Stopping Foreclosures Using “Short Sales”Matthew SmithS & G Real Estate Investments, Incwww.shortsaledesmoines.comOctober 20091

Only Three Goals For Today1) Educate agents on how to capitalize on the “pre-foreclosure” market & make additional commissions thru short sales.2) Educate agents on how to help homeowners in foreclosure who are desperately looking for help by understanding their options. 3) Show agents additional marketing and revenue streams in pre-foreclosures2

Important Information!What is Mid Iowa Negotiation Services: A short sale OUTSOURSING, negotiation & consulting service A business that does NOT subscribe to Equity Skimming Here to assist real estate agents with short sales Here to provide solutions and answer questions Over 6 years experience in short sales3

A short sale OUTSOURSING, negotiation

A business that does NOT subscribe to Equity Skimming

Here to assist real estate agents with short sales

Here to provide solutions and answer questions

Over 6 years experience in short sales

What is a Short Sale?Occurs when a lender accepts less than full payoff on the mortgage(s) to allow transfer of a property to a new buyer.Only available on houses in pre-foreclosure.Can be negotiated on all mortgages plus junior liens.Not available on bank owned houses 4

Case Study - typical deal Payoffs are at or more than the valueNo equity in property when closing costs and commissions are factored in Homeowner in foreclosureHomeowner wants to get out of situationRealtor wants to outsource extra work involved in short sale negotiations with lenders.5

What if you could…….?Outsource all the short sale negotiations to an expert Pay no fees (seller, buyer or agent)Check “case” status online 24/7Closings and title work with a proven expert EARN FULL COMMISSIONS when properties transfer 6

What We Will Cover Case Study The Foreclosure CrisisMarket SizeWorking the Foreclosure MarketShort Sales: What, When and WhySteps in a Short Sale – Flow ChartsHow Short Sales Can Benefit You7

3015 E Porter – Case Study

3015 E. Porter – Case StudyDated Submitted: March 2, 2009Date of BPO: March 30, 2009Date Closed: June 11, 2009Total Payoff: $ 146,165.00Total Discounted Payoff: $ 110,878.00Total Discount: $ 29,287.00Re-Sale price $145,000.00Profit Check (after expenses) $10,437.00NOTE: Listed with realtor at $179,900 for 6 months with no offersNOTE: BPO completed and lender made counter offer, minor cosmetic improvements made, List price dropped to $149,000, 2 offers in 6 days

The Foreclosure CrisisPrime loans drop from 66% to 45% of the market from 2002-2006.Sub-prime, Alt-A, piggybacks (80/20’s), ARM’s, interest only and other “exotic” mortgages take over the majority of market (51%) for 1st time ever in 2006.Credit Suisse Mortgage Report 200710

The Foreclosure CrisisIncrease in the number of ARMs and rising interest rates:Nearly 25% of all mortgages – 10 million – carry adjustable interest rates. Source: Mortgage Bankers AssociationFirst American Core Logic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset. Source: NY Times11

The Foreclosure Crisis7.8% of FHA loans at the end of the second quarter 2009 were 90 days late or more or in foreclosure which Is up from 5.4% a year ago.Source: Wall Street Journal12

Government Bailouts FailingExperts predict that at least another 2 million homes will be lost this year, and the administration’s plan has so far reached only about 160,000 of the 3 million to 4 million homes it was supposed to protect over the next three years. - Politco.com

The High Cost of ForeclosureFannie Mae Estimates the average foreclosures costs $60,000 HSBC States that on average they lose 20-25% of the original loan amount on a foreclosure. Source: Buffalo News As one advocate put it, “This is the worst time for foreclosures basically since the Great Depression." 14

The Foreclosure Crisis "The biggest growth department in all of the mortgage-lending servicing departments over the last year has been the loss-mitigation department. That is the department dedicated to finding solutions to defaulted loans other than foreclosure” .Source: Bruce Juenger, President of the Association of Real Estate Owned Managers in Los Angeles15

Center for Economic and Policy Research"At this point we're seeing a quick meltdown in the housing market." "People still haven't caught up with the fact that this is a larger issue for the mortgage market as a whole rather than just sub-prime.” - Co –Director Dean Baker

Federal ReserveLowered their forecast for economic growth in 2008Weaker consumer spendingDeeper housing recession - Minutes of their Dec. 11 meeting

Market Size - Nationally Nationally 8.22% of all homes were delinquent – at least 30 days behindNationally 3.85% of all homes were in the foreclosure process in varying stages. Sub-prime and FHA had highest %18

www.ml-implode.com363 lenders and banks have imploded and filed for Bankruptcy since late 2006 due directly to the mortgage crisis

Market Size - IOWAIn Q4, Iowa reported 6.3% of all mortgages were delinquentHome Sales experienced a 13.87 YOY decline from 2007 Home prices declined by 4.47% YOYMortgage Banking Association.20

Local Real Estate Market More and more foreclosures every day Most foreclosures have no equity Most homeowners are leveraged 100% of value Tougher and tougher to find listing opportunitieswith equityEnormous opportunity in pre- foreclosures and short sales

Working the Foreclosure MarketWorking with People in ForeclosureHomeowner reliance on advice imposes an obligation to maintain high standards of technical competence and integrity. Always place the best interests of the homeowner above all else, and disclose fully the facts representing the true costs, benefits and limitations of any recommendation.22

Working the Pre-foreclosure MarketStages of the Foreclosure Process Collections – 1st 90 days delinquentPre-foreclosure – 90 days - 12 monthsShort Sale Potential in this stage!!!!Foreclosure Sale – Sheriff’s auctionRedemption Period – 0 to 360 daysREO Department – until liquidated23

