normal closings
where the property has equity. In many cases the title company can be caught off guard when
the purchase price and the negotiated payoffs are less than the full payoff amount. Finding a title
company that understands these transactions is vital to your short sale business.
Once a property is ready to close there are a number of documents that need to go to the title
company. The P&S agreement, negotiated HUD 1 and the negotiated payoffs for all mortgages
and liens all need faxed to the title company. The title company will also need the authorization
to release loan information in case they need to call the bank for any reason. One reason they
may need to call the lender would be to get an updated approval letter when the current
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approval letter expires.
Once the negotiated payoffs have been given to the title company they will be able to complete
a HUD 1. Make sure the title company emails you the HUD1 so you can verify that the purchase
price, payoffs and fees are accurate.
OncetheHUD1isfnisheditneedstobesenttothelenderswhoacceptedtheshortsalesfor
fnalapproval.FaxthefnalHUD1uptotheshortsalelenders.TypicallytheywillinitialtheHUD1
thus approving it.
Documents Needed by Title Company for Closing:
P&S agreement
ATR form
Payoffs/ Approval Letters of all Mortgages/Liens
City POS Violations / Occupancy Permits (if applicable)
Source of Funding Letter
Forms and contact info / mortgage etc
Contact info for seller and buyer
Reasons Why Short Sales Get Declined
Many reasons exist why short sales offers get declined. Several important steps need to come
together in order for an offer to be approved by the lender. Here are some reasons why short
sales are declined:
Incomplete Training: The number one reason why short sales fail is because the investor trying
to buy the property is not trained. They mishandle the BPO, the paperwork or their expectations
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are not in line with how short sales unfold.
The Offer Is Simply Too Low: The second most common reason why most short sales are declined
is that the offer is too low. If a lender performs a BPO and arrives at a fair market value for the
property and the offer price is not near, the lender will simply decline the offer because its too
low. If the offer has been declined then the lender has made the decision that they can get a
better offer from foreclosing or from a REO sale than from the short sale.
The HUD 1: Another reason why lenders decline short sales is because they disagree with the
HUD 1. If the HUD 1 shows the seller receiving funds at closing the lender will always decline
the offer (FHA is only exception). If the seller paid closing costs are excessive many lenders will
decline the short sale.
The Contract: If the contract has certain language that the lender does not agree with they will
decline the short sale offer.
Investor Guidelines: Investors who own the loans have preset percentages of the interior BPOs
that they will only accept. If the HUD 1 and P&S agreement will not NET them that percentage,
then the short sale offer will be declined. Many investors who are government sponsored, like
FNMA, FDMC, FHA and VA have a preset percentage of the BPO that they will accept as their
net proceeds from the sale. If the offer does not meet those guidelines, then it too will be
declined.
Government Loans: Some government loans are protected from losses because the government
backs them. The government may decline any short sale offers.
Seller Contribution: The investor may want the seller to contribute money towards the closing.
If the seller will not contribute, the offer may be declined.
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Property Listing: Many lenders require short sales to be listed even if its just a pocket listing.
If the lender requires this just make sure to engage a friendly real estate agent who understands
whatyouaretryingtodoandcanhelpyoufndanendbuyerifquickturningthepropertyisyour
main goal.

UnsecuredNoteorDefciency: The investor may want the seller to sign an unsecured note or
defciency.Ifthesellerwillnotsign,theinvestormaydeclinetheshortsaleoffer.
The Hardship Is Not Proven: If the hardship was
not proven the lender may decline the short sale.
In most foreclosure situations the seller must have
a legitimate hardship that can be proven; if they do
not, the lender may just foreclose on the property.
Repayment Plans: The lender may feel the seller
should keep up their payments instead of selling by
short sale. If the lender wants the homeowner to pursue alternative payments plans they may
decline the short sale.
Deed in Lieu: In some cases lenders are successful at convincing the homeowner that a deed-
in-lieu is the homeowners best option. The deed-in-lieu should always be a last resort for the
homeowner in foreclosure. Also a deed-in-lieu does not guarantee that the lender will not pursue
adefciencyjudgmentforwhateverlossthelenderexperiences.
Lender Frustration: Last, if the loss mitigator is upset with you because of something you did or
said they may not approve the offer. If you irritate the loss mitigator enough they will simply put
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yourfleatthebottomofthepileandneverlookatyouroffer.Keepinmindthatlendersarenot
required to work on short sales: they do it to minimize their losses.
To give yourself the best chance for success, do the following:
Initialofferpricesshouldnotrefectadiscountofgreaterthan50percentoff 1.
the balance of the mortgage. For example, we recently had an offer of 65k
for a house with a balance of 147k. The lender received an interior BPO of
280K. What do you think the bank will do take the 65K? Wrong. They will
take the house back at 147k and list it as an REO. Even in Cleveland, Ohio,
regarded as the poorest city in the U.S. with one of the slowest housing
marketslenders are not willing to take a discount greater than 50 percent
off the balance. Dont expect that it will be different just because you live in
the Sun Belt.
Youmustalwaysvalidateyouroffertothebankwithspecifcinformation 2.
about the house and the neighborhood. The banks want to see comparable
properties, days on market, declining listing prices for either the subject
property or other properties in the neighborhood, the number of
REO properties in a given area that arent selling, etc. This is true for
counteroffers made to the lender when the lender isnt budging. Attempting
to validate your offer by stating that the market is slow will be ineffective.
The BPO is your one shot to make a deal work. Understand how to manage 3.
the BPO appointment. Accept that its not always going to go your way. This
is why you want as many deals in the pipeline as possible.
If the BPO comes back too high, your deal is probably dead. Ninety percent 4.
ofthelenderswillmakeadecisionbasedonthefrstBPOandrefuseany
request to order an additional interior appraisal. If you are working with a
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lenderthatappearsfexible,sendinadditionalinformationspecifctothe
property and its neighborhood to argue for an additional BPO. The key here
isspecifcinformation(seeabove).Understandthattheoddsarenotin
your favor.
If two BPOs have been completed on a property and the number is not 5.
satisfactory, walk away from the deal. The lender will not budge.
Understand that this work is hard and frustrating, but lucrative. If it were easy, everyone would
be doing it, and doing it well. There are no miracle workers no short cuts. The process of
negotiation is linear. Investors who want to integrate short sales into their real estate business
must make every effort to understanding the process; knowing what properties to spend time
and money pursuing will ultimately determine success.
Chapter 4: Selling the House
Aninvestormayhaveaccomplishedskillandeffciencyinleadacquisitionandnegotiationbutif
procedures ensuring the quick sale of property is not established, chances for success become
limited. The act of rehabbing, staging, marketing and selling properties should occur continuously
while a property is being negotiated. Three main topics need to be discussed about selling
houses. They are as follows:
The Short Sale Exit Strategy 1.
Green Light Selling System 2.
Building a Buyers List 3.
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The Short Sale Quick-Turn
The ideal scenario for any deal is that the bank accepts the investors original low offer. The
investor is therefore able to buy the property at a steep discount, rehab and resell. Because
the property was so heavily discounted, any risk the investor has in holding onto the property
longenoughtofxandsellislimited:roomhasbeencreatedforunknownrepairsandadditional
holdingcosts.Therewardoffxingandsellingforaproftoutweighstheriskofbuyingandholding
and not being able to sell.
Unfortunately, 80 percent of short sale offers are not approved at a low enough discount for an
investor to buy and hold the property. As a result a double closing is the preferred exit strategy
when working a short sale deal. The idea behind a double closing is that the investor buys the
property from the foreclosing lender and sells to an end buyer on the same day. The end buyer
is found during the negotiation period with the lender. Because lenders will only give a 30-day
approval, the investor needs to be ready to close shortly after the approval has been given. The
structure of a double closing involves two separate transactions with two legitimate HUD1s; both
transactions are separately funded. This exit strategy eliminates the majority of risk because
there are no holding costs; no construction costs; no contractors, and no utility bills.
If the goal is to quick turn the properties and set up a double closing, then a buyer needs to be
found while negotiating the short sale. The short sale offer and hardship package are submitted
with the intent that they will act as a catalyst for the lender to order an immediate interior BPO.
Remember, everything hinges on the BPO, but several things that can be done to advertise the
property before and after the BPO appointment takes place. In the end, the exit strategy used
will be predicated upon the strength of the market and the price the property can be acquired
from the lender. This means the property might be sold to a retail buyer, an investor/landlord, an
investor /rehabber or even sold as a lease option.
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The Green Light Selling System involves a blend of selling strategies that we have found useful
in both hot and cool markets. Each strategy is put into effect in pursuit of an end buyer. To
implement this system, the investor needs to make a commitment to several action items,
including: classifed advertising, yard signs, neighborhood signs, email marketing, postcards
to neighbors, fyers to mortgage brokers, and establishing good working relationships with a
few Realtors who can help sell property. No one single approach will work in every situation:
Each property is different; each market is different. The Multiple Medium Approach involves
marketing to sellers who can provide leads. This is accomplished using direct mail, referrals, cold
calling and door knocking.
The Option Contract
The double close transaction used to quick-turn properties can only be accomplished if the
investor is using the correct tool: an option contract specially designed for this purpose. To use a
baseball metaphor, completing a short sale is like completing a double play, but turning a double
playusingacatchersmittwillmakeitmuchmorediffculttofndsuccess.Usetherightmitt.
The option contract is designed to give the investor (buyer) the ability to either buy the property
outright to hold or to buy and sell in the same day.
During the past few years there has been a great deal of negative press about real estate and
the practice of fipping properties. A tremendous number of speculative investors aligned
themselves with title companies, mortgage brokers and appraisers to take advantage of the easy
money the banks were making available to anyone who had a pulse. Houses were over appraised
so that the end buyer could strip the house of its equity and divide the spoils. Such practices
laid waste to many homes in the inner cities across the United States. Committing fraud is illegal;
however,fippingisnot.Forinstance,ifapersonweretofndagreatdealoneBayandsellitto
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someoneelseonthesamedaythattheinitialbuywasmadeforahigherprice,thatisalsoafip
. . . and its legal.
A credible short sale business involves negotiating and buying properties well below their market
value and selling them either for their market value or just below. Properties are put under
contract, an offer is made to the bank; the bank will ultimately either approve or reject the
offer.Ifapproved,theinvestorfndsanendbuyertopurchasetheproperty.Theinvestormakes
money on the spread of what he or she paid to the foreclosing lender versus the price the end
buyer is willing to pay.
The option contract gives the buyer or investor certain rights and privileges. Some of these include
the right to inspect the property and the right to list and resell the property. A Notice of Option
Contract is a separate document that is fled with the county
recorder.Uponflingitgivesnoticetothepublicthattheinvestor
has an equitable interest in the property, giving him or her the
right to resell it once the short sale has been negotiated.
A Survey of Exit Strategies
Retailing
The general idea of retailing houses is selling properties to an end buyer after t h e
construction and staging has been done and agreement on a resale price near full fair
market value has been achieved. Retail properties are typically in good condition b e c au s e
they have been rehabbed and staged to sell at full market value for maximum p r o f i t s .
