​There are investors and companies that send out postcards and letters telling people that they are looking to buy their home.  They pick their lists based on many different criteria.  Some target owners that are late on their mortgage.  Some target non-owner occupied homes.  Some target homes with owners over 65 years old.  Some target people going through a divorce.  Some target the obituaries.  Some target all of the above.

Obviously, these investors are not looking to pay market value for the property, and they are looking for the people that are the most likely to sell their home for pennies on the dollar.

What do I mean for ‘pennies on the dollar’?  The investor tries to get the home as cheaply as possible.  Many will start out at as low as 40 cents on the dollar of the homes current value in the homes current condition, and the cutoff is usually 70 cents on the dollar.  Please note that this is in current condition and not after repairs.

Many of these investors are hoping they can get your home under contract and then find someone who can actually buy it.  They don’t have the cash in the bank to purchase the property.  They will get the home under contract, then start calling everyone they can to see if someone wants to buy the contract before they ever even close on the property.  If they can’t find someone, then they can’t close and you are in a worse situation.

So, what to do if you are in a desperate situation and see working with an investor as the only, or most convenient way out?

#1) Call a real estate agent.  (This is not as self-serving as it seems)  Pretty much all real estate agents are going to be willing to sit with you and give you an idea of what the home is worth.  It will be a free service.  Try to find someone who knows your area.  (Side note, if you don’t know who to call, call me and I will find someone in your area)  Why don’t they charge?  If you decide to list the property, the hope is that you will call them to do so.  This gives you an idea of what the home will sell for and how long it will take to sell the home if they were to list it.  This keeps you from selling for a discount unknowingly. 

In my former life as an appraiser I had the opportunity to do an appraisal for an older lady who had bought her home for $70K nearly 30 years prior.  It was one of the hottest areas in Atlanta.  I asked her what she thought it would be worth.  She said, probably at least a 100k by now.  It was worth over 700k.  (Well, she wasn’t wrong, it was at least 100k)  She nearly fainted when I told her.

#2) If you decide to move forward with the investor:  Remember, this is a negotiation.  Yes, the investor may play hard ball and threaten to walk away.  Do not be intimidated.  Also, don’t be scared to walk away yourself.

#3) Insist on receiving proof of funds showing that the investor has the cash to purchase your home.  This should be a letter from their banker stating that they have at least the amount of the purchase price and all closing costs available in liquid assets at time of the contract.  Make sure you call the bank to verify that this is correct.  A letter without verification could easily be fraudulent.  A deal with any investor should be one that is quick and easy.  You are trading price for convenience.  You are, essentially, selling your home to a business, the same way one sells jewelry to a pawn shop.  Part of that convenience is making sure there is no loan to obtained, no last minute detail that can derail the transaction.

#4) Read the contract carefully and make sure you understand it.  Many contracts will have a due diligence period.  This allows the other side to pull out for any reason at all.  Push to have an inspection period instead of a due diligence period.  Look to have this period as short as possible.  Best case scenario is 7 days or less.  Do not accept any inspection period or due diligence period over 21 days. 

#5) Make sure the investor has skin in the game.  In Georgia, we call this earnest money.  The sticky part here is that the attorney that will be closing the transaction will likely be working for the investor.  So, insist that whoever is holding the earnest money issues a signed statement that is part of the contract stating that they will handle and disperse the earnest money as required by the contract.  Also, earnest money should be significant in these cases.  Ask for 10% earnest money to be held by the attorney in the event of a breach.    

#6) Stipulate in the contract that the investor cannot flip the contract to another party prior to closing without specific written permission from you. 

#7) Be prepared for the offer price to be reduced after the inspection.  Unfortunately, one of the games investors play is to come to an agreement at one price, then negotiate for a reduction of the price after the inspection.  It happens with listed properties too.  Inspectors are looking to lock the property up and then negotiate the price. 

#8) Stipulate in writing that the contract cannot be flipped or sold prior to close. Most important of all:  Don’t ever sell your property by letting someone take over payments.  It will not absolve you of the financial obligation.  So, if he/she doesn’t make the payments on time, your credit takes a hit.  If the home is foreclosed on, the foreclosure is on you.  Even if they make every payment on time for the next 30 years, that payment will be counted against you on your credit report.  It will limit your ability to buy another home or any other expensive item until it is paid off. 