Working the Pre-foreclosure MarketOptions for Homeowners in Foreclosure –www.hud.govRefinanceLoan ModificationForbearance / Repayment Plan Partial Claim BankruptcyDeed in Lieu (voluntary foreclosure)Sell24

Options for Homeowners in Foreclosure –www.hud.gov

Refinance

Loan Modification

Forbearance / Repayment Plan

Partial Claim

Bankruptcy

Deed in Lieu (voluntary foreclosure)

Sell

Working the Pre-foreclosure MarketOptions for Lenders with loans in ForeclosureWorkout Plan / Repayment plan Deed In Lieu (voluntary foreclosure)Short SaleSheriff’s SaleREO25

When Will a Lender Consider a Short Sale?Only on loans in default, or where default is eminent. When a lender receives an offer that is higher than what it expects to net by foreclosing.When the type of loan, status of the foreclosure and lender are conducive.26

Why Would a Lender Consider a Short Sale?Lenders are in the business of loaning money, not managing and selling real estate.Non-performing loans reduce what can be loaned by 2-8X the amount of bad debt.Lenders have Loss Mitigation Departments responsible for mitigating, or minimizing, losses from defaulted mortgage loans.27

Steps In a Short Sale Refer an owner in foreclosure, or expects to be, who is both interested in selling and participating.We determine the likelihood of success based on the ability to negotiate a discount and the ability to resell the property. We confer with the sellers and listing agent to explain the process and coordinate required documents 28

Refer an owner in foreclosure, or expects to be, who is both interested in selling and participating.

We determine the likelihood of success based on the ability to negotiate a discount and the ability to resell the property.

We confer with the sellers and listing agent to explain the process and coordinate required documents

Steps In a Short Sale We prepare, submit and negotiate the short sale package, driving the entire process for all lien holders.We prepare a repair estimate.We make an investor offer to start the process.M.I.N.S. requests the lender to postpone auction (if needed).M.I.N.S. follows up on offer & triggers a BPO (Broker Price Opinion).29

Steps In a Short Sale A BPO is ordered by the lender to obtain the “as is” value, which is used to determine if the loan can be discounted and by how much.If our offer is accepted by the lender we will buy it with a quick cash close.If our offer is declined the agent lists or re-lists at a conservative CMA price, subject to lender approval, and reduces the price as necessary until sold.30

Steps In a Short Sale Once an offer from a end buyer is accepted we will negotiate a small spread from the lender and sell it to the end buyer through the agents involved.The negotiated settlement will stipulate the lender is to pay all seller closing costs, including real estate commissions.Proven expert with experience handles title opinions and closings31

The Interior BPOThe most critical point of the entire short sale process.Opportunity to validate the offer.Whatever the BPO comes in at, the lender views that # as the FMV.Lenders want approximately 85-100% of new BPO. 32

Risks for AgentsWaste time and energy on listings when an acceptable discount could not be negotiated.Upset agents and brokers when they lose a buyer because the process took too long or the commission was reduced by the lender.Unable to find a buyer in time.Negotiate a discount and have the buyer not close.33

Waste time and energy on listings when an acceptable discount could not be negotiated.

Upset agents and brokers when they lose a buyer because the process took too long or the commission was reduced by the lender.

Unable to find a buyer in time.

Negotiate a discount and have the buyer not close.

Risks for SellersThe lender may choose to either: Seek a deficiency judgment against the seller for the shortfall (HSBC)Send a 1099C for the shortfall, creating a tax liability for the seller.IRS Pub 523Internal Revenue Code Form 982 Sec 12134

1099’s Mortgage Debt Forgiveness Act HR 3648Debt Forgiven will not be income to defaulted borrowerPrimary residence onlyShort sales, refinances, repayment plans

1099’s Debt Forgiveness Income IRS Pub 523Internal Revenue Code Form 982 Sec 121Insolvency

Deficiency JudgmentsHSBCWilshireIrwinRegional BanksCredit UnionsPotential when PMI does not cover the loss

Real Estate Agent Mistakes Send P&S agreement to lender with no hardship package Short Sale / Hardship package incomplete Approach short sale lenders with no buyer Do not understand the importance of Interior BPO’s

Real Estate Agent Mistakes Think process completed overnight Waiting for Hardship Package from lender Listing property above market value to cover full payoff

Rewardsto AgentsAllows properties with no equity to be sold at attractive prices in a short time.There is less competition among agents for properties that have little or no equity.Allows you to earn full commissions on sales that would have been lost without a short sale.Provides a way to help people in financial difficulty who couldn’t otherwise be helped.40

Rewards to AgentsEasy to demonstrate benefits to sellers in need. Creates new opportunity in a growing market with little competition.You set the price where it will sell quickly, since it is a forced sale, earning commissions on sales you would not otherwise make.Receive strong testimonials and referrals from people who couldn’t be helped by anyone else.41

How Short Sales Benefit HomeownersHomeowners don’t pay for anything.Sellers avoid a foreclosure on their credit report. Most lenders will waive their right to a deficiency judgmentas part of settlement.Short sales minimize the loss, and therefore any shortfall reflected on a 1099C.Homeowners can often avoid paying income tax on the shortfall when professionally advised.Allows sellers to get on with their lives!42

Key Points Covered The Foreclosure CrisisMarket SizeWorking the Foreclosure MarketShort Sales: What, When and WhySteps in a Short SaleHow Short Sales Benefit You43

Questions?To refer short sale business, please contact: Matthew Smith S & G Real Estate Investments, Inc www.MINS.com Office: (515) 988 -21287 Fax: (866) 800 -5042 Email: sandgrealestate@yahoo.com44