Retail properties are usually bought at a discount, rehabbed, then staged and put on the
market with a real estate agent. The goal is to maximize profts by fnding a buyer to
pay the maximum true value regardless of the strength of the market.
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Wholesaling
The general idea of wholesaling houses is selling properties to an end buyer who will close quickly
andacceptthepropertyinitsasisconditionevenifitneedsmuchwork.Thefrststepisto
fndapropertybelowmarket,getitundercontractandthenresell.
Wholesale buyers understand they are buying a property below market value with the intention
of fxing and rehabbing the property themselves. Wholesale buyers are best if they can close
quicklyandpaycash.Again,thebeneftofwholesalingfortheinvestorisfastmoneyandnorisk:
the property is sold for a reduced price in exchange for a quick closing. The negative is that the
proft margins are narrow when compared to other strategies: typical wholesale profts range
from 4k to 15k.
Lease Options and Rentals
If an investors goal is to practice the traditional buy and hold real estate business model, they
better be sure that they are buying low enough so that if the property doesnt sell for 14 months
the holding costs wont bury them. Likewise, investors seeking to use this model better be
confdentabouttheirabilitytoestimaterepairsandhaveacrackteamofcontractorsthatthey
cantrusttogettheworkdoneontimeandonbudget.Thisisreallydiffculttoachieve.
Lease Options
The general idea behind using a lease option is structuring an agreement whereby the person
renting the property is someone who you hope ends up being the ultimate buyer. The lease
option stipulates that the renter will have an option to buy the property later. Most lease option
buyers have bruised credit that they need to improve before applying for a home loan. Typically,
the house that they agree to rent is also a house that they wish to own, but for a lack of
fnancing, poor credit or both, they cannot buy the house now. Such individuals tend to view
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the lease option purchase much differently than a traditional renter who has nothing at stake.
A renter knows they will almost never buy the property so in turn they do not take care of it as
a homeowner would. A lease option buyer usually views the property from the perspective of
a homeowner. Renting the property is viewed as short-term agreement that will give them the
ability to buy the property. As a result, the lease option buyer will pay the rent on time more
often and maintain the property.
Selling properties on lease option is great because the property can be sold for full market value.
In some cases the lease option buyer will pay 10-15 percent more than fair market value because
the buyer is going to buy in the future. In theory, the property should increase in value in that
time so it makes sense to mark up the price to a value that the property could appreciate to in
the future.
Using a lease option to sell property is a fantastic exit strategy; however, do not plan on all your
leaseoptiontenantstofollowthroughonthefnalpurchase:Manywillfailtoqualifyforahome
loan. Typically, they do not improve their credit to the point of being able to qualify for a bank
loan or mortgage loan.
The Green Light Selling System
The Green Light Selling Systemisamethodical,detailed,step-by-stepplanofactiontofnding
potential buyers for each property. With so many moving parts involved in the short sale business,
it is essential to have systems set up to keep things on track. The Green Light Selling System
is the system we created to remind us what we need to do to market the property while it is
being negotiated. Three phases make up this action plan: the Red Phase, the Yellow Phase and
the Green Phase. The Red Phase is implemented after the option contract has been signed, but
before the BPO. The Yellow Phase takes place just after the BPO has been completed to when
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the lender reveals the BPO or makes a counter offer. The Green Phase is the period after the BPO
value has been revealed or the lender has made the counter offer.
Red Phase Marketing (Pre-BPO)
The Red Phase takes place right after purchase and
sales agreement has been signed. The short sale
package and the option contract package have been secured, the house is under control and
the offer is on its way to the lender. Even though the BPO has not been completed and the offer
is still in negotiation it is important to build the list of buyers who could potentially make an
offer on the house. At this stage general marketing in the surrounding area and at the subject
property is done. The purpose is to gather potential buyers before the property is even ready to
sell. Its early in the process, but its never too early to begin looking for potential buyers.
Email existing buyers list about the property and let them know the subject property will be for
sale soon. Give potential buyers an idea of the potential asking price.
Email your existing mortgage brokers list in the same fashion. Put the property on your company
website for sale contingent upon short sale approval.
Distributefyerstothemortgagebrokersandinvestorsonyourlist.
Remember, the goal of each action is to drive people to the
property to fll up the buyers list for the subject property
and for future properties you will have for sale.
Yellow Phase Marketing (Post BPO)
Similar to the Red Phase, the Yellow Phase is about building
the buyers list and being pro-active. At this stage the BPO
has been completed but the lender has not made a counter
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offer. General marketing in the front yard and the surrounding area can be done is continued,
but with more urgency. The goal is to gather potential buyers before the lender sends a counter
offer or approval letter. Taking advantage of this time between the BPO and the counter offer is
crucial to quick-turning properties.

Follow these important steps:
Clean the house. Many people who are in foreclosure leave behind a mess. Get the 1.
property cleaned out right away
Check on the lease option signs throughout the neighborhood and see if any have 2.
gone missing. If some are missing replace them.
Put an Ugly Sign in the front yard with an urgent message: MUST SELL, MAKE 3.
OFFERS or FORECLOSURE PROPERTY, MAKE OFFERS or ARV = 150k ASKING
110k. These signs are just a piece of white or yellow poster board written in black
marker. They convey a sense of anxiety and suggest that the investor is willing to
move on the property quickly.
Email the existing buyer list again and the mortgage brokers list to let them know 4.
the house is for sale.
Create a letter or postcard to send to the neighbors. Let them know the house will 5.
be for sale soon and that a buyer is needed quickly.
If not yet obtained, get room measurements and pictures of the interior at this time 6.
(after cleaning). This information will put you in a better position to do more active
marketing once the bank responds to the BPO.
Green Phase Marketing (Post-BPO)
During this phase, the BPO number is secure and the investor has a clear idea what amount the
lender will accept. The clean out of the property is complete, and the house has been staged.
The house may now be given over to a Realtor and placed on the MLS if a strong candidate to buy
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the property still has not been acquired. The listing agreement should be between the investor
(B) and the Realtor and the price should attract enough interest to sell in two to four weeks.
The Green Phase of marketing takes place after the BPO has been completed and the lender(s)
have made a counter offer that is near the investor offer price. By marketing the property at this
stagetheinvestorhasthegreatestchanceoffndingtheendbuyer.Bysecuringthisbuyerthe
investor can set up a double close.
When an investor is not using a short sale quick turn as an exit strategy, but instead is planning to
buy the property to either hold for rental or rehab and sell, the Green Phase of marketing takes
place immediately after the property has been bought. If the exit strategy is to retail or lease
option a property then the Green Phase would be initiated after the property has been rehabbed
and staged. If the exit strategy were to wholesale the house, then the Green Phase of marketing
would take place after the property has been bought, cleaned out and staged.
To minimize the risk associated with traditional residential real estate investing, the use of a
double close for a short sale case is your best bet. Unfortunately, it requires that additional task
offndingabuyerevenasyouarenegotiatingthefnalpricewiththelender.Toexpeditethis
process, I might list the property at a discount once I have it under contract.
My third option is that I could wholesale the property to an investor. Since the investor is going
towanttosellthepropertyforaproft,IwillneedtomakesurethatIleaveenoughfatonthe
bone.
To expedite the selling process when I am looking to wholesale a property I will call my buyers
list and hit the local REIA meetings.
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Find a Realtor in your market who is willing to give up some control and who is interested in
working with you.
While we also do some traditional advertising, we avoid real estate agent periodicals and
advertising books.
What we found over time is that using a real estate agent to sell property is a good idea if the price
is right and if the Realtor is not going to kill you with commission. We also sell properties through
thepower-matchingtoolonRealefow.Whennewbuyersfromdifferentformsofmarketingare
acquired,putthemintoyourlistinRealefow.Thelistofpropertiesandthelistofbuyersare
bothinRealefowandRealefowwillrecommendbuyersthatyouhavethatmaybeinterestedin
a particular property.
You should always build your buyers list but the trouble is how do you even keep up with your
buyerslist?MostoftheselistsendupinaflecabinetoranExcelspreadsheet.Realefowpermits
you to use your buyers list to maximize its greatest potential. (See www.realefow.com)
When we come across a situation where we have a property with a great BPO value, we will
consider what repairs are necessary to attract a retail buyer: retail buyers always pay more for
property, especially when they know they are buying below market value. Of course, our backup
plan is to sell the property to an investor, which is not nearly as attractive. While investors can
close fast, they are much more conservative about what they will pay for a house and therefore
thereslessproftforus.
One of the reasons we were successful in building a short sale business is that we were cautious
about the dollars we spent in the process. Two ways to get burned are through expensive and
ineffective advertising and through costly over-budget rehab projects.
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Staging the House
Alltheworkyouputintoadealmeansnadaifyoucantfndsomeonetobuyit.Currently,the
housing market has more properties for sale than ever; its not uncommon for houses to stay on
the market not only for months, but years!
So what can you do to help ensure that your property is going to not only sell, but also leave you
with a fat wad of bills in your pocket?
STAGE the property.
The basic idea is this: whether a wholesale deal or retail, you want to make that house as
attractive as it possibly can be, without having to spend a large amount of money. This implies
morethanjustdoingsomeminorfxingupbyaddingpaintandcarpeting.Youregoingtowant
to suggest what the property would look like if it were being lived in. In other words, youre
going to want to STAGE it, just as if you were going to design a set to go on stage for an actual
play at the theater.
To do this effective you need to think about the house as two separate areas, the interior and
the exterior.
Building a Buyers List
Cultivating relationships with people that can assist you in your efforts to grow your own business
is essential especially as a real estate investor. With all the get-rich-quick schemes and fraud,
the real estate industry is ripe with characters that are looking to make a fast buck, and who
arent afraid to break the law to do it. Be wary and know that there will be many frogs you
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havetokissbeforeyoufndacoregroupofpeoplewiththesamevaluesandintegrityyouhave
concerning how you manage your affairs.
The phrase actions speak louder than words may be a clich, but it offers helpful advice when
it comes to working with the range of people involved in real estate. Obviously, not everyone
inrealestateisouttocommitfraud,youllfndsomefantasticpeopletocreatearelationship
basedonmutualsuccess.Whenstartingabusiness,itwillbenecessarytofndawholehostof
people; however, for our purposes in this text its important to discuss how to create a buyers
list. The approach that we developed that is a cornerstone of our marketing is called Centers
ofInfuence.
CentersofInfuence
Asyounetworkyouwillfndthatsomeindividualswillbeabletoconsistentlyreferbuyersforyour
properties.ThesearecalledCentersofInfuence.Theyarepeoplewhoareconnectedtoothers
and know a great number of people in many professions. Centers of Infuence can help drive
traffctoyourbusinessandtoyourproperties.Theyaresocialindividualswhohaveanumberof
relationshipsandareonafrstnamebasiswithmanypeople,andarewellrespected.