In many cases an investor and distressed home seller can come to an agreement that is a win-win.  I am not here to bash all investors.  I am here to give a word of caution to unsuspecting home owners.

The key is for the distressed seller to be informed and not to operate out of ignorance.  Make sure you fully understand every implication of the agreement.  If there is anything you don’t understand, reach out to a professional.  (Preferably an attorney.)  Do not take the investor’s verbal word for anything that is not in writing.  (This should be standard practice for ALL contracts, not just ones that are offered by investors)

As always, if you have any further questions, don’t hesitate to
contact me directly.  I am happy to answer any questions you may have.  My number is 678-992-3817.

So, a while back, I started a series about what makes a good agent.  There are obviously two sides to a deal.  The agent that represents the buyer, known as a buyers agent or the selling agent.  Then, there is the agent that represents the seller, known as a listing agent.   

I wrote about some of the general things that makes a good agent with the part I of this series.  Then, I posted what makes a good buyer's agent.  Now, we will talk about what makes a good listing agent.

#1) Knowledge- I started to try to list out everything that a good agent should know.  And, well, it was a long list.  Here are the five major things that jumped out at me.  

Property value- You don't want to ask too much and have the listing go stale, and you also don't want to under price your home and leave money on the table.  (of course, in this market under priced homes are quickly bid up..so, believe it or not, it is even better to under price your home right now than to over price it)

Marketing-  How to get the most eyes on your property.  Yes, the listing services are a great start.  It is more than just that.  It is having a great website that ranks highly on Google.   It is featuring them on Zillow, Trulia and Realtor.com.  It is about getting them on Craigslist, Facebook, and Backpage.  Basically, everywhere you can get them.  Some agents feel it is a waste of time to run Craigslist and Backpage ads.  But, the first time homebuyer often starts there because they are comfortable with that sight.  They have looked for things there already.  Most people try the familiar first.  

Loan products and lenders- Why does this matter?  The seller isn't getting a loan.  The seller isn't buying the house.  Why should the listing agent care?  Well, there are many different loan programs out there.  And, so many things depend on the type of loan.  The listing agent should know the different types of loans and what the implications are.  The two biggest factors that change with loan types are time to get done and repairs required.  Some loan programs will require you to fix certain things.  So, you may be looking at two similar offers and decide based on price alone.  Only, one loan type may cost you thousands in repairs that the other would not have.   Oh, and of course, if the listing agent knows the loan types, then they can help you navigate those waters more smoothly and get the house closed on time.

Common negotiating strategies-  So many people think that the only thing that matters is price.  But, this couldn't be further from the truth.  Some buyers' agents actually overbid to get the house under contract, only to then negotiate the price during due diligence.  Some look to have ridiculous contingency periods that protect them long after what is reasonable and well into the realm of abusive.  Some overbid, knowing that the appraisal will knock it down.  Other than perhaps the first one, these are not 'improper'.  They are just strategies.  There are more, especially when you get into different types of sale.  Many negotiations are like chess matches.  The good agents see the board from many different angles.    

Contracts-  We use standardized forms.  However, so many agents have misconceptions about parts of the form.  It's as if we don't need to read and understand them, because it is a 'standard' contract.  And, due to this complacency, many agents put their clients in jeopardy by an improperly completed field.

#2) Communication-  This is one of the most common complaints I hear.  This is key.  Not only to the seller, but also to other agents.  I know how frustrating it can be calling a listing agent to show a home and not hearing back for days.  Or, calling with a question so that I can submit an offer and hearing nothing.  And, of course, communicating with the seller to let them know what is going on and what you are doing to get their house sold.

#3) Willingness to invest time, money and resources-  Listing agents are only paid if they sell the home.  Due to this, some are unwilling to invest the proper amount of time or, more importantly, money to getting the listing marketed correctly.  The shortcuts that they take will help their wallet, but it certainly doesn't help your home sell or sell for as much as possible. 

