Entry by Tom Propes

Avoiding Foreclosure

  16 Comments

Has anyone thought about helping people who MAY be facing foreclosure? This seems to me to be an ideal application for consulting. I have read in the Washington Post that 50% of the people going into foreclosure failed to contact their mortgage company. As a consultant we could offer to negotiate with the mortgage holder to lower payment or go interest only for a short period or other terms that would be in the home owners best interest. I would be interested in any comments.

16 Comments

Hi Tom,
I think it's a great idea and a great way to help people. I know there are some "investors" out there who charge a fee, sometimes $500, to negotiate a forebearance agreement with a lender on behalf of a troubled homeower. This of course requires an Authorization to Release Information and a good deal of documentation from the seller. Some of the investors doing this are interested in buying the home at a discount if the forebearance or loan modification doesn't go through. I personally think that's borderline predatory and don't agree with it. I just did a quick google search and came across www.saveyourhomenj.com for example. (Not saying this company follows that line, but they offer a similar program)
I am working with a couple and a divorced lady in bankrupcy right now in similar situations. The couple is current on their payments, but not for long, and must sell to avoid damaged credit or foreclosure. We're going the route of a short sale with the lender. The divorced single mother is in bankrupcy which has created a unique set of problems.

I own investment property and recently negotiated a loan modification with Chase after the payment increased $650 a month! The process took about 3 weeks to complete and was a win for me and the lender. They told me that due to the current situation, an entire department was created for work outs and loan modification. The couple I mentioned earlier also tried this with Chase and had no luck. I don't know why the results were different. I offered to help negotiate on their behalf but they didn't want to go that route and decided to go with a short sale.

I do know that the time and paperwork involved can be extensive, so determining fees needs to be thought through carefully. The downside, is that people in this situation are severly limited on cash for services such as this.

Are you thinking about marketing this service or just having it available if the situation presents itself?

Brent

Brent, Thanks for the info. Yes I plan to promote it by identifying subdivisions with a high rate of foreclosure and doing direct mail. The letter I will send out will defiantly stress that I in no way want to buy or sell their home. Of course, if they decide it's best to sell I would take a listing. I just want to make very clear my intent is to help, not to buy. The web site you mentioned had a lot of ideas that I will go over. One question, where are you located? When you mentioned a $650. monthly payment I said to myself we couldn't finance a garage around here for that! By the way I'm in the Washington DC area. Thanks again for you EM.

Tom
propestc@juno.com

Tom, I'm in Kansas City. The payment went from about $1100 to $1750.

I think that's a great idea, direct mail to subdivision with high foreclosure rates. Hopefully you will catch people before they are actually in foreclosure. I don't know how it is in your state, but in Missouri, after 45 days of missed payments the lender usually sends a strongly worded letter to the homeowner about the possibility of foreclosure. They can also file a "Lis Pendens" at this point but they don't always do so. After 90 days, they can begin foreclosure, must file a notice of intent to foreclose in the public newspaper and will definitely file a Lis Pendens at this point. This is when all the investors find out about the pending foreclosure, in the newspaper, and begin sending direct mail to these homeowners. An avalanche of direct mail.

Two reasons I would want to reach people before this point is most importantly, once foreclosure begins, the attorny fees have kicked in, the late fees have piled up and the window to help stop everything is smaller. Maybe add something to your marketing that it's important homeowners reach out to someone if at all possible before things get bad.

The other reason is that if you are using direct mail, you will be competing against an unbelievable amount of other direct mail at this point. You will need to have some way to stand out from all the others. Let us know what your marketing plan and pieces look like and your response rate.

I'm going to add some info to my website, write an article for my blog and try some classified ads. I'll let you know how mine is going as well. Maybe we can tweak this together and hopefully help some people. If you want to talk or brainstorm on this anytime, let me know. I think it's a great service and one that we as consultants should be providing.

Brent

To Tom and Brent:

I'm finding this exchange very interesting and I'm sure others are also. I do want to ask that the two of you keep this "brainstorming" on the Exchange as much as possible and not take it private, unless it's to put together a marketing piece which you can then share with the rest of us.

Same goes to everyone regarding private emails to the Coaches on how to do something. Remember, that if you're wondering about something, someone else is too. So please keep it on the Exchange.

Thanks,
Mollie

It's been a while since I have been on the exchange and when I read this thread I thought it was as good as time as any to jump in.