Everyone who is going to invest in real estate long term should have a formal referral program as
a part of his or her business. Let everyone that you do business with know that you pay referral
fees hand out brochures and advertise your referral program on your website. Be sure to check
with your attorney what kind of referral fees you can pay. If somebody refers a buyer, then pay
a referral fee. If somebody refers you a seller that you buy house from, pay a referral fee. Often,
investors will say they pay referral fees as a way to drum up business, but they dont. Avoid
being disingenuous . . .when people in your network see that you pay referral fees, even if its
monthslater,yourreputationwillshineandyourbusinesswillbeneft.Potentialreferralsources
include:
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Mortgage brokers
Construction crews
Title companies
Birddogs(peoplewhofndleadsforyou)
Wholesalers
Other investors
REIA groups
People that you do business with
Sellers of properties
Neighbors of properties
Open house participants
REIA Groups
Investors who attend Real Estate Investment groups and clubs are great sources of buyers. These
people have joined the REIA groups to network just like you should. They are trying to buy, sell,
wholesale, and refer or otherwise make money in real estate just like you. In many cases they
are people who can buy a house or refer a buyer. Attend your local REIA group and gather up all
the business cards you can. Add those people to your buyers list.
Newsletters
Establishing and maintaining a newsletter mailing campaign is an effective way to market houses
to your already established buyers list. Once a buyers list has been set up its important to
constantly and consistently market to this list to keep it active. Those people who are on your
buyers list need to hear from you regularly so that your name and company stay in the forefront
oftheirminds.Thegoalistohaveabuyerthinkofyourcompanyfrstwhenthethoughtofbuying
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a house enters their mind.
RealefowPower-Matching
Realefowallowsinvestorstostoretheirpropertieslistandtheirbuyerslist.Whatsgreatabout
theRealefowisthatithasaspecialcomponentwithinthesoftwareprogramtomatchupbuyers
with properties: Heres how it works: When an investor acquires a new buyer they add the buyer
and their criteria into the buyers list. This information is then cross referenced to the list of
propertiestoseewhichbuyersmatchupwithwhichproperties.Thosebuyersthatareidentifed
as being the best candidates to buy each property are sorted and applied. By simply clicking
on each property or by clicking on each buyer they will be matched up together. This way an
investor can quickly and easily see who is on their buyers list that they should call to tell about
each property. Standard questions to ask a potential buyer include:
Name, Phone number, Current address
Are they looking for a home, investment, rental, rehab, friend or family?
How are they expecting to buy the property? Bank loan, lease options private
money,
hard money?
What are their cities of interest? (List Top 5)
Number of bedrooms
Number of bathrooms
Price range?
Monthly payment?
Down payment?
Style of home? (Ranch, colonial, new build, BI-level, split level, multifamily,
bungalow,
other, rehab)
103
Level of rehab? Low = 4-8k, Medium = 820k, High level 20k+
How many rehab or rental properties plan to buy in the next 12 months?
Financing? Are they pre-approved? Or do they need to be? If so with whom?
Lookingfor100%fnancing?(Y/N)
Do they presently have a house to sell before they buy?
Would they prefer to rent-to-own?
Wouldtheyliketoreceiveongoinginformationregardinghomesthatwouldfttheir
preferences?
Would they prefer to receive info by way of email, phone, mail, or fax?
Investor Open Houses
Holding an investor open house can be a fantastic way to add buyers to your list but it has to be
done a certain way or it will be a complete waste of time. The absolute best way to do this is by
the following: In the early evening, on a Tuesday or a Thursday night, set up an open house at the
subject property, but it wont be a traditional open house in the way most think of them. Advertise
the open house in the newspaper, something like, Open house Thursday night from 4-7 pm. Do
it during the week. What you want to do is the person who is responsible for your buyers list and
for calling out all your contacts and your investors and your retail buyers and your lease option
buyers,youwanttohavethemgetintoRealefow,youwanttohavethemcontactallthebuyers
who might be interested in that property and you want to have them come to the property. The
trickisthatyouwanttosetappointmentswitheachpersontomeetatthepropertyataspecifc
time. There is no commitment on their part to meet you there but if they said, Hey, Josh, I
will meet you at the property at 5 oclock on Thursday night, then they have committed to that
andthechanceofthemshowingupfortheappointmentissignifcantlyhigherthanjustholding
an open house. In setting appointments you will create a steady stream of people coming to the
property besides those individuals not on your buyers list. The perception will be that people
104
are interested and this, in turn, will create some interest and possible enhance the sales process.
Likewise, I would usually offer some kind of refreshments put that in the newspaper, too.
The End Buyer
Once an offer has been made by an end buyer it is important to remember the purchase price
the property can be obtained for though the short sale. The investor should compare the end
buyers offer with short sale offer, making sure that enough margin or spread between the two
transactionsexiststocoverallcostswhileleavingroomforproft.Ifthebuyerhasmadeasolid
offer but investor wants more, the investor can send a counter offer to the buyer. Counter offers
are made in writing. As the option holder, the investor is the seller on the second transaction.
The purchase price and/or seller concessions may be crossed off and changed to a more suitable
number. This should then be sent back to the buyer or buyers agent by fax.
Thecontractbetweentheinvestorandtheendbuyerisnotfnaluntilitsbeensigned,datedand
initialed by both buyer and seller (investor).
Other Items of Interest About the Contract
The following include additional details necessary to completing a double close for a short sale
transaction.
Close dates: make sure to set a close about 30 days from current date.
Seller concessions: see if the buyer is asking for credit towards closing costs or down payment.
This is negotiable.
105
Title Company: make sure the same title company is selected to close both transactions.
Language: The P&S agreement to the end buyer needs to have special language. The language
should state, Closing contingent upon short sale approved in writing acceptable to the seller.
Having this statement written into the additional terms and conditions of the 2nd transaction will
allow the investor seller, the ability to back out of the transaction or change the agreement if the
two transactions do not come together properly.
Example
An easy way to remember and conceptually visualize these two transactions is to always think
the following:
A to B then B to C
A = Seller in foreclosure (Mr. and Mrs. Johnson)
B = Investor/buyer (you as Main Street Properties, LLC)
C = End buyer (Mr. and Mrs. Roosevelt)
1. Mr. and Mrs. Johnson sign option contract and notice of option as well as other documents (see
Volume III) selling the property to the investor (Main Street Properties, LLC)
2. Investor (Main Street Properties, LLC) signs a standard purchase and sales agreement as well
as other documents and addendum selling the property to Mr. and Mrs. Roosevelt.
Example
Original Payoff $280,000 A B
Original Offer $180,000 A B
106
Short sale acceptance with lender $200,000 A - B
Asking Price (listed with agent) $265,000 B C
Offer from End buyer $243,000 B C
Counter offer to End buyer $259,000 B C
Accepted offer from end buyer $254,000 B C
Closing Process
Short Sale Closed $200,000 A B
End Buyer Closed $254,000 B C
ProftCheck $54,000
(Spread minus closing costs and real estate agent commissions (if applicable)
Once the end buyers contract (C) has been accepted by the investor (B) the contract needs to
be sent to the title company. The title company will pull title if it has not been pulled already.
The title commitment will show the seller (A) on title and the investor (B) with a notice of option
contract recorded giving the investor (B) the right to sell the property to the end buyer (C).
The title company closing the A to B transaction must be the same title company closing the B
to C transaction. This allows the money to transfer smoothly and the title policy to cover these
transactionswithoutunnecessaryquestions.Italsoallowsforquickflingofthedeedsandmore
timely funding of both transactions.
The title company will record both deeds back to back. They will record the deed from A to B
(Mr. and Mrs. Johnson to Main Street Properties, LLC) and then a second deed from B to C (Main
Street properties, LLC to Mr. and Mrs. Roosevelt). Once the deeds have been recorded the title
107
company will pay all the parties involved, the Realtor commission and the spread between the
two transactions to the investor (Main Street Properties, LLC).
The Title Company
All title companies are not created equal. There are few companies who are familiar with short
sales. Fewer still are familiar with short sales and quick-turns and option contracts. Choose a title
company wisely, making sure that they understand the process before putting your business in
their hands.
Once a quick-turn is put together there are several documents that the title company will need
to close the two transactions back to back. Below is a list of those documents.
Documents for 1st transaction from A B
1. Option contract for purchase and sales agreement
2. Short sale approvals letters on all mortgages and liens
3. Negotiated preliminary HUD 1 used during negotiations
4. Funding source for purchase (B)
5. Contact information for seller (A) and investor (B) and any real estate agents involved
Documents for the 2nd transaction from B C
1. Standard purchase and sales agreement
2. Addendum
3. Funding source for purchase (C)
4. Contact information for investor (B) and end Buyer (C) and any real estate agents involved
108
Conclusion
Short Sales is not for the feint of heart. If you like control, want quick answers and crave security,
then go into public service. If you crave the edge and enjoy problem solving and are open
to continuously learning new things that will challenge what you think you know about your
business, then short sales is it. Compared to traditional real estate investment business, a
shortsalebusinesswillprovideagreatdegreeofcontrolandagreaterpotentialproftwithless
risk. Moreover, by working hard to understand the countless moving parts, and by learning to
see opportunity where others only see frustration, you may not only build the business of your
dreams, but also the life.
109
Appendix
110
Attachment 1: Case Study #4279
Investor Name Ambrose Properties
City Brunswick
State Ohio
Subject Property
City Avon
State Ohio
Original Balance Discounted Amount Total Discount
1st Mortgage $263,000.00 $145,000.00 $118,000.00
TOTALS $263,000.00 $145,000.00 $118,000.00
Sales Price $202,000.00
Proft $34,266.36
How was the lead originally generated?
Realtor brought the lead to my attention.
Provide a short story of the sellers situation:
Seller was several payments behind due to a combination of an increase in the monthly
payments and job loss.
Tell us anything else that is at all interesting about this case:
Pre-BPO, The house was listed at $240K and had many showings but no offers. Over the
next two months the price was dropped $20K. The BPO was conducted and returned at
192K. The listing price at this point was 220K, We received two offers at 190K. While
negotiating for a highest and best the HFC ordered a second BPO, this value came in
at 180K. Ironically enough the investor backing the loan called the realtor. Im glad I
coached her on the process, she very eloquently told the investor take the offer and
run!!! Within a couple weeks the approval was in at 145K. This made it possible for us
to accept the 202K offer.
Describe how youve applied any of these ideas from the SREC Business Systems
Bootcamp:
1.) Marketing to realtors.
2.) Getting the realtors to do most of the legwork in meeting the sellers,
coordinating the paperwork and marketing the property on the MLS.
3.) My realtor was trained on the double close process.
111
Attachment 2: Case Study #6583
Investor Name Ambrose Properties
City Brunswick
State Ohio
Subject Property
City Brunswick
State Ohio
Original Balance Discounted Amount Total Discount
1st Mortgage $246,000.00 $140,000.00 $106,000.00
TOTALS $246,000.00 $140,000.00 $106,000.00
Sales Price $177,000.00
Proft $24,888.34
How was the lead originally generated?
