Pat Precourt and his partner are real estate investors in preforeclosures and short sales. Pat is an amazing investor who has done what few people in the country have done previously in preforeclosure investing. He has over 400 completed short sale transactions under his belt as a full time investor over the last several years. In fact, Pat and his partner, in the course of just two weeks managed to earn $100,000 and complete four sales in the preforeclosure niche.

By Henry B. Nathan
For the last couple of years or so, the new terms ?short-sale?, ?pre-foreclosure?, ?bank-owned? have become very familiar to any active realtor.
Yes, there are courses and classes and conferences to make us aware of the opportunities of this new sector in real estate. And I am continuously receiving emails offering leads on foreclosures and short sales and ?BPO?s?.
I have been involved in a few short sales and I even lend occasionally advice to people who ask me what I know about the subject. The fact is that there is not so much to explain about it. It?s just a logical way that a lender can use to handle bad or problem-loans and cut its losses.
So far so good. However, every time I get involved in a short sale or ?pre-foreclosure? deal, the bizarre takes over the rational, and weirdness supersedes common sense. Let me explain why I think so:
1) There are some conventions in how we usually handle a real estate sale in the US. Usually we list a property when a seller designates us as his ?listing agent? and we place it on the MLS. There are some requisites to do that. He must give us an exclusive right of sale; otherwise we wouldn?t put it on the system.
2) If we have a buyer looking for a property, we will search on the MLS system and establish a relationship with its ?listing agent? by asking to show it to our buyer, or requesting additional information.
3) Once an offer is made, an answer is received within a short term, usually 2 or 3 days. It can be an acceptance, a counteroffer, or a rejection. A non-reply within the given term is considered a negative answer.
Now let?s compare this to what a bank involved in a short sale, or foreclosure sale usually does:
A) After talking to his bank, the seller of the troubled property agrees with a real estate agent to list his condo for sale in the MLS. The agent will place a special clause in the listing, stating its special status as a short sale and its contingency to a bank?s approval.
B) When an offer is received, the bank sometimes requires that it must be accompanied by a loan approval or a proof of funding if it?s a cash offer.
C) The buyer?s agent will often find a clause in the listing, stating that no commission is guaranteed. It is known that banks do not like to pay co-operating brokers more than a 2.5% compared to the usual 3%, but even this is not guaranteed. You must accept whatever the bank will definitely wants to pay you. No discussion.
Do you think that this is the perfect way for the banks to attract the best and most motivated realtors? Work double for less money?
Usually, in a buyers’ market, a smart seller often increases the commission, so buyers? agents are motivated to give him some priority. But apparently, banks have discovered that they can dictate their conditions, nickel-and-dime us so that they can save a few pennies after sinking billions of dollars in dubious transactions. Naming a listing agent who lives 200 miles away from the property isn’t the smartest move either.
But let’s not discuss their marketing skills.
They must know what they are doing.
D) When an offer is presented, the bank does not answer within any agreed period.
E) First difference: the listing agent does not remove the property from the MLS.
F) Second difference: the bank can take many months to reply. Meanwhile other offers are frequently received and presented to the bank by the listing agent. The process gradually resembles an auction and the higher bidder might get finally an answer. Or not.
G) Third difference. When a buyer?s agent contacts a bank-owned or foreclosure sale, and even some short sales, we often observe that the same agent or broker has his name on a lot of listings. This agent is sometimes based in a location that is distant from the property. I have seen brokers in Tampa handling listings in Miami.

