Estate and mortgage
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Steps to Building a Short Sale Business
[Note: To follow is an excerpt of an interview with John D. Williamson, President/CEO, Uvestor.com, a real estate communications platform, who details some of the "ins and outs" of what a Short Sale business would look like, how to organize it, who should be on the team and their individual responsibilities, and basically gives an understanding so you can master the "paper" game that"s involved in creating such a system. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/093009.] Mosca: Knowing how to maneuver the complexities of short sales as well as how to identify the distinct real estate opportunities in foreclosure are not merely good skills to have in today"s market, they are critical. What is your take on this market and the importance for investors and realtors to understand this particular marketplace? Williamson: It is important to have those skills to survive in this market. If I was a REALTOR or an investor getting in the game in Florida or California, you better believe I better know how to do a short sale and put together a package the right way if I am going to ever be able to close any of my deals. Mosca: Is there a difference between the short sale and the foreclosure? Williamson: Foreclosure is a large term that encompasses everything from the first time that a homeowner goes into the process of not paying their mortgage. It takes the bank a few months to catch up, then they have to file a notice of default. That"s the official start date, but when people talk about foreclosures, they are really talking about that pre-foreclosure stage as well when a homeowner knows they are not going to be able to catch up and is looking for a way out. They can"t sell their house because they owe more than it is worth or they just don"t have a house that can be sold in a timely fashion. That"s when it is really more opportunistic for an investor to get involved. After the foreclosure process proceeds through to the notice of default at the courthouse and that information becomes public, which is when you see a lot of these foreclosure lists being generated. When that official notice of default is posted, the auction happens. Auctions these days are pretty much a formality. There are not a whole lot of folks buying properties at the auction and that"s mostly because the banks are forced to take a property through auction legally to give the seller certain rights, to give the creditors certain rights but because just about everybody owes more than their house is worth, the banks are still trying to get what they are owed and of course, that"s not a deal for anybody. Mosca: What happens after the auction? Williamson: The bank takes it over as an REO. This is when REALTORS are involved more frequently and throughout the REO process. The bank says, "Mr. Realtor, broker we want you to sell it. We"ve got this relationship with you. By the way, we know the carpet is pee stained and there is dirt all over the walls and the windows are broken and the grass is four feet high and the fence is broken. We are going to need you to go ahead and fix all of that, go ahead and put out the money. When we close the property we"ll start taking bids on it and when we close the property, we"ll pay you back for those expenses." There are different opportunities at different phases for different types of people, whether you are trying to make money doing a wholesale, you"re just trying to create a deal and flip it to somebody who will do the fix up and that can happen in the pre-foreclosure status. That can also happen in the REO area which in some parts of the country, the REO is actually now a bigger opportunities in the pre-foreclosure and it really has to do with the pain in the butt it is to facilitate a short sale for the bank. It"s very expensive to take these offers, walk them through the process, gather document after document, send an appraiser out to the property to do the BPO, which is what they use as their copy of an appraisal then they get all of that back. They then have to submit those lowball offers to their investor which is usually Fannie Mae or Freddie Mac these days. Sometimes it"s in house. Weeks pass in that time and then all of a sudden the auction date that was previously scheduled comes up and so they can go ahead and go through with the auction, they also have insurance reasons as an incentive to go through the auction process. It does cost several thousand dollars to execute to pay the attorneys, to pay the master commissioners and the different entities involved in that but there are insurance claims that can be made on the other side of that when a bank buys the property back. It is sometimes where you are going to see a situation where and this has happened to me in businesses that I have consulted with. They were negotiating a short sale that didn"t go through. The option comes and the bank buys it back. Thirty days later it is on the market for at or below what their offer was even after they went through the REO process and have spent all of the money. It"s a really interesting situation that doesn"t always make intuitive sense because different people are incentivised at different phases of the process and so when you are doing this, it"s important to know what the process is. Mosca: Let"s talk a little bit about how to create a business plan … what"s the starting point? Williamson: Before you get started, you"ve got to know if you really want to run the race. Despite all of the late night infomercials, the business of real estate happens to be a business and not just a hobby. Don"t let that hinder you though. If you"re the type of person that is the get up and go and can manage their time and can manage people and can interact with people, inspire confidence and you are willing to learn along the way then there really is an opportunity for you. There is an old adage that talks about how a lot of great businesses are started in recessions and starting Uvestor myself at this time, I hope to fit that category and I think a lot of small business people can fit that category as well. Mosca: Is there a characteristic or characteristics that you need in order to move forward? Williamson: The key to getting into this is to understand that there are many pieces to the puzzle. Let"s take the assumption of someone who doesn"t have any savings so they are not actually going and buying and holding property. That"s capital intensive. They are not even going to be able to rehab. That is an area where the art of performing a short sale can be very lucrative because if you are able to put the deal together and make it happen, then you can actually reap a huge reward without ever actually putting your own money on the table. Of course, if you have money, money greases every wheel. It makes everything easier, but we will take it from the no money standpoint and talk about how to do that. The key starting point is to realize you need more than just one person to do this the right way. I actually think this is the perfect family business. It"s about peoples" lives. Homes are the most important thing in someone"s life often and you are going to be dealing with people that are losing their home, so there is some psycological perception and willingness to listen to a person, understand what they are going through, and be able to still advise them appropriately without coming across as a used car saleman. You are really not trying to take someone"s home, you are trying to help them out. If you are willing to do all the different pieces of the short sale business, you can get it done. Mosca: A family business in the traditional sense? Williamson: Look at it as the family business with a mom, a dad, and a son; a hub and spoke approach. The hub is really the center of the business, which for this case we will just say that is dad. He"s the center of the business. Practically, you have to get leads. Getting leads requires having marketing pieces that you distribute. That could be putting mailers together for the folks that show up on the NOD (Notice of Default) list at the courthouse. That can also be facilitated by buying a list of people who are 60 to 90 or 120 days late from the credit reporting agencies. This can be done extremely economically for about $.40 per name and then mailing them. Let"s say mom has better handwriting than dad and she"s the one who writes the postcards with its preprint on the front and on the back it has a direct message that is handwritten so it is guarenteed to be read. Mosca: Does technology play a role? Williamson: There are a lot of ways to do that today whether you are befriending everyone on Facebook or on Twitter or any of the Web 2.0 sites that can help you do that. There is also the traditional marketing route that you can make easier on yourself. They have services that will mail things for you. There are people who will answer the incoming phone calls and read a predefined script to understand who is following up with your marketing and do that initial prescreening. These are services that you can higher to be done for pretty economical costs. You can also do most of them in-house. Mosca: What makes one property something that you want to flip and get to first-time home buyers as opposed to sell to an investor? Williamson: If it needs a lot of work, you are going to probably have to sell to an investor. If it doesn"t need that much work than you can sell to anyone else. It"s practical and where in my analogy that mom comes into play because mom says, "we just really need to put some paint and will change out those cabinet knobs, we will clean out the windows and mow the grass and this place will look great." A big help because you can make a home look presentable and marketable to people who are going to move into it with fairly little money. You can do that while your marketing the property to be sold as you arePages: [1] 2