7 Myths of Short Sales and Preforeclosures

Rumors, rumors, rumors.  If you’re not wired into short sales, it’s easy to be misguided.  People have their own agenda, and sometimes axe to grind.

Here are some very common misconceptions:

Myth #1: Missing payments is a requirement for a short sale
You absolutely do not.  Not right now, especially when 3 out of 5 homes are being short sold.

Banks and other lenders just want to verify your hardship.  If you have more month at the end of your money, that’s all that’s needed.  If you can prove you are insolvent, that’s better.

If you think you won’t be able to pay your mortgage in the near future, now’s the time to act.

Myth #2: There is not enough time to negotiate a short sale before the foreclosure
There is always time to negotiate a short sale before the final date.  I have done it up to the final date.  Do not let time deter you.

What matters is if you have a seller in the wings.  That will definitely get the bank to stall/extend the foreclosure process.  All it takes is a contract and a phone call.

Myth No. 3: Foreclose is better than a short sale
Banks and lenders are not in the real estate business.  They are in the lending business.  THEY DO NOT WANT YOUR HOUSE.

Given the option, they’d take the short sale over foreclosure–ANY DAY OF THE WEEK.

It’s EVERYBODY’S best option right now, if you meet the criteria.

Think about this:  If given an offer for a 50 cents on the dollar short sale or 15 cents on the dollar foreclosure auction, which you you take if you were the lender?

Myth #4: You’ll lose face listing your home as a short sale
1 in 5 homeowners are in foreclosure.  You are not alone.  This is not embarassing.  This situation is not your fault.  This is reality.

In some areas over 60% of ALL MLS listings are short sales.  Believe it.

The market is going through a massive realignment in terms of value and price.

Myth #5: Short sales are difficult to get approved
When people say this, it usually implies they either haven’t done them correctly or they haven’t been trained.  There is no mystery to them!  But it does require knowledge, understanding and skill.  Experience is a huge asset.

Myth #6: Buyers agents not showing short-sale properties
Whether you are talking preforeclosures or short sales, you are talking a a good deal.  It would be crazy for a buyer agent not to totally embrace short sales right now.  There is a tidal wave of short sales.

And yes, they are more involved than a straight buy/sell agreement, but for an agent to flat out reject a short sale is doing their client a disservice, unless time is of the essence.

There are some AMAZING deals out there.

Myth #7: Banks are waiting on a bailout and not approving short sales
I have said this before and I’ll say it again.  Short sales DO take more work on everyone’s part.  But they are the best option for all right now.

Freddie Mac recently hosted a national training Web seminar for real estate agents where they specifically stated their goal was “eliminating distressed assets through modification or short sale.”

That should give you a small clue as to how receptive everyone is to short sales.

In Summary:
Jump in, the water’s fine.  Just make sure you are working with people who are experienced and have had success with the process.  Training is essential.

Are the sellers qualified for a short sale?

One big mistake I see made is real estate investors and agents in this market is they too optimisitic.  Chasing every deal.
That’s a big problem.  Because you end up with lots of busywork and NO MONEY.

Sounds simple, but it isn’t.  But–it will save you a ton of time and grief.

To the point: Always make sure sellers are QUALIFIED for a Short Sale BEFORE taking on the opportunity.  I have filters which I share in my book “Secrets to Short Sale Success.”  They allow me to “Deal or No Deal” an opportunity almost instantly.  And when it IS a deal I jump on it immediately.

It’s important to get the paperwork in order and make sure the agent, the seller are fully engaged in the process.  If it’s really a deal, then it’s a deal worth getting done.

There’s a reason my team and I can get a short sale done quickly.  We don’t take every opportunity that passes our door.  Never have.  We ultra-selective about what deals are doable and what deals are not.

Whether you are an investor or an agent, you should be too.

- Jeff Kaller

PS: My father had a saying:  Person who chases two rabbits, catches none.

I Love to Fly…

Given the demands on my time, it’s rare I can afford the opportunity to get away these days.
But when I was invited to visit my good friend Cameron in Upstate New York, I just couldn’t pass on the opportunity.

Why?

Because Cameron’s got a plane–a plane with floats for landing on the water.

If you’ve never done it, there’s probably nothing more exhilarating than taking off or landing on the water.

I’m told it’s not that much different than taking off on land, but I have to tell you, it sure FEELS different.