A short sale is a sale that aids individuals that are nearing foreclosure by the lending company accepting less than the amount owed on the loan. This process can and does help those that are willing to negotiate with the lending company, however, the lending company, bank, or Mortgage Company has to agree to this discount. The individuals that wish the lending company to agree to a short sale must prove they have financial problems and cannot pay their mortgage. The problems in most cases prove to be economic situations, hardships due to illness, or death in the family. If the home is sold in this manner all the money will go directly to the lending company, the homeowner will not receive funds of any type and will lose all equity in the home. The reason most individuals go with a short sale is to save their credit. If you are considering a short sale, you may wish to talk with an attorney and of course a real estate agent that understands the negotiation process. The lending company will of course, want to receive as much money as they can that is still owed on the loan, as this is how the lending company stays in business. If all individuals defaulted on their loans or received a discount on their loan, the lending company would soon go out of business. This is why you need a professional on your side to help you with negotiations.No matter how much negotiating you do, the lending company has the final say as to whether they will agree with the short sale. The lending company the majority of the times will agree to a short sale if you can prove financial hardship. If the lending company does accept the short sale, you may still be responsible for the remainder of the loan. In almost all cases with a short sale, the full amount of the loan is not met and the original homeowner will still have to pay the remainder of the loan. If the original homeowners still owe money on the loan, this can be a problem for the new homeowners, as the lending company will hold the title until the remainder of the loan is paid. In too many cases, the lending company will not accept a short sale, as they believe the person can pay their loan or that they can still receive the amount owed on the loan through foreclosure and resale. However, the decision is often based on the real estate market in the area. A short sale is actually negotiating with the lending company to get them to take less than you owe on your mortgage loan. If at all possible, the idea is get the lending company to accept the money received from a short sale as the full amount on the loan whereas, nothing more has to be paid to satisfy the loan. In most cases, during the negotiating the lending company will provide an amount they will accept to satisfy the loan. If this amount is not met, the seller will then have to pay the rest before the lending company will give the title of the home to the new owners.

The process of getting a loan modification or resorting to a short sale is complicated, but can be explained in about five main steps.

Step One: Fill out a complete evaluation of your financial situation and your expected recovery value for a foreclosure. Asset dispositions as well as acquisition dates need to be projected accurately, and you must be sure to include an overview of property data, like copies of your loan-agreement, promissory note, the security agreement, the deed of trust, and every other liens that was secured by either you or the property’s operations, including taxes and assessments. Don’t forget, if you have them, rent rolls, current leases, rent concessions, and any and all tenant improvements. Also, if you have has any listing agreements or offers of purchase in the last year, these will need to be included as well. And every operating statement for both income and expenses for the last three years need s to be included in order to establish trends and accurately calculate the total operating income of the household.

Step Two: Every expense relevant to the situation will be analyzed as well as compared to the expense models that the lenders used- this will help to show a fair position on your behalf. Capital and leasing expenses for brokerage commissions or buyouts, as well as total debt service expenses will cut down the net-operating income that was previously calculated. The result of this subtraction is the ‘net’ proceeds from operations that your lender could realize after acquiring the title. This is important to produce so that they can have an accurate projection of what will happen.

Step Three: Establish the market value of your home. This is an obvious one. Then, you will need to add the operations proceeds to this net-sale amount, creating what is known as the expected recovery value which will become available from the collateral.

Step Four: Go over your exposure to a deficiency judgment- you want to avoid this if you can. All of your federal tax returns for the last three years will be included in this perusal, in addition to a recent financial and cash-flow statement that clearly outlines income sources and expenditure categories and amounts. This will help develop strategies for protecting your personal assets, and demonstrate that it is not in your lender’s best interest to go after you in a judicial foreclosure. After this, exposed asset values will be cut down by litigation and liquidation costs, and risk factors in losing a judgment. The resulting, lower value is the recovery rate that is expected from personal assets.

Step Five: Add and discount the expected-recovery value that we just calculated form ht collateral and personal assets mentioned to come up with a ‘present value’. Disocunt rates consider the price of administration, risk, and funds. Developing this present value is no mean feat, and negotiations always begin with this value. The only thing left to do after that is negotiate with your lender.

TWO PITFALLS TO AVOID IN A SHORT SALE

There are two different methods a lender can go after a home owner for owed funds, after the sale of their home. The two methods the lender does not want the borrower to know about are a deficiency judgment and a 1099.

DEFICIENCY JUDGMENTS

In order to recoup any shortfall in the amount bid, including attorney?s fees, court cost, and accrued interest charges, the lender must file a deficiency judgment. A deficiency judgment is defined as a judgment that has been issued when the collateral for the loan is inadequate to satisfy the lender?s debt completely. In other words, a judgment is issued against the party being foreclosed on to recover any shortfall in the amount owed to them. A deficiency judgment is issued when real property is sold at auction for less than the amount owed on the lien. For example, if a house was sold at auction for $ 160,000, but the amount of the loan balance was $ 180,000, than a deficiency judgment could be issued for the shortage, or deficiency, which is $ 20,000 in this example, In summary, deficiency judgments are issued by court action in favor of a lender to help them recover any amount not collected at an auction sale.