Referral from previous client which oddly enough was her mother..
Provide a short story of the sellers situation:
Seller was several payments behind due to a combination of divorce, increase in the
monthly payments and job loss.
Tell us anything else that is at all interesting about this case:
WetriedlistingthepropertytoinfuencetheBPO.WedeterminedFMVtobeabout
200K. This worked marginally well and the result was a BPO of 178K. Our market
estimate proved to be high all offers were in the 160K-180K range. Then a stroke of
luck, Novastar sold the loan to Saxon. We immediately pulled the listing and tried a
FSBO campaign. I felt being super aggressive would bring in a bidding war. The ugly
sign had the property listed @ 160K. The calls came pouring in. Some good, Some
bad, Some down right angry. The end result was an offer at 178K. The next BPO was
conduct and we received an approval @ 140K.
Describe how youve applied any of these ideas from the SREC Business Systems
Bootcamp:
1.) Asking for Referrals.
2.) Working a FSBO program
3.) Great negotiations.
112
Attachment 3: Marketing Blue Print
Postcards Letters
Real Estate
Agents
Attorneys
Mortgage
Brokers
Others
Level 1: knock
on door
Level 2:
Leave behind
Folder
Post It Note
"Buy"
websites
Free reports
Landing Page
Google
Adwords
113
Attachment 4: Property Acquisition
Direct Mail, Postcards,
Letters, Cold Calling,
Door Knocking, Voice
Broadcast
Referrals from
Centers Of
Influence
Qualify property
and situation
Legal Documents: Need
notarized, Option
Contract, Notice of
Option, Affidavit,
Disclosures, Bill of Sale
Courthouse or list
provider
Pay services =
www.accurint.com
Free services =
www.w3data.com
www.zabasearch.com
www.411.com
www.whitepages.com
120 & up = Excellent
100-119 = Very Good
85-99 = Good
70-84 =Some Potential
Below 70 = below average
Short Sale Package: 2 yrs
tax returns, 2 mo bank
statements, last 2 pay stubs,
hardship letter, FDMC fin
form, listing agreement
Information Needed =
Name, address, city,
state zip, lender, date
foreclosure filed
Solid re-sale
neighborhoods
Note major repairs,
property condition,
other properties in
neighborhood
Run comps & score
property with
Realeflow deal filter
Discuss Sellers
Options, short sale
and how to proceed
forward
+/- 30% of
median price
range
Avoid "tough" areas
as properties are
difficult to re-sell in
these areas
Properties to avoid:
Condo's, townhouses,
new construction, new
loans
Properties to pursue: FHA
loans, solid re-sale
neighborhoods, large 2nd
mortgages, vacant houses,
already have a end buyer,
loan is 6 years old or more
Other Docs: Mortgage
statements, Property
Disclosures, Repair
estimates,
114
Attachment 5: Loss Mitigation
Option Contract for
Purchase and Sale/
Authorization to
Release
Hardship Letter/ Fin Form/
2 yrs Tax Returns/ 2
month bank statements/
last 2 pay stubs/ Copy of
Mortgage Statement
Repair estimate/
Listing Agreement/
Comparable Sales/
Current Market Analysis
Fax Cover Letter/ Authorization/
Cover Letter/
Option Contract for P&S/
HUD 1/
Listing Agreement/
Financial Form FDMC/
Hardship Letter/
Last 2 pay stubs/
Last 2 bank statements
Last 2 years Tax Returns
Pre-approval letter
1st mortgage
=
80-100% of BPO
2nd mortgage
=
5 -20% of balance
owed
3rd mortgage
=
5 - 10% of
balance owed
Increase offer
price thru
negotiations
All counter offers
must be made in
writing with P&S
and HUD 1
Fax P&S and HUD
1 to loss mitigator
for approval
Buy - Fix -
Sell
Buy - Fix -
Rent
Buy - Sell
Simultaneous
Quick turn
BPO low
enough to buy
outright?
OR
Quickturn?
Property needs
re-marketed to
find end buyer
Send complete
package to each
mortgage holder
Send just P&S
and HUD 1 to
Lien Holders
HUD 1 and P&S
agreement price
must match
Gather from
Homeowner
Other items to
gather from real
estate agent,
contractor or others
Ask Mitigator "what
did the BPO come in
at?"
SEE "Art of
the BPO"
Liens
=
5 - 10% of
balance owed
115
Attachment 6: Reasons Short Sales Get Declined
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-
116
Attachment 7: Seller Options
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Attachment 9: Foreclosing Flow Chart
119
Attachment 10: Option Contract for Sale Purchase
The SELLER and the BUYER (named below) hereby enter into this Option Contract for Sale
and Purchase of real estate.
The SELLER, in consideration of the BUYER paying $10.00 or other good and valuable
consideration (the Option Deposit), gives to the BUYER the exclusive option (the Option) to
purchase the property described below (the Property). In the event that the BUYER exercises
this Option, the Option Deposit shall be applied towards the purchase price of the Property. The
Option Deposit is non-refundable and will be forfeited in the event that BUYER fails to exercise
the Option unless otherwise so stated. The BUYER shall have the right to exercise this Option
during a period of time beginning at 9:00 am. on _____________ 200__, and lasting until 5:30
p.m. on ______,200__, (Option Period).
Subject to the BUYER exercising this Option, the SELLER and the BUYER hereby agree
that the SELLER shall sell and the BUYER shall buy the Property described below upon
the following terms and conditions. SELLER fully agrees and acknowledges that the above
described consideration given by the BUYER constitutes legal, adequate, and valuable
consideration for the purposes of this Contract.
1. NOTICE, COMMENCEMENT DATE AND EFFECTIVE DATE: The Commencement
Date shall be the date that the last of the parties to this Contract signs and executes below, The
obligations of the Parties under this Option Contract begin on the Commencement Date. The
Effective Date is the date that the SELLER receives a Notice of Purchase from the BUYER
that the BUYER is exercising its Option under this Contract. The BUYER shall exercise this
Option by giving written notice by certifed or registered mail to the SELLER at the address
indicated above (the letter must be delivered to SELLER by the time and date indicated above)
or by hand delivering written notice to the SELLER.
The date that the SELLER receives this notice shall be known as the Effective Date. It is
understood and agreed that time is of essence as to the payment of the purchase price under this
provision.
2. DESCRIPTION OF PARTIES
SELLER: ___________________________ BUYER:____________________________
___________________________________ ___________________________________
ADDRESS: _________________________ ADDRESS: ______________ ___________
___________________________________ ___________________________________
PHONE: ___________________________ PHONE: ____________________________
3. DESCRIPTION OF PROPERTY BEING SOLD:
STREET ADDRESS) CITY/STATE/ZIP: __________________________________________
Parcel#: ______________________________________________________________________
120
4. PURCHASE PRICE
The Purchase Price is $ _______________ or the total purchase price will be the negotiated
balances of all liens, mortgages and closing costs.
SELLER understands that this transaction is a short sale and is contingent upon acceptance of
short pay offers that are satisfactory to the buyer as payment in full by all current lienholders
and that the SELLER will receive NO funds at closing. The Option period shall be reasonably
extended for the purpose of obtaining said satisfactory approval(s).
The parties acknowledge that the purchase price has been initially based on an estimated
negotiated debt at closing. During negotiations, there may be several different preliminary
contracts with different estimated purchase prices submitted by Buyer to the lender(s) until a
fnal discounted fgure is accepted.
Accordingly, Seller agrees to authorize Buyer to prepare various negotiating with various prices
without obtaining Sellers signature or approval of each and every negotiating offer.
5. FINANCING AND INSPECTION PERIOD: The Property is being sold As Is with
regard to the physical condition of the Property and any improvements. Seller is giving no
warranties to the BUYER as to the physical condition of the real property or any improvements.
BUYER shall have ____ days (the Financing and Inspection Period) following the Effective
Date to inspect and evaluate the Property. SELLER shall grant to the BUYER reasonable
access to the Property for purposes of inspection and evaluation (such as environmental
testing, home inspection, and BPO or appraisals, etc.). If prior to the end of the Financing and
Inspection Period, BUYER gives notice to SELLER that BUYER elects to cancel this Contract
(the Cancellation Notice), this Contract shall terminate. If BUYER does not deliver the
Cancellation Notice the Contract shall continue.
______ This transaction is contingent upon buyer obtaining acceptable fnancing;
OR
______ This is a cash transaction.
6. REPRESENTATIONS AND WARRANTIES: To induce the BUYER to enter into this
Agreement, the SELLER makes the following representations, warranties, and covenants.
A. The property is being sold As Is with regard to the physical condition of any
improvements. Seller is giving no warranties to the BUYER.
B. SELLER has good and marketable fee simple title to the Property, free and clear of all
liens, property taxes, encumbrances, and restrictions, except for those restrictions appearing
of record, taxes for the year of closing, encumbrances that will be cleared prior to closing, and
encumbrances that will be cleared at the Closing, usually out of the SELLERS proceeds from
the Purchase Price.
121
C. There are no condemnations or similar proceedings affecting any part of the Property
and no such proceeding shall be pending on the Closing Date. To the best of the SELLERS
knowledge, no such condemnations or other proceedings are threatened or planned.
D. There are no service contracts or agreements relating to the operation, maintenance, or
security of the property under which the SELLER is bound and which will survive the closing.
E. The SELLER is not subject to any commitment, obligation, or agreement, including
but not limited to, any right of frst refusal or option to purchase, granted to a third party, which
would or could prevent the SELLER from completing the sale of the Property to the Buyer as
contemplated by this Agreement.
F. SELLER does _____ /does not _____ have sole and exclusive possession of the Property
and will ____ /will not _____ be able to deliver possession of the Property free of all leases on
the Closing Date.
G. SELLER understands that this transaction is a short sale and is contingent upon
acceptance of short pay offers satisfactory to the buyer by some or all of the current lienholders
and that the SELLER will receive NO funds at closing.
H. SELLER hereby grants the Buyer and/or their representatives all of the necessary rights
to list for sale, market, negotiate and enter into a contract sell (or lease) the property to a third
party. Buyer intends to resell the property for a proft.
I. SELLER grants Buyer the additional following rights: ____________________________
______________________________________________________________________________
______________________________________________________________________________
7. CONDITIONS PRECEDENT: The obligations of the BUYER to close this transaction
are subject to a) the BUYER having given Notice to Purchase to the Seller and b) that all
representations and warranties of the SELLER shall be true and correct as of the Closing Date as
such representations and warranties were the date they were being made. In the event that any of
said conditions are not fulflled on or as of the Closing Date, and notwithstanding anything to the
contrary in this Agreement, the BUYER shall have the right to terminate this Agreement and to
obtain a full refund of deposits made to the SELLER whereupon all parties shall be relieved of
any further obligations hereunder.