#4)  Knowing our own limitations-  I do not stage homes, nor do I take the photos that go on all my marketing.  I hire a certified staging specialist and a professional photographer.  Does this increase my expenses and decrease my bottom line?  Yes.  I could easily walk around and give you mediocre staging advice.  But, I know that homes sell better when staged.  And, I know that those photographs are what represents your home to millions of people.   This is so very important, especially in upper price ranges.  It isn't just about getting your home sold.  It is about getting the most for your home in the shortest amount of time.

#5)  Counsel-  Your agent is your advocate.  And, they should be willing to go to bat for you at all times.  That should never change.  They represent you in this transaction.  However, they should also be able to put things in perspective.  The other party may not be in the right.  However, it may cost you more in the long run to be right, than to let the other party have their way.  The agent has to be able to frame those conversations.  

Like I said at the beginning, there is a lot that goes into being a great listing agent.  It would be hard to pick the most important.  I supposed it would be integrity.  A person who has integrity would work on the rest because they would know how important each of these is.  

What do you think the most important attributes are?

This is the third part of the series.  The first two talked about ways to avoid to foreclosure, this last part will talk about what if you are staring down a foreclosure and there is no avoiding it.

Perhaps you have tried to modify, tried to sell, or perhaps, you didn't do anything until it was too late.  What now.

Well, first off, life will go on after the foreclosure.  The sun will still rise and the sun will still set.  

So, lets talk about the big 'F' word.  The ramifications, and also your rights.

Understand that I am in Georgia.  So, laws in your state may vary slightly.  

So what happens on the day of a foreclosure?

Basically, an attorney will stand on the courthouse steps and auction off your home.  Most of the people at the auction are investors looking for a deal.  In many cases, the bank will have a minimum bid higher than the investors want to pay.  At that point, the bank becomes the owner of the property.  If the starting bid is low enough, the owner will be whoever bids the highest.  

So, what should you do before foreclosure?

#1) Don't move.  If the bank receives the property back, they have cash for keys programs and you can get a thousand or so dollars to move out within a specific time frame.  Usually two weeks from the time that they approach you.  Also note that many times the offer made is below what they are willing to pay.  So, you have the opportunity to negotiate.

If an investor buys the property, they too may elect to pay you cash to leave the property in good shape.  Otherwise, they will have to go through the eviction process which could take a month.

Remember, no one can just show up and force you to leave without proper legal process, including the eviction process.  

#2) Don't tear up the house.  I realize that you may be very angry.  The reality is that if you leave the house in the shape it is in, you can qualify for a cash for keys program, or the investor may pay moving expenses.  But, if the house is torn up, they have no incentive to pay you to keep it nice.

And, any money you would get off Craigslist for second hand building materials should be eclipsed by what you received from the cash for keys program.

#3) Breathe.  Yeah, it sucks.  Yeah, it feels like the world will end.  It won't.  In six months, you will hardly think about it.

So, what about after foreclosure?

#1) There will likely be a deficiency.  A deficiency is the difference between what the bank gets for the property and what the loan balance was.  The bank may or may not write this off.  If they don't, you can often call and negotiate a lesser amount to 'settle' the account.  If they do, they will mail you a 1099.  If the property is a personal residence, this should not be taxable.  Make sure to verify the person that is doing your taxes is aware of whether it is a primary residence or not.  In recent years, lenders holding first mortgages are not typically going after borrowers for deficiencies. 

#2) If there was a second mortgage, it is not wiped away.  There is obviously no collateral, but there is still a legal requirement to pay that debt.  The first mortgage company will get something either from the courthouse steps or from selling the property.  The second mortgage company, most of the time, gets nothing.  So, they are much more likely to continue to pursue you for payment.  Again, in these cases, you can settle the account for less.  In many cases, you can get very favorable terms.

Many think that once the foreclosure is over, they don't have to worry about paying any of this money back. That is not necessarily the case.

#3) It is going to be at least three years before you can buy another home.  At that time, you will have to fully explain why you were in this situation and underwriters are going to look much harder at this than a short sale.