MORTGAGE FORGIVENESS DEBT RELIEF ACT

Until recently, if a lender approved a short sale, the IRS required the lender to submit a Form 1099 for the amount of the loan it forgave. In other words, if a lender accepted an offer of $450,000 a loan of $475,000, the difference of $25,000 was considered income and subject to tax. That changed in December 2007 when President Bush signed into law the Mortgage Forgiveness Debt Relief Act. At least, it changed for sellers who short sell their primary residence. Sellers who short sell a second home or investment property can still expect to receive a 1099.

HOW WE CAN HELP

My company has a 98% success rate of getting deficiency judgment waived against the borrower. Our company policy is to help the seller first and give them the option if we are unable to obtain a full satisfaction whether to proceed with the foreclosure or accept the deficiency judgment.

Contact We-Buy-Houses-Atlanta-Gerogia.com

Short sale foreclosure involves property that has been returned to the bank as the mortgagor wasn’t able to maintain their loan payments. The lender takes possession of the property and is responsible for its care till it is sold. Currently, banks are holding a large number of non-performing loans. The amount of money received from the Fed. Treasury is predicated on lenders’ performance. By law, banks are only permitted to hold a certain number of foreclosed properties. With the consistent in-flow of mortgage defaults, many lenders are fast approaching their quota. Short sales give banks the chance to liquidate property inventory.Short selling a property could be a saving grace for borrowers unable to refinance or get a loan modification. The method sometimes takes between four and six months to complete, but permits debtors to walk away without owing additional funds.An exception is when lenders issue deficiency judgments. When 2 or more mortgages are concerned, this amount can be staggering.Multiple fiscal results happen when deficiency judgments are issues. Borrowers may have to engage in months of phone calls and problem if the court does not report the judgment paid.Deficiency judgments can prevent borrowers from getting credit of any sort for several years. Debtors have tiny chance of qualifying for another mortgage while the judgment is attached. It affects all levels of credit worthiness and can take a whole life to recover from the financial fallout.Borrowers should negotiate for Payment in Full without Pursuit of Deficiency Judgment. This legally-binding agreement states the bank accepts the sale price as payment in full and won’t chase the borrower for the difference.However, they aren’t not as damaging as foreclosure or bankruptcy. If borrowers can get back on track financially, they can sign up for another mortgage loan within two years. However, borrowers can expect to provide mountains of financial documentation to prove they are financially insolvent. Most mortgage lenders need borrowers to have a professional buyer lined up before debating about the idea of short selling. Others OK the householder time to list their real estate through a realtor. This window of opportunity is typically two to 3 months. Otherwise, the bank will initiate foreclosure proceedings.A tip for locating a buyer for short sale foreclosure property is to seek out personal speculators or investment groups. Both borrowers and banks save time and cash selling to financiers. Banks can expedite the transaction because there is no need to find a buyer. Borrowers do not need to spend countless hours worrying how they are going to find a buyer. Financiers benefit because they purchase the property at a reduced price. When correctly built short sales offer a win-win to all parties involved..

The economic climate of the past year or so has led to the proliferation of homes in distress, facing short sales and foreclosures; many of these homes have made it to market where buyers are hungry to snatch up deals. While many prospective home buyers are eager to lay claim to one of these possible bargains, the fact is that not all of these homes will be a bargain. What is important to remember though, is that not all foreclosures or short sales are a good deal. Properties that haven’t yet progressed to the foreclosure stage are called short sales. Short sales are homes that are worth less than what is left owing on them and are subsequently sold for less than what is owed on their mortgage. A short sale can free a homeowner from their debts from the home, but can leave them still owing if their lenders won’t negotiate a settlement on the funds owing. Short sale homes may have liens on them from more than just mortgages as well; sometimes they’ll have debts connected to them based on unpaid utilities or taxes as well. Short sales can also take a long time to complete, so if you’re in a hurry to buy a home they are likely not a good choice. Foreclosures, in contrast, are bank owned properties which can be a faster and more straightforward purchase. There are a few dangers in purchasing a foreclosure; foreclosures are usually sold as-is and consequently there is no option to have any problems repaired before you take possession of the home. Many foreclosure homes are auctioned with no opportunity to even have the home inspected so it can be hard to have a very good idea what a given property is worth. Due to the emotional investment that many homeowners have in their homes, foreclosure can result in some passionate retribution from owners who’ve been foreclosed on, resulting in full-scale vandalism. Some homeowners who’ve suffered foreclosure strip their homes of anything that might be able to fetch a few dollars or attempt to cause as much destruction as they can to the home before they vacate. Some homes are stripped of all appliances, cabinets, and copper pipes and wires, which can cost the new owners thousands of dollars to repair and replace. The best way to avoid thousands of dollars of unexpected costs is to engage a realtor who has experience with short sales or foreclosures, whichever you’re looking to buy into. An experienced agent on your side in this sort of endeavour is essential to make your investment progress smoothly and without any expensive pitfalls.

