Short Sales and Foreclosures from the Investor’s Perspective Presented by: T. SCOTT GALLOWAY Galloway and Collens, PLLC 26075 Woodward Ave, Suite 200 Huntington Woods, Michigan 48070 248.545.2500 Scott@GallowayCollens.com OutFromUnderMyHouse.com GallowayCollens.com
What are the Opportunities? 1.Buy Low 2.Sell High
Finding Opportunities After the Crash… Possible Business Models: •Buy and Hold •Buy and Resell with Seller Financing •Buy Out of Redemption or at Sheriff Sale and Resell to Mortgagor •Flip the Property •Other?
What is a Short Sale?A “short sale” in the real estate context is anegotiated release of a mortgage (and/or otherliens) for an amount that allows the transactionto close when the net proceeds from the saleare insufficient to fully satisfy all the liensagainst the property. Approval of a short saleis entirely discretionary with the mortgagee.
Purchasing a property “short”You may find yourself in a beautiful house . . .You may ask yourself, well, how did I get here?
The Process of Obtaining Short Sale ApprovalThis process is long and frustrating… And can often seem like a Road to Nowhere.
Professional Assistance•Attorney•Realtor•Licensed Appraiser•Title Company•Short Term Financing•Long Term Financing•Home Inspector/Handyman
The Process of Obtaining Short Sale Approval Evaluate your seller: Avoid the seller who says: “I cant seem to face up to the facts. Im tense and nervous and I cant relax”
The Process of Obtaining Short Sale Approval Evaluate your seller: •Need to move (e.g. for a job, schools etc) •Can‟t afford / facing foreclosure •No longer appropriate for intended use •Part of a decedent‟s estate •Are owners divorced or divorcing? •Close to a break even or equity position •Working with an attorney or experienced realtor? •Working with a short sale “advisor” •Prior efforts to sell or modify loan •Documents ready / understanding of process
The Process of Obtaining Short Sale Approval Evaluate the property: Beware of the “house that„s out of the ordinary, thats right dont want to hurt nobody, some things sure can sweep me off my feet. Burning down the house”
The Process of Obtaining Short Sale Approval Evaluate the property: •Payment status. oStatus of foreclosure •Multiple mortgages oCurrent balances •Other liens •Delayed maintenance •Owner occupied or tenants or vacant •Listed for sale •Current servicer •Demand for rentals / rental rates
The Process of Obtaining Short Sale Approval Purchase Agreement •Price considerations oBPO – Financing Appraisal tension oHistorical data and Case Shiller Index •Contingencies oShort Sale oFlexibility for purchaser or seller oTime to obtain oInform seller of process
The Process of Obtaining Short Sale Approval Purchase Agreement •Price considerations oBPO – Financing Appraisal tension oHistorical data and Case Shiller •Contingencies oShort Sale oFinancing oWhen does period start? oApplication / Approval timelines
The Process of Obtaining Short Sale Approval Purchase Agreement •Price considerations oBPO – Financing Appraisal tension oHistorical data and Case Shiller •Contingencies oShort Sale oFinancing oInspection oWhen does period start oLimitations on right to cancel transaction
The Process of Obtaining Short Sale Approval Purchase Agreement •Price considerations oBPO – Financing Appraisal tension oHistorical data and Case Shiller •Contingencies oShort Sale oFinancing oInspection
The Process of Obtaining Short Sale ApprovalFollow Up, Follow Up, Follow Up!First - confirm that seller submission was timely madeNext – confirm that seller submission is completeNext – confirm the file has been assigned to a negotiatorCall whoever is processing the submission for updates.
The Process of Obtaining Short Sale ApprovalPrepare to Close…Even after careful submission and follow up somethingunexpected can happen, be prepared for anything! “Like sittin on pins and needles Things fall apart, its scientific”
Legal Concerns for the Investor Don‟t Worry About the Government? NO!There are lots of ways for your client to get into trouble by being too aggressive •Credit Services Protection Act •Michigan Consumer Protection Act •Unauthorized Practice of Law •Engaging in a Regulated Occupation (Real Estate Broker) Without the Proper License •Mortgage Assistance Relief Services Rule
Purchase Out of the Redemption Period•A more direct approach when only onemortgage and no other liens•No submission of documents or waitingperiod as in a Short Sale•The transaction needs to be completedbefore the end of the redemption period asdefined by statute MCL 600.3240
Mortgage Foreclosure One of two ways: By judicial action or By advertisement
Mortgage ForeclosureDo your homework. Pre-sale investigation is key as time will be limited on the day of sale.Check out local newspapers for properties listed for foreclosure or online services such as www.realtytrac.comObtain a list of comparables from a local real estate agent Conduct a title search View property
Mortgage ForeclosureNoticeOnce determined lender may and wishes to foreclose byadvertisement, the following must be included in thenotice:•The names of the mortgagor, the original mortgagee, andthe foreclosing assignee, if any;•The date of the mortgage and the date the mortgage wasrecorded;•The amount claimed to be due on the mortgage on thedate of the notice;•A description of the mortgaged premises that substantiallyconforms with the description contained in the mortgage;and•For a mortgage executed on or after January 1, 1965, thelength of the redemption period
Mortgage ForeclosureSheriff SaleThe sale shall be a public sale, held between9:00am – 4:00pmInitial /opening bid is set by foreclosing mortgagee andis typically set at the mortgagee‟s approximate fairmarket value amount or at the full amount of debt owedBidding starts at $1.00 over the opening bidamount, bidding increments after initial bid aredetermined by countyAt the close of the sale, sheriff‟s deeds are issued andsubsequently recorded.
Mortgage ForeclosureRedemptionPurchaser NOT immediately the fee simple ownerRedemption amount is set forth in sheriff‟s deed,includes the following: •The sum that was bid for the property with interest from the date of the sale at the interest rate provided for by the mortgage •The amount of the sheriff‟s fee paid by the purchaser under section 2558(2)(q) ($50.00) •A $5.00 fee for the care and custody of the redemption money, if the payment is made to the register of deeds
Conclusion –The current real estate market could present a Once in a Lifetimeopportunity for those willing to journey down what sometimes will feel likea Road to Nowhere. For those who approach the process with cautionand an understanding of the pitfalls they can avoid Burning Down theHouse and perhaps lead a Wild Wild Life as an investor in distressedproperties.Special thanks to the Talking Heads for the inspiration they provided forthis presentation.
Thank you! T. Scott Galloway Galloway and Collens, PLLC 26075 Woodward Ave, Suite 200Huntington Woods, Michigan 48070 248.545.2500 Scott@GallowayCollens.com OutFromUnderMyHouse.com GallowayCollens.com
Short Sales and Foreclosures from the Investor's Perspective