8. CLEAR TITLE:
A. SELLER shall convey a marketable title, subject only to liens, encumbrances, exceptions,
or qualifcations set forth in this Contract and those which shall be discharged by SELLER at
or before closing. Marketable title shall be determined according to applicable Title Standards
adopted by authority of the State Bar and in accordance with State Law.
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B. If the BUYER discovers that the title is defective, the BUYER shall notify the SELLER
in writing specifying the defect(s). If said defect(s) render the title unmarketable or uninsurable
the SELLER will have 120 days from receipt of notice within which to remove said defect(s).
The option period shall also be extended up to 120 days to allow for said removal. If SELLER
is unsuccessful in removing them within said time, the BUYER shall have the option of either
accepting the title as it then is or terminating this Agreement and thereupon the SELLER shall
return any deposits that might have been made to the BUYER and both parties shall be released
as to one another of all further obligations under this Agreement. All expenses to clear title
defects shall come from Sellers gross sale proceeds.
9. CLOSING:
A. This transaction shall be closed and the deed and other closing papers delivered on or
before the Option Period expiration unless extended by other provisions of this contract or by the
mutual written consent of both parties. Closing to take place at and title and escrow to be handled
by _______________________________________________________.
B. At closing the BUYER shall pay the cash portion of the purchase price by bank cashiers
or certifed check (which shall be issued by and drawn on a local institution), or by bank wire.
The SELLER shall furnish the deed, an absence of lien affdavit, non-foreign status affdavit, and
any corrective instruments that may be required in connection with perfecting the title. BUYER
shall furnish the closing statement(s) which SELLER agrees to sign.
C. In addition to paying the standard and customary escrow and closing costs, the SELLER
shall pay the following closing costs: the cost of recording any corrective instruments (if
needed), transfer tax, deed preparation and _________________________________________.
These costs are to be deducted from the Sellers gross sale proceeds.
D. In addition to paying the standard and customary closing costs, the BUYER shall pay the
cost of recording the deed, state documentary stamps charges, and ________________________
______________________________________________________________________________
______________________________________________________________________________
10. CONVEYANCE: SELLER shall convey title to the Property by Statutory Warranty,
Trustee, Personal Representative, or Guardian deed, as appropriate to the status of the SELLER,
subject only to matters contained in the following and those otherwise accepted by BUYER.
11. RESTRICTIONS; EASEMENTS; LIMITATIONS: The BUYER shall take title subject
to: zoning, restrictions, prohibitions of record, and other requirements imposed by governmental
authority; restrictions of record and matters appearing on the plat or otherwise common to the
subdivision; public utility easements of record; taxes for year of closing and subsequent years;
assumed mortgages and purchase money mortgages, if any, and any City or County health and
safety code violations.
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12. SURVEY: BUYER, at BUYERs expense at any time within the Option Period may
have the Property surveyed and certifed by a registered State surveyor. If the survey shows any
encroachment on the Property or that improvements intended to be located on the Property in
fact encroach on setback lines, easements, lands of others, or violate any restrictions, Contract
covenants, or applicable governmental regulations, the same shall be treated as a title defect.
13. LIENS: SELLER shall furnish to BUYER at time of closing an affdavit attesting to
the absence, unless otherwise provided for herein, of any fnancing statements, claims of lien
or potential liens known to seller and further attesting that there have been no improvements
or repairs to the Property for 60 days immediately preceding the date of closing in a form
satisfactory to the BUYER. If the Property has been improved, or repaired within said
time, SELLER shall deliver releases or waivers of mechanics liens, executed by all general
contractors, subcontractors, suppliers, and material men, in addition to sellers lien affdavit
setting forth the names of all such general contractors, subcontractors, suppliers, and material
men and further reciting that in fact all bills for work to the Property or Personalty which could
serve as a basis for a mechanics lien or a claim for damages have been paid or will be paid at
closing.
14. SPECIAL ASSESSMENT LIENS: Certifed, confrmed, and ratifed special assessment
liens as of the date of closing (and not as of Effective Date) are to be paid by the SELLER.
Pending liens as of the date of closing shall be assumed by BUYER, provided, however, that if
the improvement has been substantially completed as of Effective Date, such pending lien shall
be considered as certifed, confrmed, and ratifed and SELLER shall, at closing, be charged an
amount equal to the last estimate by the public body of assessment for the improvement.
15. PRORATIONS: Taxes and assessments (if any) shall be prorated through the day to the
closing. Cash at closing shall be increased or decreased as may be required by said prorations.
All prorations will be made through the day prior to occupancy if occupancy occurs before
closing. Taxes shall be prorated based on the current years tax with due allowance made for
maximum allowable discount and homestead or other exemptions if allowed for said year. If
closing occurs at a date when the current years millage is not fxed, and current years assessment
is available, taxes will be prorated based upon such assessment and the prior years millage. If
the current years assessment is not available, then taxes will be prorated on the prior years tax;
provided, however, if there are completed improvements on the Property by January 1st of the
prior year, then taxes shall be prorated bases upon the prior years millage and at an equitable
assessment to be agreed upon between the parties, failing which, request will be made to the
County Property Appraiser for an informal assessment taking into consideration homestead
exemption, if any. However, any tax prorations based on an estimate may at the request of either
the BUYER or the SELLER be subsequently readjusted upon receipt of tax bill on condition that
a statement to that effect is set forth in the closing statement.
16. PERSONS BOUND; NOTICE: This Contract shall bind and inure to the beneft of the
parties hereto and their successors in interest and heirs at law. Whenever the context permits,
singular shall include plural and one gender shall include all. Notice given by or to the attorney
for any party shall be as effective as if given by or to said party.
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17. OCCUPANCY: Other than occupancy by the SELLER, the property shall be unoccupied
at the time of closing. The BUYER, at its option, may choose to take the property to subject
to one or more residential leases in which case the SELLER shall, not less than 15 days prior
to closing, furnish to BUYER copies of any and all written leases or letters from each tenant
specifying the nature and duration of the tenants occupancy, rental rates, advanced rent, and
security deposits paid by tenant.
In the event SELLER is unable to obtain such letter from each tenant, the same information
shall be furnished by SELLER to BUYER within said time period in the form of a SELLERS
affdavit, and BUYER may thereafter contact tenants to confrm such information. SELLER
shall, at closing, deliver and assign all original leases to the BUYER.
18. PROCEEDS OF SALE; CLOSING PROCEDURE: The deed shall be recorded upon
clearance of funds and evidence of title continued at BUYERs expense, to show title in BUYER,
without any encumbrances or change which would render SELLERs title unmarketable from the
date of the last evidence, and the proceeds of the sale shall be held in escrow by the escrow agent
for a period of not longer than fve (5) days from and after closing date.
If SELLERs title is rendered unmarketable, BUYER shall within said fve (5) day period, notify
SELLER in writing of the defect and the SELLER shall have 30 days from the date of receipt of
such notifcation to cure said defect. In the event that SELLER fails to timely cure said defect, all
monies paid hereunder shall, upon written demand therefor and within fve (5) days thereafter, be
returned to BUYER and, simultaneously with such repayment, BUYER shall vacate the Property
and reconvey the same to the SELLER by special warranty deed and return the Personalty.
In the event that the BUYER fails to make timely demand for a refund, BUYER shall take title
as is, waiving all rights against the SELLER as to such intervening defect except as may be
available to BUYER by virtue of warranties, if any, contained in the deed.
In the event a portion of the purchase price is to be derived from institutional fnancing or
refnancing, the requirements of the lending institution as to place, time of day, and procedures
for closing, and for disbursement of mortgage proceeds shall control, anything in this contract to
the contrary notwithstanding. Provided, however, that the SELLER shall have the right to require
from such lending institution at closing a commitment that it will not withhold disbursement of
mortgage proceeds as a result of any title defect attributable to the BUYER-mortgagor.
19. ESCROW: Any escrow agent receiving funds or equivalent is authorized and agrees
by acceptance thereof to deposit promptly and to hold same in escrow and subject to clearance
thereof to disburse the same in accordance with the terms and conditions of this Contact. Failure
of clearance of funds shall not excuse performance by the BUYER. In the event of doubt as to
the escrow agents duties or liabilities under the provisions of this Contract, the escrow agent
may in the agents sole discretion, continue to hold the subject matter of this escrow until the
parties mutually agree to the disbursement thereof, or until a judgment of a Court of competent
jurisdiction shall determine the rights of the parties thereto, or the escrow agent may deposit the
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same with the clerk of a Court having jurisdiction of the dispute, and upon notifying all parties
concerned of such action, all liability on the part of the escrow agent shall fully terminate, except
to the extent of accounting for any items theretofore delivered out of escrow.
In the event of any suit between BUYER and SELLER wherein the escrow agent is made a
party by virtue of acting as an escrow agent hereunder, or in the event of any suit wherein the
escrow agent interpleads the subject matter of this escrow, the agent shall be entitled to recover
reasonable attorneys fee and costs incurred, said fees and cost to be charged and assessed as
court costs in favor of the prevailing party. All parties agree that the escrow agent shall not
be liable to any party or person whomsoever for misdelivery to BUYER or SELLER of items
subject to this escrow, unless such misdelivery shall be due to willful breach of this Contract or
gross negligence on the part of the agent.
20. OTHER AGREEMENTS: No prior or present agreements or representations shall be
binding upon BUYER or SELLER unless included in this Contract. No modifcations or changes
in this Contract shall be valid or binding upon the parties unless in writing and executed by the
party or parties to be bound thereby.
21. RADON: Radon is a naturally occurring radioactive gas that, when it has accumulated in
suffcient quantities, may present health risks to persons who are exposed to it over time. Levels
of Radon that exceed federal and state guidelines have been found in buildings. Additional
information regarding radon and radon testing may be obtained from your county public health
unit.
22. FAILURE OF PERFORMANCE: If the BUYER fails to perform this Contract within
the time specifed, the deposit(s) paid by the BUYER may be retained by or for the account
of the SELLER as full settlement of any claims; whereupon BUYER shall be relieved of all
obligations under the Contract.
If, for any reason other that failure of SELLER to make SELLERS title marketable after diligent
effort, SELLER fails, neglects or refuses to perform this Contract, the BUYER may seek specifc
performance or elect to receive the return of BUYERS deposit(s) without thereby waiving any
action or damages resulting from SELLERS breach.
23. RISK OF LOSS: If there are improvements on the Property, and such improvements are
damaged, by fre or other casualty prior to closing, and the costs of restoring the same do not
exceed 3% of the purchase price of the improvements so damaged, the cost of restoration shall
be an obligation of the SELLER and closing shall proceed pursuant to the terms of the Contract
with cost thereof escrowed at closing. In the event that the cost of repair or restoration exceeds
3% of the purchase price of the property and improvements, the BUYER shall have the option
of either taking the Property as is, together with either the said 3% or any insurance proceeds
payable by virtue of such loss or damage, or of canceling the Contract and receiving a return of
the deposit(s) made hereunder.
24. TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Typewritten or handwritten
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provisions inserted herein or attached hereto as addenda shall control all printed provisions of
this contract in confict therewith.
25. PROPERTY TAX DISCLOSURE SUMMARY; BUYER SHOULD NOT RELY ON
THE SELLERS CURRENT PROPERTY TAXES AS THE AMOUNT OF PROPERTY TAXES
THAT THE BUYER MAY BE OBLIGATED TO PAY IN TAX YEAR SUBSEQUENT TO
PURCHASE. A CHANGE OF OWNERSHIP OR PROPERTY IMPROVEMENTS TRIGGERS
REASSESSMENTS OF THE PROPERTY THAT COULD RESULT IN HIGHER PROPERTY
TAXES. IF YOU HAVE ANY QUESTIONS CONCERNING VALUATION, CONTACT THE
COUNTY PROPERTY APPRAISERS OFFICE FOR INFORMATION.
26. ADDITIONAL TERMS: The parties agree that the following additional terms shall
prevail use an addendum if needed:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
27. GOVERNING LAW: In the event of any dispute, the laws of the State of ___________
and the County of ___________________ shall apply.
THIS IS INTENDED TO BE A LEGALLY BINDING CONTRACT. DO NOT SIGN IF THERE
ARE BLANK SPACES NOT FILLED IN. IF NOT FULLY UNDERSTOOD, SEEK THE
ADVICE OF AN ATTORNEY PRIOR TO SIGNING.
SELLER(s):
By: __________________________ Date: ______________
Printed Name: .
__________________________ Date: ______________
Printed Name: .

BUYER(s):
By: __________________________ Date: ______________
Printed Name: .
Title
Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards
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Lead Warning Statement
Every purchaser of any interest in residential real property on which a residential dwelling was
built prior to 1978 is notifed that such property may present exposure to lead from lead-based
paint that may place young children at risk of developing lead poisoning. Lead poisoning in
young children may produce permanent neurological damage, including learning disabilities,
reduced intelligence quotient. Behavioral problems and impaired memory. Lead poisoning also
poses a particular risk to pregnant women. The seller of any interest in residential real property
is required to provide the buyer with any information on lead-based paint hazards from risk
assessments or inspections in the sellers possession and notify the buyer of any known lead
-based paint hazards. A risk assessment or inspection for possible lead-based paint hazards is
recommended prior to purchase.
Sellers Disclosure
(a) Presence of lead-based paint and/or lead-based paint hazards (check (i) or (ii) below):
(i) _____ Known lead-based paint and/or lead-based paint hazards are present in the
housing (explain).
(ii) _____ Seller has no knowledge of lead-based paint and/or lead-based paint
hazards in the housing.
(b) Records and reports available to the seller (check (i) or (ii) below):
(i) _____ Seller has provided the purchaser with all available records and reports
pertaining to lead- based paint and/or lead-based paint hazards In the housing
(list documents below).
________________________________________________________________________
(ii)_____ Seller has no reports or records pertaining to lead-based paint and/or lead-based
paint hazards in the housing.
Purchasers Acknowledgment (initial)
(c) _________ Purchaser has received copies of all information listed above.
(d) _________ Purchaser has received the pamphlet Protect Your Family from Lead in Your
Home.
(e) Purchaser has (check (i) or (ii) below):
(i) _____ received a 10-day opportunity (or mutually agreed upon period) to conduct
a risk assessment or inspection for the presence of lead-based paint and/or lead-based
paint hazards; or
(ii) _____ waived the opportunity to conduct a risk assessment or inspection for the
presence of lead-based paint and/or lead-based paint hazards.
Agents Acknowledgment (initial)
(f) __________ Agent has informed the seller of the sellers obligations under 42 U.S.C. 4852(d)
and is aware of his/her responsibility to ensure compliance.
Certifcation of Accuracy
The following parties have reviewed the Information above and certify, to the best of their
128
knowledge, that the information they have provided is true and accurate.
________________________________________ ______________________________
Seller Date Seller Date
________________________________________ ______________________________
Purchaser Date Purchaser Date
________________________________________ ______________________________
Agent Date Agent Date
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Attachment 11: Notice of Option Contract for Sale and Purchase
PREPARED BY, RECORDING
REQUESTED BY AND
WHEN RECORDED MAIL TO:
___________________________________
___________________________________
___________________________________
NOTICE OF OPTION CONTRACT FOR SALE AND PURCHASE
This NOTICE OF OPTION CONTRACT FOR SALE AND PURCHASE (the Notice) is
made, executed and delivered as of the _____ day of ______________, _____, by and between
__________________________ (Seller) and __________________________ (Buyer).
The Seller grants to the Buyer an Option to purchase the real estate as described below (the
Property):
Legal description:
Property Address: _________________________________________________________
City, State Zip: ___________________________________________________________
Parcel#: ________________________________________________________________
The term of this Option Contract is from the _______ day of ___________________, _______,
and expires on the _______ day of ___________________, _______. The Buyer can exercise
and complete this Option Contract at any time during the Option Period.
IN WITNESS WHEREOF, the parties have executed this NOTICE OF OPTION CONTRACT
FOR SALE AND PURCHASE as of the date frst above written.
In witness whereof, we hereunto set our hand and seal, at ____________________, in the
County of ______________________, State of _____________________, this _______ day of
___________________, _______.
__________________________________ __________________________________
WITNESS SELLER
__________________________________ __________________________________
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WITNESS SELLER
State of ____________________
County of __________________ ss:
Before me, a Notary Public in and for said County, personally appeared the above named ______
___________________________________ who acknowledged and declared that he/she/they did
sign and seal the foregoing instrument and that the same is his/her/their free act and deed.
In testimony whereof, I have hereunto set my hand and offcial seal, at _____ ________, in the
County of _______________________, State of _____________________, on this _____ day
of ___________________, _______.
________________________________________
Notary Public
___________________, _______.
__________________________________ __________________________________
WITNESS BUYER
__________________________________
WITNESS
State of ____________________
County of __________________ ss:
of ___________________, _______.
________________________________________
Notary Public
131
Attachment 12: Affdavit of Understanding
AFFIDAVIT OF UNDERSTANDING
THIS IS AN IMPORTANT LEGAL DOCUMENT CONCERNING THE SALE OF YOUR
HOUSE AND SHOULD BE READ CAREFULLY. IF YOU HAVE ANY QUESTIONS,
CONTACT AN ATTORNEY BEFORE SIGNING.
STATE OF _______________________ )
) ss
COUNTY OF ______________________ )

The undersigned, being duly sworn, deposes and says:
__________ 1. I am currently in default on my loan(s) and am unable to make up my back
payments or continue making further payments. I have attempted several other avenues of action
to remedy my fnancial situation, including:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
__________ 2. _______ a) I reasonably believe that I have NO equity in this property
OR
_______ b) I reasonably believe that there is $________ or less in equity in this
property.
__________ 3. I understand that my mortgage holder, even after agreeing to a short sale, may
require that the difference between the original balance and the negotiated balance be paid by me
and hold me personally liable for such payment. I further understand that if the lender accepts
a short sale, this may or may not relieve me of my personal responsibility for the loan and may
affect my credit score. I also understand that any forbearance or forgiveness of debt by lien
holders may result in a taxable gain and I should consult with a qualifed tax advisor to discuss
the implications of such a gain if I should receive a form 1099 from the lender.
_________ 4. I understand that the Buyer will attempt to negotiate a short sale with some or
all of the owners of the liens on the property. I understand that Buyer will not be doing this on
my behalf, but on his own accord in trying to make this deal work for the Buyer. Buyer has not
made me any promises, guarantees or representations about his ability to complete this task. I
understand fully and completely that, if Buyer is not able to negotiate the short sale with the
lender, the lenders may proceed with foreclosure.
_________ 5. I understand that Buyer makes no promises as to curing back payments or
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making additional payments on my loan. Even if Buyer cures the back payments on my loan,
I understand that this does not obligate Buyer to continue making payments. At Buyers sole
discretion, Buyer may decide to stop making payments on my underlying notes at any time.
_________ 6. I agree to vacate the property on or before 12:00 Noon 3 days before the closing
and leave the premises in a neat and clean condition and free from all personal effects, furniture
and debris. If I remain beyond that time or do not leave the property in a neat and clean
condition and free from all personal effects, furniture and debris I will be liable for damages.
_________ 7. I agree to waive any rights I may have to any prepaid or escrowed property taxes,
insurance, homeowners association dues, county property tax refunds or other amounts held
by any party in escrow, including, but not limited to lenders, homeowners associations and
insurance companies.
_________ 8. I have had the opportunity to seek legal, tax and fnancial counsel as to the
implications of this transaction. I understand that Buyer is not my representative or real
estate agent in this transaction and is not acting on my behalf. I UNDERSTAND THAT THIS
DOCUMENT DOES NOT DEFINE OR EXPLAIN MY RIGHTS OR OPTIONS, and I have had
the opportunity to seek legal, fnancial, tax or other professional counsel to weigh my options,
my rights and the legal consequences of this transaction.
_________ 9. I understand that the Buyer is not acting on my behalf as counselor, advisor,
consultant or non-proft agency. I also understand Buyer may close in the name of a nominee or
related company, or may choose to immediately resell the property to another party for a proft.
I understand that Buyer may make a substantial proft from this transaction and that his primary
motivation in engaging in this transaction is to make a proft from the rental or resale of the
property.
_________ 10. I understand that Buyer agrees to provide me with copies of these documents
within 5 business days of this agreement. I may request additional copies of said documents at
any time by paying the cost of reproduction.
_________ 11. I understand that I may have certain rights under the state or federal law,
including, but not limited to bankruptcy, redemption or other equitable rights that may give me
additional rights. This disclosure is not to be construed as a list of my rights or legal advice, but
simply an acknowledgment that I have investigated my rights under the law. I understand that I
may want to consult with legal counsel regarding these possible rights.
_________ 12. I understand by signing the Agreement, I have agreed to sell the Property to the
Buyer and am now bound by the terms and conditions described in this Agreement. I further
understand that I cannot continue to market the Property to any other party, except as provided
herein.
_________ 13. I understand that I have no right or option to re-purchase or live in the property.
Buyer has made no representations, oral, in writing, express or by implication that I will have the
133
opportunity to re-gain ownership of the property.
_________ 14. The Buyer has agreed to give me $ __________ on _____, 20____, which is fair
and adequate consideration for my rights in the property and will be used for moving expenses,
even though this may be less than what I could expect to gain from either curing the loan and/or
negotiating a workout or forbearance with my lender and/or refnancing the debt and/or placing
the property for sale on the open marketplace either myself or through a real estate broker and
that I am knowingly and willingly agreeing to accept this consideration knowing these options
and other potential options are available to me. I have not been promised any other consideration
or money other than as stated herein. I have not been promised anything other than what is
described in this Agreement. There are no unresolved issues, no side agreements, and there are
no other terms not disclosed in this Agreement.