A short sale occurs when a lender agrees to allow a homeowner to sell their home for less than the amount owed on a mortgage.

When people find themselves in the horrendous position of having to give up their home due to a financial crisis, the thought of foreclosure is extremely stressful. But there is one solution that may take some of the sting out of such a loss ? the short sale, or pre-foreclosure sale.The process of foreclosure can take months to occur, so if a deal can be reached with the lender to eliminate this final point, it would be a win-win situation for everyone involved. Ideally, homeowners would enlist the help of a realtor who is familiar with the procedures involved in a short sale. There are many steps involved with a transaction like this, and having an experienced person guiding the way is most helpful.Another positive point for choosing a short sale, if it is possible, is that homeowners are in control of the sale, not the lender. This is not a simple process as banks are often reluctant to take less than what is due to them on current properties. However, if a situation is dire and the future does not hold much hope for getting back on track, the sooner homeowners approach their lender with the written request for a short sale, the better their chances are of acceptance. The lender will want to know if homeowners qualify for a short sale through a Hardship Test. There must be a provable reason why they cannot keep their home. Questions may vary from state to state, but the basic parameters are as follows:* Did they lose their job since purchasing the home?* Did an accident or illness prevent them from working?* Were there overwhelming medical bills that came about since purchasing the home?* Did their job require a relocation to another state or city?* Has the interest rate on their mortgage gone up significantly, so it is a real hardship to pay the debt? Homeowners may also have to check with their mortgage insurance company to see if a short sale would be accepted. There are circumstances where short sales may not be accepted. Examples include:* Was all of the equity in the home used as a loan-to-self to buy other items?* Was the home purchased at the highest point of the market sales, and now it is worth less so the homeowners want to get out of their commitment? Assets on handIf homeowners have funds in savings accounts, CD’s or equity in other properties, the lender will expect a contribution towards the loss in a short sale.

This article is written from the perspective of a homeowner that has a need to short sale their home or property. The exact process might differ from state to state, Realtor to Realtor, and bank to bank, as there are no absolutes that have been defined for this process. If you have reviewed all options available, and have determined that a short sale is right for your situation, then this seven-step outline of what a home seller can expect should help give you an idea of the process. Again, this is a general outline:
1) Realtor and Attorney will determine if seller will qualify for a Short Sale based upon the Lenders guidelines.Is there more owed on the property than it’s present market value?
A comparable Market Analysis (CMA) will be ran to determine the market value of the propertyIs the Seller presently behind on payments, or anticipate falling behind on payments in the near future?
Lenders now realize that many factors that contribute to a potential default. Many lenders are eager to head off future problems at the pass.Is there a hardship?
Examples of hardship are:
Unemployment
Divorce
Medical emergency / sudden illness
Bankruptcy
Death
2) Seller begins preparation of “Hardship” package to include, but not limited to:
Income/Expense Report
Hardship Letter
Copies of Two most recent Paystubs
Copies of Two most recent Bank Statements
Copies of Previous two years of Tax Filings.
3) Realtor lists the property for sale and collects offers.
4) Seller accepts an offer, contingent on Lender and Seller coming to agreement on the terms of the short sale.
5) The seller accepted offer is submitted to the sellers Lender for approval.Note: A short sale is dependent on a buyer making an offer to purchase. If the seller does not receive an offer, there is nothing for the bank to review, and therefore, the seller will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will offer to buy the short sale listing. A successful short sale is also dependent on the lender accepting the buyer’s offer. If the lender rejects the offer, a short sale will not take place. In this case, a new, stronger offer will need to be submitted if the lender allows enough time before foreclosing.
6) If the lender accepts the offer, a “Letter of Acceptance” is issued, the buyer and seller sign the letter, and the escrow period begins.
7) Escrow closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.
Be sure to review all options available you before pursuing a short sale. A loan modification, or Deed in Lieu may be a better option.