Short Sales (Part 2)
(WHY MARK & LORI HOWE, CDPE, AND OTHER CDPE AGENTS ARE RUNNING TO SHORT SALES)
By: Mark Howe, CDPE
(*Special Note: This page is intended to read as continuation of Short Sales (Part 1) - Part 1 can be accessed by clicking "Why AGENTS RUN FROM SHORT SALES" on the left margin of the page.)
If you are still with us after Reading Short Sales (Part 1), you now have a foundational understanding of some of the positives and negatives of the Short Sale process. This article continues with the assumption that either the reader may be in need of a short sale, or the reader knows someone who may need a short sale, or Lori or I have asked you to read these two articles. Short Sales are a complex area of specialization in the real estate industry, and our information rich society is being fed a lot of false information about Alternatives to Foreclosure. If you go to your web browser and Google "Short Sale" read from any 10 sources and we guarantee that you will confused beyond words. The reason this is true has nothing to do with well-intentioned people communicating false-information on purpose. Reality is that too many things that did work in the short sale world 12 months ago do not work today - and many things that were unheard of 6 months ago are starting to become the daily method of operation in short sales today. Because Short Sales are such a new concept, the answers to "how a short sales gets completed successfully" have been a rapidly moving target since 2007 - rules, guidelines, and expectations have consistently changed monthly and sometimes weekly for the last three years - there is no reason to think that the target won't continue moving. Quite litererally, unless the information you are reading about Short Sales, from any source, was written within the past few days, the information you are reading may be out of date and worthless. The other problem that exists right now is that many of the "authorities" about short sales, are non-real-estate media people and somestimes people from within the real estate industry, who have never personally completed a successful short sale for a client in their lives and seldom does the writer acknowledge even personally knowing a real estate agent who has completed a successful short sale.
Together, my wife Lori and I have personally stopped over three dozen foreclosures, and successfully closed over three dozen successful Short Sales for our own clients. To date, after pre-qualifying our clients for a Short Sale, we have not failed to successfully complete a closed sale on behalf of that client.
In Part 1, you came to an understanding that the Short Sale Process is not easy, and many of the "players" in the process are really dealing with a lot of disfunctional stuff - particularly at the point of the question "...so just who is supposed to make the process work?...and....WHO is supposed to be making the Short Sale HAPPEN?" For it is a certainty...real estate agents who have lost a seller client due to foreclosure, and the millions of home owners who have now experienced foreclosure, never found the answer to that question. The missing answer is found in one key misunderstanding about Short Sale Real Estate Transactions.
When you have a problem with your head, you don't go to the foot doctor.....you go to the head doctor who has specialized knowledge about head problems. When you are a commercial real estate developer and you want to sell your shopping mall, you probably don't call Lori and me, you'd want to talk to real estate agents who are working with buyers of shopping mall. My own industry is just now starting to comprehend that Short Sales, loss mitigation, and Other Alternatives to Foreclosure, are an area of real estate practice that REQUIRE HIGHLY SPECIALIZED AND UP TO DATE KNOWLEDGE in addition to being a highly effective Real Estate Agent in terms of finding buyers for your listings.
Let's consider these statistics. October 2010 - Headline - 23% of U.S. Home Owners are "under water". That means that about 1 in 4 home owners owe more money on their homes than they can get if they try to sell it. As long as we are facing these kinds of realities in these kinds of statistics, the real estate crisis is NOT over!
Consider these over-all market statistics, currently about 1 in 4 (25%) of all private home owner/sellers in central Indiana are successful in selling their home when they list it for sale. (Currently Lori and I are averaging 81%+). Add the adverse factors of a seller needing a short sale solution, and isolate short sale sellers as a statistic, and the overall market success rate for short sale sellers drops to less than 1 in 10 (<10%). Yet Lori and I have attempted more than a dozen short sales and so far, have been successful 100% of the time. And even though Lori and I would like to be able to say this is just "when the going gets tough the tough get going" - reality is that "when the going got tough, Lori and I went back to school" - and acquired the knowledge to be able to bring these kinds of results to our clients. We would like to share a part of that story with you, and also what you can expect from us as we face this challenge together.
We'd like to introduce ourselves to you and hopefully, this information will help in your decision to proceed forward working with us if you have any real estate need or need related to Short Sales or Alternatives to Foreclosure.
Let's start by seeing if we can establish some common ground by asking you these questions:
-Have you ever been depressed? If you answered yes, then we have that in common.
-Have you ever started out driving to your place of employment, and wanted to drive right on by and just keep going? If you answered yes, then we also have that in common.
-Have you ever had too much month at the end of the money? If you answered yes to any or all of these, then we do have quite a bit in common.
