Ron Caudle

Category: Short Sale Misconceptions

  • First Miconception of Short Sales – Late Payments

    Most people believe that a lender will not except a short sale, unless the person in already behind on their payments.

    The reason this is the first misconception is because it is simply not true, in most cases. We can do short sales even if you are not behind on your mortgage payments. It is not a myth, It is actually done all the time. I have done it myself.

    There are great success stories all the time, people that have successfully completed their short sale and have not missed even a single payment to their mortgage. MISSED NOT ONE PAYMENT! Some of these clients are current not just on their mortgage but on their credit cards and clear of all debt.

    There is one important thing that we must remember when a client is trying to do a short sale on their mortgage. The client must show a time of hard ship, for example, a loss of job or an unexpected illness in the family that may cause them to be late on payment or not to be able to make payments at all.

    It is important that we are able to clarify that the client, will after some time begin to miss payments. Some other reasons could be that the client has a out of area job transfer, The lender will not agree to adjust the amount of payment, or that simply the client no longer earns enough and their savings will run out in a certain time.

    The proof of any of these kinds of reasons can make a short sale possible for you. So don’t miss your opportunity now and wait until you are behind on your bills and you are in debt. Let’s make this short sale now. We can save you a lot of debt.

  • Second Misconception of Short Sales – Market Value Offers

    The second largest misconception of short sales is that the lender will not accept a bid lower than market value. This is a very common misconception. Let’s say that the fair market value of the house is $400,000 and the current owner owes the bank $500,000. Who would think that the bank would accept anything less than $400,000. It is amazing how many people think that way, but the fact is, that simply isn’t true. Many times, lenders will and do accept offers under fair market value. There are many times when a lender will accept as low as and sometimes lower than 10% of the current market value. The trick, is making the lender believe that the lower offer is the best they will get, and that it’s in their best interest to take the offer. Which is what I am trained to do. I can teach you how to put together a solid offer that will be accepted by the lender.

    The best part about the below market value offer, is that if the lender does not accept it, their alternative is to let the property go into foreclosure,  then sell it as one of their REO or Bank Owned Properties. If the lender was to accept the below market offer, they would be able to avoid the high costs of the foreclosure sale, and they would regain their investment right away. They also don’t have to risk other losses to the property such as, a real estate market down turn, or that they will not be able to sell the property for several months, if it can be sold at all.

    These arguments are what gives us our advantage. The use of these examples in our proposal to the bank makes it sound like it is not in our best interest, however it is in their best interest to accept our offer. Lenders will often decide that it makes the most sense to accept a short sale offer that is 10% less than market value, then to risk the thought of all the time and money, waiting, risk that would be in taking the alternative.

  • Third Misconception of Short Sales – At No Time Do Banks Take Less

    The Third misconception to short sales is that the bank would never accept (for example) $40,000 on a loan of $100,000. First, let me tell you, NEVER SAY NEVER. People generally believe that the banks care a lot more about loss then they actually do. It all depends on the situation and how you set up the sale and structure the hardship.

    Now wait a second because I don’t want you to misinterpret me, Banks do care about a severe loss a lot. Think about this, a $40,000 recovery on a loan that was $100,000 is a loss of 60%, that isn’t something that a bank is willing to just let roll off their shoulders.

    If a bank puts $100,000 up originally for the mortgage, there is no chance they are going to walk away with only 40% of their money without checking into it. The bank employees who set up your loan and the ones that answer your phone calls are subordinate level employees, and they are not going to have the clearance to approve a loss of that significance. Honestly, it is a good thing that the employees that you normally deal with are not the ones with the final okay or denial of the loss. Though they are the people that you will have to go through (or maybe around would be a better term) in order to get your file to the Associate Vice President (AVP), who one understands math, and can make the final decision on your file, and to who mitigates the situation, or makes the loss seem less severe than the loss that could have happened if the offer is not taken.

