Lender estimate of value $195,000--

Sale price offer $140,000--

Property in foreclosure!

Why you can make that loan!!!!!

In 2004 lenders funded $359 billion in sub-prime loans. The rate of foreclosures had been running 3.5%. But now there are 2,300,000 a year and 67 lenders got out of business. When the pay rate increases on these loans that rate of foreclosure will soar.

Many of these loans are 90% or 100% loans made in areas where the value is stagnate or depreciating. Missed payments and legal fees will put many of these properties at 110% to 120% LTV. Some homeowners will want to keep their home and look to you for a lender workout to keep their home. Many will want to move on but can't sell. Note, in many States the lender can sue for any loss.

FOR THEM A SHORT SALE IS THE ANSWER.

We handle Short Sale negotiations with lenders for many of our mortgage brokers, but we never really made this known to our network of brokers. Now we realize there is a large demand for this service and doesn't seem to be very many companies that know what a Short Sale is, and much less on how to work with mortgage brokers, investors and lenders to negotiate a Short Sale. Here is what we do know.

There is a right way to put together a Short Sale offer so a lender can justify settling for your offer. But most offers are badly done and leave a lot of cash on the lender's table.

Short Sales will be big business in the near future.

Some very bright investors have made millions when they created a formula for buying problem residential and commercial properties often in foreclosure from owners at 20% to 30% under the market price when the loan is 10% or even 30% more than the market value of the home.

While most Short Sales are on residential properties they can be, and are, completed on commercial properties that are also in troubled areas.

Real estate investors have learned to make money even when market values are depreciating and so must you.

Why would a lender allow the property to be sold and accept a loan payoff that is far less than the amount of the home loan and not come after the homeowner for the losses?

Simple: to save time and money.

When a loan goes into foreclosure most lenders will only get a Realtor in the area to give a "broker's options of value". That Realtor doesn't normally inspect the inside of the home. If the lender forecloses on that property they will sell it "as is" and they will say they don't know the condition of the property.

But if before the lender owns or sells the property the lender gets a contractor's estimate for $35,000 of repairs required, they should disclose it. Note: a bright investor paid for that very detailed repair list. Completed by a friend that is a very expensive contractor and who has inspected every inch of that property. No, the lender would not be surprised to learn the investor and his handyman can complete the repairs required for $5,000. But the lender doesn't have a handyman.

Now, let me restate. If the lender knows about the need for the repair they should give (not must give) notice of the known condition of the property to all potential buyers. That cuts the market value of the building.

At the same time the lender will receive from the investor a very, and I mean very, conservative appraisal also paid for by the investor and is complete with the contractor's estimate for repairs of $35,000.

So here are the lender's problems --his Realtor's value of property is $195,000 but there was no interior inspection, just some photos from the street and some comps. The lender has been given an investor paid for appraisal and the value is $160,000 as the appraiser has a copy of the contractor's cost of repairs and made adjustments to the value.

The lender knows if he orders a full appraisal that his appraiser will also be handed the $35,000 list of repairs. So the lender believes the property will sell at a discount because of the condition of property; and they must pay a Realtor a 6% commission; and pay their part of the closing cost; potential liability of vandalism; mold developing in vacant homes; and depreciating values. Plus all the time that takes to close an escrow; and the loss of interest each day on the money they have in the loan. Add management time and expense. That adds up to big loss.

The bank may accept an offer of $140,000 or less. There is an old saying in banking: "Your first loss is your best loss"

The lender will require a detailed accounting of the transaction. There can be no cash to the seller and the Real estate sales commission can't be over 5% --each lender has their own commission rules. The lender will require a net cash out estimate from the escrow company handling the sale in order to accept the deal.

If there is a 2nd loan the investor must offer some money to buy that loan, but normally no more than 10% of lender's balance. Keep in mind the 2nd will get wiped out if the first lender forecloses, but they need some incentive just to do the paperwork.

Some lenders will allow $500 to be paid out of escrow funds to the junior lender but in every case we must make a deal outside the escrow to buy the junior loan.

If investors buy the 2nd there will be no 1099 to the property owner.

Now you have a deal.

The borrower is off the hook for any loss the bank takes as they accepted the Short Sale. Perhaps the investor will give the seller some cash and extra time to move. In some States the only collateral for Real estate is the property and the lender cannot sue the borrower for any loss. If you're not sure about your State, email or call and we will give you the rules that apply in your State or the State the property is located.

Here is what we do --we ask the investor to complete a very detailed list of information on the property and area, we review that information with the investor and create a plan to purchase.

We make a proposal to the lender using what we call the poison pill approach.

Keep in mind it's a lot less work and risk for the lender to take our offer. The Department Manager of the lender will use our proposal to justify the sale price and protect his job.

So how do you make money? Spread the word. Tell current and prospective investors about Short Sale profits and they will give you loan after loan.

Buy a property or two, or three.

One thing is sure: lenders are tightening their underwriting guidelines and rates, and foreclosures are increasing. All the while property values are decreasing in many parts of the country and every mortgage broker will need to explore new ways to stay profitable.

Richman & Associates- JimLrichman@msn.com -877.502.7283