In this series, I am going to cover your options to avoid foreclosure.  This series will cover mortgage modifications, short sales, deed in lieu and the details of being foreclosed on and your rights.

The first thing that you need to do is disregard all of the horror stories you have heard about failed loan modifications or failed short sales.  Obviously, several mortgage companies have made mistakes, or more correctly, the people that work for them have made mistakes.  The people that work in the loss mitigation department are overwhelmed with cases that are similar to yours.  If not followed up on, some will fall through the cracks.  The key is follow up and persistence.  Remember, the person that you are working with is not facing foreclosure, you are.  They are doing their job.  I am not saying they don’t care, but they don’t care as much as you do.  Plus, many of the horror stories are from a time when the mortgage companies were less efficient in the processes.  The foreclosure crisis caught the mortgage companies flat footed as well.

The second thing you need to do is CALL the mortgage company.  This is especially true if you are going to get to more than two months behind.  Denial is not a strategy to avoid foreclosure.  In fact, it is a way to almost guarantee it.  The mortgage company will have many options to help you stay in the house.  Depending on your need, they can defer payments, they can lower your payments for a specific period, or you can apply for a loan modification.  If you cannot find a way to keep the home, they can help you with the short sale process.

The mortgage company will ask you whether you are trying to stay in the property or not.  This will tell them how they should initially try to work with you.  If you are trying to keep the property, they may give a small time period deferment, or they may do a full loan modification.  If you don’t want to keep the house, then the mortgage company will talk to you about selling your home.  By the way, if you haven’t had contact with an appraiser or an agent, don’t assume this will be a short sale.  The mortgage company may also mention a deed in lieu.  This is simply turning the property over to the mortgage company without the actual foreclosure process.  You will typically be asked to at least try to sell the home for a period of time before the mortgage company will consider a deed in lieu.

There are many companies out there that offer assistance.  While I hesitate to call “all” of them scams, the money they charge would be better placed going towards your mortgage.

So, let’s talk about a mortgage modification.  If you are looking to stay in the home, but can’t quite afford the payment, then a modification will be a great option for you.  There is no ‘standard’ modification.  Typically, the mortgage company will not discuss a modification with you until you are two months late.  

If you have not been late, and can still afford the property and have good credit…. DO NOT get behind just to get a modification for a lower rate.  Especially, not without first seeing if you can get a streamline refinance for VA and FHA or a HARP Refinance for a conventional loan.  There is no reason to wreck your credit to try and get a modification just to lower your payment. 

Also, if you are planning on claiming bankruptcy, please note that this can eliminate the mortgage modification that you have in place.  If you are claiming bankruptcy, then talk with your attorney about the best way to proceed with a modification.  In many cases, it will be best to finish the bankruptcy, then pursue a mortgage modification.

The key to any modification is going to be documentation.  They will want to know what is causing you to get behind.  They will want to know if you have any prospects of increasing your income in the near future.  They will want documentation of your income.  And, they will want a breakdown of your expenses.  This is not intended to be a down to the penny budget.  It is a reasonable estimate of what you spend money on in a given month.  Modification paperwork can vary, but they will obviously cover debt payments, food, auto, utilities, etc.  It is a great idea to put this together before you call.  That way, you can have all that in front of you. 

A modification will usually take at least a month to approve.  But, call your mortgage company once a week to check on it.  There are times that you file is reassigned to a different counselor and they have no idea where you are at in the process.  Do not wait for them to call you.  You need to call them. 

Once you are approved for a modification, you will have to pay two or three trial payments on time to have the modification become permanent.  Attention to detail on these payments is imperative.  If you under pay by a single cent, you could lose the modification and have to start all over.

A true loan modification is permanent and will stay that way for the remainder of the loan.  If you are facing a temporary financial hardship, the mortgage company may give you a temporary modification, including deferment, etc. to allow you to get back on your feet.

The old adage that your mortgage company does not want to get your home back is still true.  So, they will work with you in most cases if you give them an opportunity to.  The first step is to call them. 

The next blog will cover the short sale process.  What it is, and some key points to help you have a successful short sale.