    If you can convince the AVP that the offer that is reasonable and/or reflects the current market value, then the bank may accept a severe loss, even one as high as 60%. There are and has been many cases where the banks have accepted a significant loss, even one of that severity.

    The severity of a loss that a bank would be willing to accept, again depends on the situation and how well you present the hardship and file. Okay, now let’s consider a property that now has a fair market value of $55,000, though the people that own the house still owe $109,000. No matter which way we or the bank looks at it, they are going to be out a very large portion of the money originally invested. In a case such as this, there’s a large chance that the bank would agree to an offer of $50,000 to avoid the hassle and uncertainty of letting the house go into foreclosure and having to resell it as B Owned Real Estate (REO). In this case even trying to sell the property as an REO, the lender would still not satisfy the lien originally placed on the property.

    First-position liens, which is a claim against a property that will be the first claim to be repaid if the property owner would declare bankruptcy or default on the loan, rarely sees a loss as high as 50%. However, it definitely does happen at times. Though a severe loss of 99% is not uncommon in second-position or other junior liens.

    Contact me on more information about how to package your file and hardship accurately and present the numbers. to the AVP.

  • Fourth Misconception of Short Sales – The Second Will Settle For Zero

    Most people are under the impression that on a second-position lien, they will be able to sign off on the short sale, even if you offer them $0.00. I am sorry to say that there are no second-position lien or junior liens that will accept $0.00. I’m sure even you would accept that deal. Everyone wants something for their time and to close out their position. Even if the lender knew that they had no chance in getting even a penny, if the home was taken to foreclosure by the first-position lien, they would still want something.

    Let’s think about it. A lender knows they will get nothing in foreclosure so why would they spend the time filling out paper work and the resources to agree to a short sale and still get nothing. If you are not going to offer them anything, their best chance would be to let the property go to auction, which they still may not see any money, but they still don’t have to put fourth any effort. Even if the property is worth nothing, the way they see it, their time is worth money.

    You need to satisfy all liens, and if they are already taking a loss, you need to make sure that whatever you are offering them is acceptable and worth the their time and effort. You can’t force a second-position lien that is going to lose $60,000 just to take $1,500. They might accept your offer and take the loss, but if they don’t, you can’t force them to. You have to make sure that you negotiate with the junior liens, or you stand to lose the short sale all together.

    The important thing to remember is that one dollar is better than nothing and two dollars is better than one. As you go through the liens, you must offer something that is reasonable in comparison to the chance of loss the lender is about to take.

  • Fifth Misconception of Short Sales

    The bank is not going to take your offer if the person you were dealing with at the bank turned it down.

    The person you speak with at the bank, us basically a low level paper pusher, or a middleman. They aren’t concerned about financial loses of the bank, simply because it’s not their money. They could really care less about your offer because they get paid the same salary no matter if the loses money because of your offer. It’s not going to have an impact on their paycheck on Friday.

    If your offer gets turned down, and you think that it is a reasonable one, the bank will probably accept, even if the low level paper pusher you talked to says it won’t. If your offer gets declined, you need to talk to someone who’s a little higher up on the ladder.

    I can’t stress it enough, 9 chances out of 10, if you’re having issues, you’ve been talking to the wrong person.

  • Sixth Misconception of Short Sales

    Lenders don’t care about accepting a short sale, they would much rather just foreclose the house.

    Even know that agents nation-wide close 10% of their houses on short sales, this myth has been spreading and has gained a lot of attention. I’ll be honest with you explaining why 90% of short sales fail. Most people simply don’t know what they’re up against and don’t know who they need to talk to be to successful, and of course when and how to follow up on the short sale.

    I’ll be the first to admit that short sales, nationwide, have such a low success because of lack of knowledge.  If you go to your MLS, you’ll notice that 10 to 20 percent of houses were sold on short sales. Don’t forget that these statistics have nothing to do with the actual success of short sales or banks’ willingness to accept a short sale. It’s simply because agents go about the short sale process all wrong. With proper guidance, your short sale can easily be a success.