I am Mark Howe with RE/MAX Realty Group. I have been in real estate for over 20 years and have remained in the top 5% of real estate agents nationally for over 15 of those years. Today, my wife Lori and I work closely together in the real estate industry (since 2008), and prior to working with me, Lori was a a Private Surgical nurse for 12 of the 18 years she practiced nursing before joining me. We laughingly joke about how we "operate" at times, kind of like Real Estate Doctor Mark, and Real Estate Nurse Lori. It's actually become a little more than something to laugh about though - if anything ever existed in the real estate industry that could be described as "virtually requiring surgical precision and sound strategies" - it is summed up in two words: Short Sale.
In 2008, as Lori was leaving her nursing career, and joining me in a real estate career, I recall sitting in our office, listening to CNN - "more news on housing - it's worse than anyone dreamed"..... I was also looking at statewide, central Indiana, and my own sales statistics and all of them confirmed the same thing: "Uh-Oh!...things are bad, and they are getting worse". I remember turning to Lori and saying things like - "This is going to be very tough - nothing is going to work like it once did - no business model that I have built for 18 years is going to be enough to see us through this real estate market disaster."
It was around this time I received an email from RE/MAX. RE/MAX has around 100,000 agents. RE/MAX Co-Founder Dave Liniger was featured in an article and in it, he was calling for 10,000 agents to become CDPE certified in the next 12 months. Dave Liniger was also working closely around this time with the top levels of government in Washington D.C. on changes that would make the short sale process and the world of foreclosure alternatives, more functional. It was that leadership that said "we NEED more than 10% of our sales force to step up now and get this training that compelled Lori and me to start looking at many areas of real estate differently. At one time, we dreaded the thought of a short sale, today we are looking for people to help.
It has been helpful for us to understand, and it has been helpful for our clients to understand, that:
-Short Sales are HARD.
-Short Sales are a lot of work.
-Short Sales require knowledge, persistence, patience, will, and expertise.
-Short Sales are WORTH IT to every entity and person in the process.
To better understand how a successful short sale happens, here is an overview of our step-by-step process that has proven successful.
THE 5 PHASES OF THE SUCCESSFUL SHORT SALE PROCESS
PHASE 1: DISCOVERY/RESEARCH
This is the information gathering phase. In this phase, the borrower/home owner helps us to understand what's been going on since the mortgage was obtained. The home owner helps us understand their current financial situation and the factors which have made making mortgage payments a problem, or will make future mortgage payments a problem. It is in this phase that we will need to personally visit the property to complete a comprehensive market evaluation on the property so we can answer the question "what is this property REALLY worth in TODAY'S MARKET, at TODAY'S VALUES? - to do this, our market evaluation uses the structured appraisal process and then we continue the evaluation process two steps beyond a typical appraisal.
PHASE 2: CONSULTATION AND STRATEGIC PLANNING
Having completed the information gathering Phase 1, it's time for the home owner to make some informed decisions. The most important question that can now be answered is: "Is a short sale the BEST solution?" Today there are not less than 11 possible Alternatives to Foreclosure and a Short Sale is NOT the best solution for all borrowers who are or will be having trouble making their mortgage payments. Because of the circumstances in today's market such as "declining real estate values", "unemployment problems", etc., Short Sales have become the best solution for more and more borrowers having problems. However, Short Sales are not a One Size Fits All solution. Every situation is different. Upon determining that a Short Sale is the best solution, we will outline a stategic plan that answers the question "How are we going to be successful?" The answers to this question involve merging TWO important objectives and making those two pieces of the puzzle fit together. This is where Lori and I excel. Lori has taken on the primary role of working with our home seller's current lender toward the objective of achieving a preliminary short sale approval. My (Mark's) primary role is positioning and presenting the property in the market place correctly so a qualified buyer can be found, and negotiating a successful purchase agreement. Success in both of these areas is critical.
PHASE 3: INFORMATION GATHERING / PRE-MARKETING WORK / ASSEMBLING OF SHORT SALE APPLICATION PACKAGE / INTERVENTION WITH THE CURRENT LENDER
Entering Phase 3, we have charted a course for success - in this phase, we and the home owner will complete an intense amount of work that will determine the results and success of the process.
Before discussing these steps, it's important to understand the effects of the possible adverse circumstances facing the home owner/seller. If you are considering a short sale, one of the reasons for seeking a short sale is an inability to continue making mortgage payments - whatever the reason making mortgage payments has become a problem, it is never because of good circumstances. Our distressed home seller clients who need a short sale have a financial hardship that has been caused by something - among those circumstances, death of an income earner, loss of employment, inability to find re-employment, divorce, disability, medical diagnosis/hardship, and many other life changing events. It is at these times in life when it can be hardest for people to find the energy to exert effort toward productive solutions. Many of our clients, who most need a solution to their current real estate problem, have been knocked down by circumstances in life that really just make things tough. We want to help you through this tough time through mutual understanding of things like:
-A Short Sale for a troubled home owner is a solution that can save the borrower's credit from more disastrous measures like bankruptcy and foreclosure.