Unfortunately, I have been in the position of pre-forclosure properties (or short sales) since last fall. That's all the business I've done since last September. In 2 weeks, I went from never having done a short sale to being involved in 3....2 as a buyer's agent and one as the list agent. Since then, I have 2 more listings and buyer's I've taken that fall into the same category.

I think Tom and Brent have a good idea and I have been trying to figure out how to get the word out that to the consumer that they have a choice between paying their mortgage and being forclosed on.

I urge caution and a lot of education before entering into this area, especially if you are putting yourself in the position of negotiating the deal with the bank directly. I don't know about other states, but in MA the liability is HUGE!!! If you don't know what you are doing here, you can get yourself in a whole heap of trouble.

I have taken steps to education myself, by taking classes and reading.

I see agents entering into this arena more and more and until the first lawsuit comes down the road, (and it will.....you know it will), they think they can negotiate a short sale like any other property negotiation. They won't know what will hit them when the suit comes at them.

There are real estate attorneys who have begun new divisions within their practice to handle loss mitigation. Other real estate attorneys have never handled one of these before and are sometimes being repsonsible in referring them out. In other cases, they are taking them on without really understanding the process and knowing what they are doing.

Personally, I would not get involved in these negotiations. If the person (agent or lawyer) does not know about all the i's that need to be dotted and t's that need to be crossed, they expose their client to being sued by the lender after the fact for hundreds of thousands of dollars. All the while, the client believes they have put themselves in the hands of someone to protect them.

Not to mention, getting these deals to the closing table. It can be tedious and right up to the last minute in bank negotiations. Part of the negotiation is that the brokerage fee is negotiated right into the deal, so that we DO get paid and the lawyer gets paid too. If we don't know what we are doing, we could get cut out all together.

So, you need to know who you are referring to and take time to get to know the attorneys in your area who are specializing in this market.

We as agents have to know who is at risk for losing their house, and that is accomplished through an initial consultation. Then we need to know when to recommend they meet wtih a lawyer who specializes in this market. I am in the initial meeting between seller and lawyer and together we develop an entire plan to get an offer in hand so the attorney can then take over and negotiate with the lender so the seller is protected and we get paid. I am in regular contact with the attorney from then on to make sure we are on track.

Remember, this is an area of embarrasment for most people, so they are not talking about it for the most part. I have been writing about it in my newsletter so that if any of my database that I mail to know of anyone who is in this unfortunate position, they can connect them with me.

Another suggestion is to look at FSBO's and expireds for what is owed on the property. The series of postcards Mollie created are excellent and are on the exchange. They begin to plant the seed and make the follow up phone calls much warmer. While it is a direct mail piece, they are colorful and engaging and definately don't get lost in the
shuffle.

I like Tom and Brent's idea of looking at specific neighborhoods that have a high forclosure rate, writing in our blogs and ads.

Any other ideas of how to get to the consumer before the fact?

Carol makes some excellent points here.

If anyone ventures into this, you need to get some training. Unfortunately a lot of the training programs out there don't seem much better than "winging it".

A couple of suggestions, if you find someone who may be "eligible" for a short-sale, short-pay off, work-out, etc.
- get your exchange of information authorization forms signed immediately.
- if a work-out is not feasible, require that the "client" complete their hardship package before you do anything else

The hardship package is extremely important. Some lenders want it up-front, some don't want it until you have an offer in hand, but the important thing is that the client has to have this done. If you require it before you will go forward with listing the house, you will find out how motivated the seller is.

I found this out the hard way on my 1st and only short-sale listing. It took the seller 3 months to get everything to me! If we had an offer, we could very well have lost it because of this.

(I found that CitiFinancial is one company that wants the package up-front. Why? The gal told me delays in acting on a short-sale are often because the seller package is missing something.)

On to a question about consulting fees...

I charged a $500 non-refundable fee, to be credited back to the seller at closing (out of commission).

Now, I'm a little "skittish" about doing this in the future... There are so many charlatans out there that are taking advantage of sellers, making promises they can't keep, etc. Quite honestly, I don't want to be one of those lawsuits waiting to happen!

Carol and others, how are you handling this? Suggestions anyone?

Great thread here!

Betty

Excellent point on the "pre" work that needs to be done Betty. If you contact the loss mitigation department of the seller's lender, you can find out what they require for their short sale packages. Most will send that list over to you. It is very similar to applying for a mortgage:
2 months of bank statements
2 most recent pay stubs or the previous year's 1099 in the case of someone who is self employed.
Hardship letter
Additionally, the attorney will ask for the 2 most recent mortgage statements.