_________ 15. I understand Buyer has chosen to close this transaction with a specifc title
company or escrow company. Buyer will record the notice of the option contract. I also
understand that this transaction may not involve title insurance or any title guarantees normally
associated with a transaction.
_________ 16. English ___ is or ___ is not my native language but I do have the ability to read
and understand this agreement.
_________ 17. I am not under the infuence of alcohol, drugs or any other ailment at this time
that would affect my ability to read this document and make an intelligent decision as to the
consequences of signing it.
_________ 18. I understand that Buyer is not an attorney or legal advisor. I understand that
Buyer will not and cannot represent me in any court proceedings. I MUST SEEK MY OWN
LEGAL COUNSEL IF I INTEND ON DEFENDING A FORECLOSURE ACTION. BUYER
WILL NOT DEFEND ME IN A FORECLOSURE ACTION. Buyer has not made any
representations that Buyer is able to stop, stay or defend any foreclosure or other bank collection
processes.
_________ 19. I understand that Buyer HAS MADE NO ASSURANCES OR GUARANTEES.
I ACKNOWLEDGE THAT, IF BUYER IS UNABLE TO CLOSE FOR WHATEVER REASON
ON THE SALE OF THE PROPERTY IN A TIMELY FASHION, THE PROPERTY MAY GO
TO FORECLOSURE AUCTION. I AGREE TO HOLD BUYER HARMLESS SHOULD THE
PROPERTY NOT BE RESOLD IN TIME TO AVOID THE FORECLOSURE AUCTION.
__________ 20. The owner agrees to hold the Buyer, his heirs, assigns, employees, agents,
offcers, members, shareholders, corporation and Buyers assignees or any future acceptor of this
conveyance, harmless and fully indemnifes same (including but not limited to attorneys fees,
whether or not litigation ensues, costs and all other litigation expenses).
__________ 21. The Buyer and/or his successors, assigns, agents, employees and trustees are
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not a debt relief agency and do not help people fle for bankruptcy relief under the Bankruptcy
code. The Buyer does not provide bankruptcy information, advice, counseling, document
preparation, bankruptcy fling, or legal representation related to an existing or prospective
bankruptcy. If you want bankruptcy advice please consult an attorney.
ADDITIONAL DISCLOSURES:
_____________________________________________________________________________
________
_____________________________________________________________________________
________
_____________________________________________________________________________
________
_____________________________________________________________________________
________
I HAVE COMPLETELY READ THIS AFFIDAVIT BEFORE SIGNING IT AND I AGREE TO
THE FACTS AND CONDITIONS CONTAINED HEREIN.
__________________________________ ___________________________________
WITNESS SELLER SIGNATURE
__________________________________ ___________________________________
WITNESS SELLER SIGNATURE
STATE OF _________________
COUNTY OF _______________
Before me personally appeared ___________________________________ known to me to be
the persons described herein and who executed the foregoing instrument, and acknowledged to
and before me that they executed said instrument for the purposes expressed.
WITNESS my hand and offcial seal in the State and County aforesaid, on
__________________.
______________________________(SEAL)
Notary Public
My Commission Expires: ____________________
135
Attachment 13: Authorization to Release Information
Authorization to Release Information
Lender/Lien: _____________________________________________________________
Loan/Account Number: ____________________________________________________

Borrower: _______________________________________________________________
Co-borrower: ____________________________________________________________
I/We hereby authorize you to release to . _
_______________________________________________ and their respective employees,
offcers, agents and assigns, any and all information they may require for the transfer or payoff or
settlement of my/our loan/account for the above referenced property. Agents includes all real
estate agents, closing agents, attorneys, employees of
and their assistants. You may reproduce this document to acquire
reference from more than one source.

__________________________________________
Signature
Social Security#: .
Date: _______________________________________

__________________________________________
Signature
Social Security#: _____________________________
Date: _______________________________________
136
Attachment 14: Notice of Release of Option
Contract for Sale and Purchase
PREPARED BY AND
WHEN RECORDED MAIL TO:
___________________________________
___________________________________
___________________________________
NOTICE OF RELEASE OF
OPTION CONTRACT FOR SALE AND PURCHASE
This NOTICE OF RELEASE OF OPTION CONTRACT FOR SALE AND PURCHASE (the
Notice) is made, executed and delivered as of the ____ day of___________, ____, by and
between _________________________ (Seller) and _____________________ (Buyer).
The Seller had granted to the Buyer an Option to purchase the real estate as described below (the
Property). The option is hereby released and cancelled.
City, State Zip: ___________________________________________________________
Parcel#: ________________________________________________________________
This Release and Cancellation shall be effective immediately.
___________________, _______.
__________________________________ __________________________________
WITNESS SELLER
__________________________________ __________________________________
WITNESS SELLER
State of ____________________
County of __________________ ss:
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of ___________________, _______.
________________________________________
Notary Public
___________________, _______.
__________________________________ __________________________________
WITNESS BUYER
__________________________________
WITNESS
State of ____________________
County of __________________ ss:
of ___________________, _______.
________________________________________
Notary Public
138
Attachment 15: Marketing Proposal Letter
Dear Todd,
Hi!
My name is Johnny Homebuyer. I drove by your house the other day at
1234 South Main Street
Central City Ohio 44444
AND
I am interested in buying it..if you are interested in selling.
Please call me at
440-555-1234 OR 217- 440-9876
Sincerely,
Johnny Homebuyer
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Attachment 16:
140
Attachment 17: Cover Letter Template
CHASE
RE: acct #
Borrower: seller name
Property Address: seller address
Attn: LOSS MITIGATION
This is a formal request for a pre-foreclosure short sale on the above referenced property.
The buyer is (Buyers name, LLC)
The gross offer price is (gross offer price)
Enclosed you will fnd attached:
Purchase agreement dated (date)
An Authorization to Release Information agreement signed by the seller
Preliminary HUD 1
The sellers fnancial worksheet, taxes, bank statements, pay-stubs & hardship letter
(seller) is experiencing a long term hardship and cannot afford the payments any longer
The seller has agreed to sell ONLY if it will release the debtor from the obligation, which means
our OFFER IS PAYMENT IN FULL.
(Buyer) is A CASH BUYER AND CAN CLOSE WITHIN 15 DAYS OF RECEIVING THE
SETTLEMENT LETTER.
(Buyer) HAS ENGAGED LMS TO FACILITATE THE SHORT SALE NEGOTIATIONS WITH
ALL MORTGAGE AND LIENS HOLDERS.
Please have the representative call us at (phone number) to gain interior access, as we have been
given a set of keys.
Please forward us an approval letter from your offce so we may proceed to closing. Thank You.
Sincerely,
Your name, fax and email
141
Attachment 18: Sample HUD 1
US Department of Housing and Urban Development
A. OMB No. 2502-0265
6. File Number 7. Loan Number 8.Mortgage Insurance Case #
C. Note:This form is furnished to give you a statement of actual settlement costs. Amounts paid to and by the settlement agent are shown.
ltems marked "POC" were paid outside the closing; they are shown here for information purposes and are not included in the totals.
D. NAME AND ADDRESS OF BUYER:
"Address"
"Address"
E. NAME AND ADDRESS OF SELLER:
"Address"
"Address"
F. NAME AND ADDRESS OF LENDER:
"Address"
property address with city state and zip
PLACE OF SETTLEMENT
J. SUMMARY OF BORROWER'S TRANSACTION K. SUMMARY OF SELLER'S TRANSACTION
100. GROSS AMOUNT DUE FROM BORROWER 400. GROSS AMOUNT DUE TO SELLER
101. Contract sales price 100,000.00 401. Contract sales price 100,000.00
102. Personal property 402. Personal property
103. Settlement charges to borrower (line 1400) 1,544.00 403.
104 404.
105. 405.
Adjustments for items paid by Seller in advance Adjustments for Items paid by seller In advance
"Buyer#2"
"Seller#1" = Mr nd Mrs Smith
"Leave Blank" "Leave Blank"
"Seller#2"
"Leave Blank"
60 days out
CASH
DISBURSEMENT DATE
60 days out
H. SETTLEMENT AGENT
SETTLEMENT STATEMENT
I. SETTLEMENT DATE
G. PROPERTY LOCATION
"Buyer#1" = LLC
B. Type of Loan
1. [ ] FHA 2. [ ] FmHA 3. [) Conv. Unins.
4. [ ] VA 5. [ ] Conv. Ins.
106. City/town taxes 406. City/town taxes
107. County taxes 407. County taxes
108. Assessments 408. Assessments
109. Maintenance Fee Proration 409. Maintenance Fee Proration
110. 410.
120. Gross Amount Due From Borrower 101,544.00 420. Gross Amount Due To Seller 100,000.00
200. AMOUNTS PAID BY OR IN BEHALF OF BORROWER 600. REDUCTIONS IN AMOUNT DUE TO SELLER:
201. Deposit or earnest money 501. Earnest Money Deposit 0.00
202. Principal amount of new loan(s) 502. Settlement charges to seller (line 1400) 10,565.00
203. Existing loan(s) taken subject to 503. Existing loan(s) taken subject to
204. 504. Payoff of first mortgage loan to : 86,635.00
205. 505. Payoff of second mortgage loan to
206. 506. Payoff 3rd mortgage
207. 507. Seller Concessions
208. 508. Water Hold 300.00
Adjustments for Items unpaid by seller in advance Adjustments for Items unpaid by seller in advance
210. City/town taxes 510. City/town taxes
211. County taxes "Date to Date" 2,500.00 511. County taxes "Date to Date" 2,500.00
212. Assessments 512. Assessments
213. Maintenance Fee Proration 513. Maintenance Fee Proration
220. Total Paid By/For Borrower 2,500.00 520. Total Reduction Amount Due Seller 100,000.00
300. CASH AT SETTLEMENT FROM/TO BORROWER: 600. CASH AT SETTLEMENT TO/FROM SELLER:
301. Gross Amount due from Borrower (line 120) 101,544.00 601. Gross amount due to Seller (line 420) 100,000.00
302. Less amounts paid by/for Borrower (line 220) 2,500.00 602. Less reductions in amount due Seller (line 520) 100,000.00
303. Cash [ ] From [ ] To Borrower 99,044.00 603. Cash [ ] From [ ] To Seller 0.00
___________________________________________ _________________________________________
Borrower: Seller:
HUD-1 (08/02)
RESPA, HB 4305 2
Page 1 of 2
142
L. Settlement Charges
700. Total Sales/Broker's Commission based on price: Paid From Paid From
Division of Commission (line 700) as follows: Borrowers' Sellers'
701. Listing Realtor Commission to: Funds at Funds at
702. Selling Realtor Commission to: Settlement Settlement
703. Total Commission
704. Less Deposit Retained by Broker to: 6,000.00
800. Items Payable In Connection With Loan
801. Loan Origination Fee %
802. Loan Discount %
803. Appraisal 300.00
804. Credit Report to
805. Inspection Fee to : 350.00
806. Mortgage Insurance Application Fee to
807.