-A Short Sale is often the tool that allows a distressed home owner to "stand-up" again, get back on their feet.
-A Short Sale is often the beginning of the return of hopefulness and optimism for the future, for a home owner who had lost most or all hope.
And, it is often at the point when a home owner most needs a solution like a Short Sale, when it is also most difficult for the average person to find their way out of bed in the morning, or find their way off the couch - we do understand that, and it is not unusual.
This is one of many places in our operation where my wife Lori's background as a nurse becomes particularly useful. We know that when we help our distressed home owner client over the obstacles of a Short Sale, we are helping to cure a very ailing real estate condition. Our approach is very much like that of a doctor and a nurse (who make "house calls"). Have you or one of your relatives ever had a stay in the hospital? You might remember a nurse who understood your situation, was very detail oriented, and took excellent care of you. And that same nurse was also the person who made you get out of the bed when were still healing (and hurting), made you walk up and down the hall. Remember? The nurse was pushing you to do that while she listened to you complain about it, told you to eat your jello, and asked about stuff you probably didn't want to talk about. The result and the outcome was probably worth it.
By the end of the process, you'll be understanding why Lori made an excellent nurse!!!
By this stage of the process, a good amount of work has already been done - and most important for the home owner at this stage is to have confidence in the process and the goals decided in Phase 2. This Phase 3, is where we need 110% effort from the home owner - that 110% effort is only needed for a week, sometimes two weeks, so don't look at it as a journey with no end - completing Phase 3 is a milestone for the home owner and for us.
Phase 3 Details:
INFORMATION GATHERING: Primarily working with Lori, the home owner will provide large amounts of information related to their mortgage, current financial status, and explanation of the current hardship. This is a structured process using checklists that we will provide - we'll even provide a sample hardship letter to assist the home owner in completing the information that the current lender will require.
PRE-MARKETING WORK: Also during Phase 3, we ask the home owner to prepare the condition of the home for the market/showings. The plan for "how to present the home in it's best light" will have been decided in Phase 2, taking into account that the home owner has little or no money/resources to do major improvements or updates to the property. A Short Sale is typically an "AS-IS SALE", but we still need to make the best "as-is" presentation possible to be successful in finding a buyer who will want the home.
ASSEMBLING OF SHORT SALE APPLICATION/PACKAGE: After all information has been gathered, Lori assembles the Short Sale Application and Package for the home owner's current lender. Typically, this package consists of 80-120 pages of documentation, although we've had larger. This package includes a professional cover page and is fully indexed. The objective here is to provide the current lender every possible piece of information they will need to make an affirmative decision. This is one of the key secrets to our Short Sale Success. We know that the "approver" at the current mortgage company is a person who is paid to make these kinds of transactions successful - and we anticipate that the "approver" is OVERWHELMED with files to process. Our strategy is to put all information in front of that decision maker and to give them NO EXCUSES for not completing their job for our client.
INTERVENTION WITH THE CURRENT LENDER: This is a key step that changes the dynamic between the home owner and the current lender. The situation is this: there is a mortgage CONTRACT and the borrower is not fulfilling the contract. Unless something changes, the lender will do what the contract says and WILL foreclose on the property. The current lender has a programmed solution - the borrower can pay what they owe. The borrower has a problem, they can't pay what they owe. To "level the playing field", we do the following:
-First, we position ourselves BETWEEN the lender and the troubled home owner. The home owner authorizes their lender to communicate directly with us.
-Second, we find out how close to foreclosing the lender is. If the lender has already proceeded into the "legal world" of foreclosing on the property - time frames for accomplishing Phases 1, 2, and 3 will get compressed. Sherrif's Sale is the final step of the foreclosure process - it is the point of no return. If a property has been scheduled for Sherrif's Sale or if the "court papers" (notice of foreclosure) have arrived - getting the lender to stop the foreclosure is the crucial first priority.
-Third, we present the lender with an alternative to foreclosure that WILL work and represents a win-win for all parties. This is the Short Sale Package. This is an important point in the process - one of the key points of our success. NOTICE that we will not be contacting the current lien holder to find out what they are willing to do or to ask for their help and suggestions. We have already met with the home owner to discuss the best options. The home owner has decided the course of action. We are contacting the lender to provide a solution that is not only in the best solution for our client, the home owner, it is also a solution that the lender can say "Yes" to, and it is a solution that is ultimately far better for the lender than resolution by foreclosure.
-Finally, we make sure that our client's file receives attention from the current lender. Many times, sending a 100 page fax to the lender, complete with everything they need to say "Yes", does get their attention. Sometimes, a strenuous amount of follow-up is necessary.