So, help can be given to the seller by having them get that information prepared in advance. Or, if you are connecting them to an attorney, an attorney experienced in loss mitigation will most likely require this information at the time of the first meeting.

An experienced attorney can assist with the hardship letter as well.

In my experience, I don't really see the place for a consulting fee in this scenario. At first I did when I saw other agents handeling it on their own. Once I was more informed and realized the liability, I am just as happy to turn it over the attorney who will negotiate a % that is fair and reasonable (in MA that is usually 2.5% for each side....less is the list agent has both sides), and I get paid for my work in determining fair market value for the house, doing some educating of the buyer agent to the process (if they don't have experience in this venue), keeping the time line moving forward as much as I can on my end, and communicating with the attorney. Based on my own experience, I have been pretty fairly compensated based on this work with a % of the sale.

The lender is making a determination about what they will/won't accept based on given values, i.e. offer price, % of sale price for agent and attorney, and other set costs associated with the transaction like transfer tax, etc.
In running the numbers using the Smart Plan, I will usually come out further ahead with a %, not a fixed or hourly rate, especially if the house is worth less than $350K, and better still if we are working with a higher end property.
I know this runs against the grain of the consulting model........I just don't see as much of a place for it here.

Carole, I disagree that doing a % runs against the grain of the consulting model. Remember, consulting is the concept of giving choice, not a fee schedule. If a % works better, than you can certainly do that but by acting as a consultant rather than a salesperson in approach, I would think people in trouble would be much more likely to want to work with you over someone else.

Mollie

Carole,
Good points about the liability with short sales. I advise clients that the lender can issue a deficiency judgement for the difference, sue them, forgive the deficiency amount (possible but not likely) and in the past they could be issued a 1099 for the difference on a primary residence, but "I am not an attorney or CPA!" They need to consult with an attorney and/or cpa about the consequences of a short sale. We should have something in writing about our role in the process and that they are advised to consult with an attorney and/or cpa regarding the consequences. I like your idea of networking with local attorneys and partnering or referring. I'm going to see what my attorney advises on our liability and see what I can have added to our service agreements.

There may be times when the situation just doesn't make sense to move forward without an attorney. Other times it does. My client in bankrupcy has an attorney, I'm working with the lender on the short sale, and the attorney to this point has not been or asked to be part of the negotiations. They do have a role in how the amount we're eventually short will affect the client. I had to sign a petetion just to work with the client and represent her as a Realtor.

To your point about locating folks before the fact, a good source for mortgage information is www.Mortgagelists.com. I know there are others out there too.

Tom or anyone, if you're going to write your own direct mail a good site to visit is http://www.herschellgordonlewis.com/intellectual.htm. At the bottom of the page this link takes you to is a link to some questions about wording your messages that is kind of interesting. I've got one of his books "Direct Mail Copy that Sells!". It's a little dated and he has lots of other books on writing direct mail but it is a great resource. I got it on Amazon for a few bucks.

Brent

Hi all,

I have been wicked busy, and today is my 'baby's' 20th birthday, so had to chime in here, but more info later (when I get over the fact that my only child is 20 today!!! ARGH!

MORE later, but since I'm in the foreclosure/reo/shortsale/sunshine/lightening capital of the U.S, and have MUCH experience at this I'd like to chime in with a few things:

First of all, I'd like to highly caution all: The laws of each State vary, and some mtg docs state that the laws prevail where their HQ is, so it is not by any means a one size fits all solution.

Secondly, I'd like to add that even when you figure it out in your area, you still may not want to lose the brain cells necessary in dealing with this arena.

I probably get 10 leads a week from sellers who want to sell, but are upside down and the mtg co is in CA (I'm in FL) and they don't want to do a mtg mod til they are 3 mo's behind, some will do one right off the bat, others you can't even get on the phone without staying on hold for 2 hours.... pressing one for English, two for the cs dept, 3 for pizza, and that lengthy msg about "this call may be recorded as we may be attempting to collect a debt" blah, blah, blah, only to get someone 6 hours later who has NO CLUE.

The first thing to do IF you want to do this is to get a BAL (borrowers authorization letter) signed by the seller saying that they give permission for you to get any information. Get their SSN, mtg balance, see if they owe any HOA dues, mtg loan#, balance and their blood type.