    Thinking back to the market in 2003, lenders had no problem foreclosing a house. They could do it because they knew that they would get the late payment cost back, the principal balance and turn around and sell the house within 60 days since the market was so demanding.

    However, in today’s market, lender try as hard as they can to keep houses from reaching foreclosure. The philosophy “The first loss is the best loss.” is used by major lenders. Though this philosophy doesn’t deal with any kind of low loss mitigators.

    When talking to a mitigator, you need to keep in mind that they are an hourly employee, and also someone who really doesn’t understand what is good for the bank. In most cases, it’s always best to have the conversation escalated to someone who will know more about what you are offering, and produce a much more successful outcome.

  • Seventh Misconception of Short Sales

    A HELOC is a typical second position lien.

    A HELOC is not nearly comparable to a traditional second position lien. These must be dealt with differently than the traditional lien. A HELOC is not only a note attached to a piece of collateral like a traditional mortgage. It is rare that an offer between $1,000 and $5,000 would be accepted by a bank that holds the HELOC.

    Unlike any second position liens, a HELOC has revolving credit characteristics, like a credit card. They can also seek to recover deficiency of principal balance even after a foreclosure sale, though the process may go on for as long as 20 years.

    If the client owes $80,000 on their HELOC, and offers $1,000 to the bank, they will be turned down. Since they can almost guarantee that they can get more than $1,000 from the client.

  • Eighth Misconception Of Short Sales

    The Eighth misconception of short sales is that the lender/bank has to see the property on the market for at least a short time, listed at full market value. Where these rumors got started we will never know, but it isn’t true at all. There are a lot of agents out there that raise the price above market value and then you hear them saying, ” Hey I listed that house, I did due diligence at $600,000, and the property is only worth $500,000. I have no idea why it didn’t sell, so I decided to lower the price.”

    The Bank and it’s employees don’t even care if the house was listed at ‘Full Payoff’ or not. In most cases they don’t care that the house has been listed for five months. The main thing the banks and lenders want, you will notice, is that the offer you submit is at least close to the full market value of the property.

    So in all reality you do not need to list the property at full market value before making a short sale offer for less than the full payoff. It is important to make sure that you are aware and fully understand that the longer you wait, the worse things may get.

  • Ninth Miconception of Short Sales

    Most people believe or have been told that you cannot submit a hardship without an offer and an estimated HUD. This is a matter of whom you may be dealing with. I bet that advice like this was given by a lower level paper pusher who is following a script typed up by someone higher than them to convince you not to try. There is no doubt that as you talk to him It sounds like he knows what he is talking about, but that is because he reads it of the screen in front of him.

    Let say that you listen to the advice that the man from the bank has read off the screen and hold off om submitting your initial hardship paperwork until you actually get an offer. Then you are going to drag out that escrow by an extra Four weeks just to get your file processed. Believe me when I tell you that four weeks is a conservative estimate with most banks. There have been deals with some lender and loan services that can easily take up to SIX TO EIGHT weeks to actually set up and order the BPO, broker price opinion. from the time they had received the file with an offer.

    To shorten this time frame in a considerable amount, it would be nice to knoe that you can send a file in without having an offer. The trick to it though is that you have to follow-up REPEATEDLY and be working on getting an offer quickly. It is you that is responsible for keeping up on the status of your file and to make sure that the bank is moving forward at a reasonable pass.

    When the day does come that you get the phone call from the lender/bank asking “Do you have our offer ready yet?” You should (hopefully) have one and be ready to say,”Oh yes sir, I have you offer right here along with the HUD, do you want me to fax that over or would you rather I drop it off?” (That’s if dropping off is available and in range)

    These are just a small few of the strategies that I have developed and learn over the years, and I will be more the happy to share more with you after you contact me.