808.
809.
900. Items Required By Lender To Be Paid In Advance
901. Interest from to @$ / days
902. Mortgage Insurance Premium for months to
903. Hazard Insurance for 1 year to Insurance Company 469.00
904. Flood Insurance Premium for years to
905.
1000. Reserves Deposited With Lender
1001. Hazard insurance months @ $ per month
1002. Mortgage insurance months @ $ per month
1003. City property taxes months @ $ per month
1004. County property taxes months @ $ per month
1005. Annual assessments months @ $ per month
1006. Flood Insurance months @ $ per month
1100. Title Charges
1101. Settlement or closing fee to 450.00
1102. Abstract or title search to 200.00
1103. Title examination to 100.00
1104. Title insurance binder to 50.00 50.00
1105. Document preparation to
1106. Notary fees to 75.00 75.00
1107. Attorney's fees (Deed) to 60.00
(includes above items numbers):
1108. Title insurance to
(includes above items numbers):
1109 Lender's coverage $
1110. Owner's coverage $
1111. Endorsements
1112. Courier Fee 50.00 50.00
1113. Wire Fees 50.00 50.00
1200. Government Recording and Transfer
1201. Recording fees: Deed $ ; Mortgage $ 0.00 ; Releases $ 200.00 30.00
1202. City/county tax/stamps: Deed $ Mortgage $
1203. State tax/stamps:
1300. Additional Settlement Charges
1301. Survey
1302. Pest inspection
1303.
1304. consulting fee 3.5% 3,500.00
1400. Total Settlement Charges (enter on lines 103, Section J and 502, Section K) 1,544.00 10,565.00
143
Attachment 19: Freddie Mac Form
Volume 2 Single-Family Seller/Servicer Guide Page F11261
Bulletin 2005-4 8/10/05
Form 1126
Borrower Financial
Information
BORROWER FINANCIAL INFORMATION
Freddie Mac Loan Number ________________________
Before mailing, make sure you have signed and dated the form and attached appropriate documentation.
Form 1126 1 of 3
BORROWER CO-BORROWER
BORROWERS NAME CO-BORROWERS NAME
SOCIAL SECURITY NUMBER DATE OF BIRTH SOCIAL SECURITY NUMBER DATE OF BIRTH
HOME PHONE NUMBER WITH AREA CODE (BEST TIME TO CALL) HOME PHONE NUMBER WITH AREA CODE (BEST TIME TO CALL)
WORK PHONE NUMBER WITH AREA CODE (BEST TIME TO CALL) WORK PHONE NUMBER WITH AREA CODE (BEST TIME TO CALL)
CELL PHONE NUMBER WITH AREA CODE (BEST TIME TO CALL) CELL PHONE NUMBER WITH AREA CODE (BEST TIME TO CALL)
MAILING ADDRESS
PROPERTY ADDRESS (IF SAME AS MAILING ADDRESS, JUST WRITE SAME) EMAIL ADDRESS
Number of Dependants: Do you occupy the property?
Yes No
Is it rental property? Yes No Is it leased? Yes No
If you have a lease agreement, please provide a copy.
Is the property listed for sale? Yes No
Agents Name: Agents Phone Number:
If yes, please provide a copy of the listing agreement.
Agents Email:
Have you contacted a credit-counseling agency for help?
Counselors Name: Counselors Phone Number:
Yes No
Counselors Email:
Do you receive, and pay, the Real Estate Tax bill on your home or does your lender pay it for you? I do Lender does
If you pay it, please provide a copy of your tax statement. Are the taxes current? Yes No
Do you pay for a hazard insurance policy? Yes No Is the policy current? Yes No
If you pay it, please provide a copy of the policy.
Have you filed for bankruptcy?
Yes No
If yes,
Chapter 7 Chapter 13
Filing Date:_______________
Has your bankruptcy been discharged? Yes No If yes, please provide a copy of the discharge order signed by the court.
INVOLUNTARY INABILITY TO PAY
I (We), __________________________________________________________, am/are requesting that the Federal Home Loan Mortgage Corporation
(Freddie Mac) review my/our financial situation to determine if I/we qualify for a workout option.
I am having difficulty making my monthly payment because of financial difficulties created by (Please check all that apply):
Abandonment of Property Excessive Obligations Military Service Other
Business Failure Fraud Payment Adjustment
Casualty Loss Illness in Family Payment Dispute
Curtailment of Income Illness of Mortgagor Property Problems
Death in Family Inability to Rent Property Title Problems
Death of Mortgagor Incarceration Transferring Property
Distant Employment Transfer Marital Difficulties Unemployment
I believe that my situation is: Short term (under 6 months) Long term (over 6 months) Permanent
I want to: Keep the Property Sell the Property
Please provide a detailed explanation of the hardship on a separate sheet of paper.
If there are additional Liens/Mortgages or Judgments on this property, please name the person (s), company or firm and their respective telephone
numbers.
$
Lien Holders Name Balance / Interest Rate Phone Number (WITH AREA CODE)
$
Lien Holders Name Balance / Interest Rate Phone Number (WITH AREA CODE)
144
Form 1126
Borrower Financial Information
Page F11262 Single-Family Seller/Servicer Guide Volume 2
8/10/05 Bulletin 2005-4
Form 1126 2 of 3
EMPLOYMENT
BORROWER- EMPLOYERS ADDRESS & PHONE # HOW LONG? CO-BORROWER- EMPLOYERS ADDRESS & PHONE # HOW LONG?
Monthly Income - Borrower Monthly Income - Co-Borrower
Wages / Frequency of Pay $ Wages / Frequency of Pay $
Unemployment Income $ Unemployment Income $
Child Support / Alimony* $ Child Support / Alimony* $
Disability Income/ SSI $ Disability Income/ SSI $
Rents Received $ Rents Received $
Other $ Other $
Less: Federal and State Tax, FICA $ Less: Federal and State Tax, FICA $
Less: Other Deductions (401K, etc.) $ Less: Other Deductions (401K, etc.) $
Commissions, bonus and self-employed income $ Commissions, bonus and self-employed income $
* * * * * A L L I N C O M E N E E D S T O B E D O C U M E N T E D * * * * * *
Paystub must be most recent date with year to date information.
Total $ Total $
Monthly Expenses Assets
Other Mortgages / Liens $ Type Estimated Value
Auto Loan(s) $ Checking Account(s) $
Auto Expenses / Insurance $ Saving / Money Market $
Credit Cards / Installment Loan(s)
(total minimum payment for both per month)
$ Stocks / Bonds / CDs $
Health Insurance (not withheld from pay) $ IRA / Keogh Accounts $
Medical (Co-pays and Rx) $ 401k / ESPO Accounts $
Child Care / Support / Alimony $ Home $
Food / Spending Money $ Other Real Estate # $
Water / Sewer / Utilities / Phone $ Cars # $
HOA/Condo Fees/Property Maintenance $ Life Insurance (Whole Life not Term) $
Life Insurance Payments (not withheld from pay) $ Other $
Total $ Total $
* Alimony, child support or separate maintenance income need not be revealed if the Borrower or Co-borrower does not choose to have it considered for
repaying this loan.
I agree as follows: My lender may discuss, obtain and share information about my mortgage and personal financial situation with third parties such as
purchasers, real estate brokers, insurers, financial institutions, creditors and credit bureaus. Discussions and negotiations of a possible foreclosure
alternative will not constitute a waiver of or defense to my lenders right to commence or continue any foreclosure or other collection action, and an
alternative to foreclosure will be provided only if an agreement has been approved in writing by my lender. The informat ion herein is an accurate
statement of my financial status.
Submitted this ___________________ day of _____________________________ , 200_____
By ______________________________________ By ______________________________________
Signature of Borrower Signature of Co-Borrower
145
Volume 2 Single-Family Seller/Servicer Guide Page F11263
Bulletin 2005-4 8/10/05
Form 1126
Borrower Financial Information
Form 1126 3 of 3
FOR LENDER USE ONLY
Provide the appropriate information about the borrower, mortgage and property. If there are junior or
superior liens, indicate the total amount owed, the name of the lien holder(s) and the status of the lien (i.e.,
current, in foreclosure, delinquent and indicate the number of days delinquent).
The Debt analysis section is divided into three sections: the amount of expenses which have been paid or
advanced to retain the lien status; the total amount of the mortgage debt, including the amount of escrow
that remains after any advances have been made; and the pending expenses which you are aware are
coming due, such as pending unpaid real estate taxes, and indicate the date that any unpaid expenses are
due.
Freddie Mac Loan Number

Seller/Servicer Loan
Number
DDLPI Current
Interest rate
Seller/Servicer Number

Preparers Name Date Prepared Phone
Number (
Fax Number
) ( )
Seller/Servicer Name
Address City State
MI Contact Name Phone Number ( )
If Primary MI Coverage:
MI Company__________________________
Certificate #____________________________
% of Coverage__________________________
If Pool MI Coverage:
MI Company____________________________
Certificate #____________________________
% of Coverage__________________________
Recommendation: Short Payoff
Deed in Lieu Makewhole
Scheduled or Estimated Foreclosure Sale Date
/ /
Bankruptcy History: Chapter Date Filed /
/
Date Released / /
Monthly payment: P & I $ ________Hazard Insurance $ _______Other Escrowed Amt $ __________
Taxes$ ________Mortgage Insurance Premium $ ___________________
If loan is an ARM:
Interest Rate:______Effective Date:________
P&I__________
If loan is a GPM:
Interest Rate:______ Effective Date:________
Interest Rate:______ Effective Date:________
Property Condition: Good Fair Property Insurance Claim $
MI Contribution $ Borrower Contribution $
Junior Lien Amount $ Lien Holder Status of Lien
Superior Lien Amount $ Lien Holder Status of Lien
Expenses Mortgage Debt Pending Unpaid Expenses
(describe/due date)
Appraisal/BPO $ Unpaid Principal $ Next RE taxes due
Real Estate Taxes $ Accrued Interest $ / / $
Foreclosure $ Positive Escrow $ $
Bankruptcy $ Negative Escrow $ $
Water/Sewer Pmts $ (Net of advances) $ $
Other (explain) $ (B) Total Loan $ $
(A) Total $ Total Debt (A + B) $ Total $
146
Attachment 20: Hardship Letter
147
Attachment 21: Pre-Approval Letter
COMPANY
Phone:

To Whom it may concern:

________________________, a Private buyer for __________________, is
pre-approved for a mortgage loan with __________ Investments for an
amount not to exceed $250,000. _____________________ Investments is
located at __________________________

Sincerely,

________________________
President
148
Attachment 22: Pull Title
PLEASE PULL TITLE
Contract Type: PURCHASE
Seller Name:___________________________________________
Marital Status:__________________________________________
SS#:__________________________________________________
Property Address: _______________________________________
County: _______________________________________________
Buyer:______________________________________
Address: ____________________________________
Amount:
PLEASE CONTACT w/ any questions
Please fax Title to ________________________

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