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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?
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 a
negotiated release of a mortgage (and/or other
liens) for an amount that allows the transaction
to close when the net proceeds from the sale
are insufficient to fully satisfy all the liens
against the property. Approval of a short sale
is 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 Approval

This 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
Questions?
The Process of Obtaining Short Sale Approval



   Evaluate your seller:

   Avoid the seller who says:

          “I can't seem to face up to the facts.
          I'm tense and nervous and I can't
          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, that's right don't 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 Approval


Follow Up, Follow Up, Follow Up!

First - confirm that seller submission was timely made

Next – confirm that seller submission is complete

Next – confirm the file has been assigned to a negotiator

Call whoever is processing the submission for updates.
The Process of Obtaining Short Sale Approval


Prepare to Close…

Even after careful submission and follow up something
unexpected can happen, be prepared for anything!


      “Like sittin' on pins and needles
      Things fall apart, it's 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
Questions?
Purchase Out of the Redemption Period

•A more direct approach when only one
mortgage and no other liens

•No submission of documents or waiting
period as in a Short Sale

•The transaction needs to be completed
before the end of the redemption period as
defined by statute MCL 600.3240
Mortgage Foreclosure


 One of two ways:

 By judicial action

         or

 By advertisement
Mortgage Foreclosure

Do 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.com

Obtain a list of comparables from a local real estate
                       agent

               Conduct a title search

                   View property
Mortgage Foreclosure



Foreclosure by Advertisement – Three
Important Parts:

1. Notice

2. Sheriff Sale

3. Redemption
Mortgage Foreclosure
Notice
Once determined lender may and wishes to foreclose by
advertisement, the following must be included in the
notice:

•The names of the mortgagor, the original mortgagee, and
the foreclosing assignee, if any;
•The date of the mortgage and the date the mortgage was
recorded;
•The amount claimed to be due on the mortgage on the
date of the notice;
•A description of the mortgaged premises that substantially
conforms with the description contained in the mortgage;
and
•For a mortgage executed on or after January 1, 1965, the
length of the redemption period
Mortgage Foreclosure

Sheriff Sale
The sale shall be a public sale, held between
9:00am – 4:00pm

Initial /opening bid is set by foreclosing mortgagee and
is typically set at the mortgagee‟s approximate fair
market value amount or at the full amount of debt owed

Bidding starts at $1.00 over the opening bid
amount, bidding increments after initial bid are
determined by county

At the close of the sale, sheriff‟s deeds are issued and
subsequently recorded.
Mortgage Foreclosure

Redemption
Purchaser NOT immediately the fee simple owner

Redemption 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
Questions?
Conclusion –

The current real estate market could present a Once in a Lifetime
opportunity for those willing to journey down what sometimes will feel like
a Road to Nowhere. For those who approach the process with caution
and an understanding of the pitfalls they can avoid Burning Down the
House and perhaps lead a Wild Wild Life as an investor in distressed
properties.

Special thanks to the Talking Heads for the inspiration they provided for
this presentation.
Thank you!
        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

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RPLS 2011 Presentation

  • 1. 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
  • 2. What are the Opportunities?
  • 3. What are the Opportunities? 1.Buy Low 2.Sell High
  • 4. 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?
  • 5. What is a Short Sale? A “short sale” in the real estate context is a negotiated release of a mortgage (and/or other liens) for an amount that allows the transaction to close when the net proceeds from the sale are insufficient to fully satisfy all the liens against the property. Approval of a short sale is entirely discretionary with the mortgagee.
  • 6. Purchasing a property “short” You may find yourself in a beautiful house . . . You may ask yourself, well, how did I get here?
  • 7. The Process of Obtaining Short Sale Approval This process is long and frustrating… And can often seem like a Road to Nowhere.
  • 8. Professional Assistance •Attorney •Realtor •Licensed Appraiser •Title Company •Short Term Financing •Long Term Financing •Home Inspector/Handyman
  • 10. The Process of Obtaining Short Sale Approval Evaluate your seller: Avoid the seller who says: “I can't seem to face up to the facts. I'm tense and nervous and I can't relax”
  • 11. 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
  • 12. The Process of Obtaining Short Sale Approval Evaluate the property: Beware of the “house that„s out of the ordinary, that's right don't want to hurt nobody, some things sure can sweep me off my feet. Burning down the house”
  • 13. 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
  • 14. 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
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. The Process of Obtaining Short Sale Approval Follow Up, Follow Up, Follow Up! First - confirm that seller submission was timely made Next – confirm that seller submission is complete Next – confirm the file has been assigned to a negotiator Call whoever is processing the submission for updates.
  • 19. The Process of Obtaining Short Sale Approval Prepare to Close… Even after careful submission and follow up something unexpected can happen, be prepared for anything! “Like sittin' on pins and needles Things fall apart, it's scientific”
  • 20. 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
  • 22. Purchase Out of the Redemption Period •A more direct approach when only one mortgage and no other liens •No submission of documents or waiting period as in a Short Sale •The transaction needs to be completed before the end of the redemption period as defined by statute MCL 600.3240
  • 23. Mortgage Foreclosure One of two ways: By judicial action or By advertisement
  • 24. Mortgage Foreclosure Do 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.com Obtain a list of comparables from a local real estate agent Conduct a title search View property
  • 25. Mortgage Foreclosure Foreclosure by Advertisement – Three Important Parts: 1. Notice 2. Sheriff Sale 3. Redemption
  • 26. Mortgage Foreclosure Notice Once determined lender may and wishes to foreclose by advertisement, the following must be included in the notice: •The names of the mortgagor, the original mortgagee, and the foreclosing assignee, if any; •The date of the mortgage and the date the mortgage was recorded; •The amount claimed to be due on the mortgage on the date of the notice; •A description of the mortgaged premises that substantially conforms with the description contained in the mortgage; and •For a mortgage executed on or after January 1, 1965, the length of the redemption period
  • 27. Mortgage Foreclosure Sheriff Sale The sale shall be a public sale, held between 9:00am – 4:00pm Initial /opening bid is set by foreclosing mortgagee and is typically set at the mortgagee‟s approximate fair market value amount or at the full amount of debt owed Bidding starts at $1.00 over the opening bid amount, bidding increments after initial bid are determined by county At the close of the sale, sheriff‟s deeds are issued and subsequently recorded.
  • 28. Mortgage Foreclosure Redemption Purchaser NOT immediately the fee simple owner Redemption 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
  • 30. Conclusion – The current real estate market could present a Once in a Lifetime opportunity for those willing to journey down what sometimes will feel like a Road to Nowhere. For those who approach the process with caution and an understanding of the pitfalls they can avoid Burning Down the House and perhaps lead a Wild Wild Life as an investor in distressed properties. Special thanks to the Talking Heads for the inspiration they provided for this presentation.
  • 31. Thank you! 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