Now that I’m out for the weekend, decompressing a bit, I have had a few insights which are actually quite appropriate for our work in real estate…

1. Don’t be afraid to dream. Even right now, when everybody’s pulling in their horns.  Did you kore businesses are started during a recession than at ANY OTHER TIME?  Why?  Because people are more willing to take chances they wouldn’t normally have taken.  There is a risk/reward formula.

2. When flying with Cameron after we took off and we’re in the air, he let me take the controls. What a RUSH!  But you want to know what’s more of a rush?  I had a blinding flash of an idea where I would let you take take the controls in your new real estate investing business while I sat next to you and made sure you were protected and safe.  I can’t wait to build out this service!

3. While we were landing (on the water, mind you) I have to say I was more than a little concerned. But Cameron was steady as a rock.  It being my first time, and after we landed, all I knew is this was COOL and I wanted to do it again.

So what I figure is real estate investing is a lot like flying.  Especially when doing short sales and preforeclosures.

You HAVE to learn from someone who’s experienced and qualified.  You can NOT go it alone.

And you have to be willing to take a chance or a risk.  But it’s a safe, calculated risk–if you’re prepared and trained.

- Jeff Kaller

Market Bottoming Out???

Extremely informative real estate market news today from Wall Street Journal:

http://blogs.wsj.com/economics/2009/06/24/economists-react-new-home-sales-stability-may-be-short-lived/

They say that indicators are leaning towards a market that’s bottoming out.  Frankly, the  way I see it, it’s been bottoming out for the last year.  Based upon new home buying activity, there is a huge GLUT.

Obviously, that’s good news AND bad news, depending upon how you look at it and what your role in the industry is.

If you’re doing short sales, it doesn’t change a thing.  Now’s the perfect time to do deals…  Go for it!

- Jeff Kaller

Should I Pay My Mortgage?

The rich rule over the poor and the borrower is A SERVANT TO THE LENDER (Proverbs 22:7).

Mandatory reading for everyone in this country who has an inkling to want to operate in our “new economic” climate is Financial Piece by Dave Ramsey.

Just last night I was reviewing some startling facts in the book as quoted by consumer reports the typical household debt totals more than $38,000 on average cardholders carry a $8,367 balance on their credit cards month to month paying an average of 18.3 percent interest.  Nearly 80% of all credit cards are at or near their maximum credit limit and almost 40% have taken cash advances from one card to pay another.

Sears charges 21% annual rate and finance income accounts for over 40% of operating income.

Now, lets picture someone facing foreclosure who’s debt to income ratio is 80% meaning debts divided by income = 80%.

Now the question is asked, should I pay my mortgage?  In this case the debtor can’t afford the house and even if they did borrow money from mom or dad to “get by” they might as well have gone on a Bahamas cruise and blown the money or Vegas gambling spree has better odds.

I’ve done countless short sales where I’ve seen debtors completely cash out 20 year savings to pay a mortgage that’s 30% over financed only to watch it go to foreclosure.

Case in point, my partner Todd and I did a short sale with Betty on a six-plex apartment building here in St. Augustine at the beach.  The mortgage was $963,000. By the time we found her she had emptied a $97,000 pension fund to stave off her foreclosure.  At age 69 the lender reminded her how embarrassing it would have been to see her name on the foreclosure list.

To make matters worse…

The retail value was only $350,000 on the building.  At our meeting she began to weep as she told us how she “wanted to do the right thing” and proceed to empty every account to carry her reputation.  Oh, did I mention when the insurance went up she was $3,900 negative cash flow FULLY OCCUPIED.  When payments stopped the tenants got foreclosure notices and moved.

Betty’s failing health, saving depleted, can’t work, has no family to support her and Betty asked me “should I find a way to pay my mortgage?”

I asked her: “is this property serving you or are you a servant to it?”  Obviously we CANNOT and WILL NOT EVER TELL A DEBTOR TO STOP making payments in hopes we can get a short sale.  Always put the debtors interest first, what if that was your grandmother or mom?

Bottom line…

Fannie Mae will issue a mortgage to someone who has a short sale after 24 months.  They will not to someone who has a foreclosure.

It’s time for our country to re-invest themselves you could start by tearing up all your credit cards and using debit cards only.  I’m serious about this, the real answer to all this should be on the tip of your mind “Is this action getting me out of debt or making me a servant to my lender?”

Tell me your thoughts I challenge you to go get Dave Ramsey’s book “Financial Peace Revisited.”  Read it cover to cover, you’ll thank me later.