The last one of these I did took FIVE faxes (with the disclaimer that after I sent it, it would be a 72 hour time frame before I would receive a response) ok, like HOW FAR AWAY IS YOUR FAX MACHINE?! LOL..... it isn't that, it is just that they are inudated with these deals right now, and IF you get a buyer, you need to inform them it could take WEEKS for a response. Most buyers or buyer agents won't do this if they are seriously looking for a home, because weeks later the bank (depending on if there is pmi involved, and is it FHA/VA/FreddieMac or FannieMae) the rules are different in how the default is handled.

My question would be is it worth the stress to you to target this market?
My answer was no........ but I found a happy medium! I found an investor who will buy these properties, deal with the banks, attys, yada yada yada and pay me after or if the deal is done. ahhhh!!!! Now THAT is what I'm talking about!

So in short, most banks will not entertain a short sale unless you already have a buyer. Buyers are not educated in this short sale/reo dept and neither are most agents. Why do this??? It would be better to buy stock in Clairol or Rogaine, and I know what I'm doing, but choose just not to go there. Life is too short, but that is my decision.... maybe not yours and you love stress ;-)

Buyers (here at least) are waiting for prices to drop further, or as I've been told "the bottom of the market". My quick answer is if anyone had a crystal ball, and could tell you 'the perfect time to buy' then they would be richer than Bill Gates OR Warren Buffet! If we, as agents can't play that game and win, THEY don't stand a chance. . . but, alas........along comes agent #2, 3, 4 and 5 who will tell them anything they want to hear just to get the transaction.

MOST IMPORTANT IF YOU'VE READ THIS FAR, YOU ARE STILL INTERESTED LOOK UP HR3648 (and here is the link for anyone interested:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648) which was signed on December 20th, 2007 by the POTUS, which states that if you do a short sale, you will NOT have to be 1099'd for the default amount.


More later, it's been a long day and I'm still sniffling over my baby's 20th b-day today......God I feel old! It seems just like yesterday he was born.....now he has a girlfriend and I hardly ever see him, next thing, he will get married, have kids and I'll have to move in with them and tell them how to run their life, lol ;-)

ahhh, to be 20 again!!!

Well, You all have given me a lot to think about. I was already to plunge ahead and do a mailing. What I am going to do is meet with an RE attorney I know and get some feed back. Thank you all for all the advice! I'll let you know what she says.

It's now May 15, and I'm wondering how everyone's experiences turned out after the end of February. It's always interesting to hear differing points of view on this subject, especially the attorney's. Fishing for short sales has to be a depressing way to earn a living, with all of the owner's stress and heartache, but helping through investigation of all options available might be right up our collective alley. I'm looking into a TIC format to potentially help folks stay in their homes with affordable financing. I'll let you know what I find out.

Interesting few months have gone by, more short sales, foreclosure, mtg mod buisness.

I have 8 of these as we speak, and found a way to make these work without having to press re-dial on the phone and spend all of your time doing loss mitt.

Just thought I'd see if there was any interest in this out there, and are all of you still doing it? Has it gotten better or worse?

Keep the thread going, from what I'm hearing it could be anywhere from 3-5 yrs before we see this market go away. Then again, if someone had a crystal ball that worked ;-)

Paula,
Alot of my business has been short sales/foreclosures. I would be very interested in your process.

I've been advised by numerous lenders that they are swamped, entire departments have been recently created to handle the volume of short sales, loan mod's, and foreclosures. Buyers sometimes don't aren't patient with the banks response times, so it takes alot of hand holding with the buyers as well.

Brent

Paula,

I too have been involved with several short sales and I would also love to hear more about your process.

Being a new ACRE®, I'm still trying to get familiar with this exchange.

I have a deal right now that is going to go away as of Monday. The loan program the buyer was approved for has gone away and her lender can not extend it past June 30th. That means she can no longer afford the house, and Countrywide is so backed up they are not responding in engouth time to save the deal. It's in "final approval" now and I mean, we are probably going to lose this deal by just 2-3 days without divine intervention. It makes me sick for the time/effort that has gone into this.
Now, Countrywide will lose their money now, and will get less later because as soon as I put it back on the market, it iwll be $10K less that we got for it.
I am definately picking and choosing my future short sale listings very carefully.
Carole

This page contains a single entry by Tom Propes published on February 22, 2008 9:16 PM.

HELP Needed with Response to Email - Out of Town Buyer was the previous entry in this blog.

Great Blog post by ACRE Jim Kimmons about What Buyers Want is the next entry in this blog.

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