The following excerpt is from the book:
"Short Sales: The Secrets & Strategies of Pre-Foreclosure Investing"
by Randy Lee
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Who To Contact at the Bank and...
What To Say when you do.
To this point you've obtained the seller's authorization to contact the bank and negotiate on their behalf. You've also done some initial analysis of the property and the likelihood of it proving to be a good Short Sale opportunity. Now it is time to call the bank.
If your prospective seller hasn't been able to provide you with the address and telephone number of the financial institution that holds a lien against their home; use the Internet to track down the lender. Chances are they will have a web site. Take a few minutes to learn a little about the bank. Obtain as many telephone numbers as possible and then prepare to call.
Before you call be certain to have all of your research ready for reference. Also make sure you have the authorization form (form 1 from Chapter 6) completed and signed by all the parties who appear on the bank's records.
You should have both a telephone and a facsimile (fax) machine. It is important that you are able to fax and talk on the phone at the same time. (A scanner and cable Internet connection would also work.) Have a summary prepared of your findings regarding the house (as in last Chapter) so you're prepared to converse... authoritatively with your contact at the bank.
Call the lender and ask to speak to the "Loss Mitigation" Department. Don't be discouraged if the person answering the phone isn't familiar with this department. I've asked several bank officers, that I know personally, if their bank has this department and they honestly didn't know. It is not exactly a department the bank is trying to publicize! The person who answers the phone may also not have heard of this department; so be prepared to politely and kindly prompt her. Tell her that it could be called the "Short Payoff" or "Work-Out" department. If that doesn't ring a bell; go ahead and tell her that you want to talk with someone about a "Pre-foreclosure". If that doesn't work, describe in more detail what you are trying to accomplish. If you do this in a cooperative, appreciative manor the bank employee who answers the phone will likely find a way to direct you correctly. Be sure to keep a pen and paper handy and write down all the information you receive; including each person's name you speak to along the way.
With persistence, you will be forwarded to the correct department. Once you are speaking to the correct person, be prepared to tell your story twice.
The first time you will do a brief walk through. The only purpose of this story telling is to obtain the opportunity to fax the authorization form to the bank. However, you want to both speak on the phone and fax Form 1 simultaneously. Your script should sound something like this:
"Hello (Insert Banker's Name), my name is (Insert your name) and I am working with some of your clients.
(Insert your seller's first and last names) have a mortgage against their house with your bank. They are in a serious financial predicament and are unable to make their payments. At this point they are (Insert number of days delinquent) days behind and can't see a way out. Their attorney has advised them to file bankruptcy. However (Insert your seller's first names) are honorable folks and they know if they can sell their house; they could avoid filing.
I am interested in purchasing the house. Unfortunately the amount they owe on the house is significantly more than what anyone would be willing to give in the houses current state of disrepair.
(Insert your seller's first and last names) have given me an authorization form allowing me to speak to you in more depth on this matter. May I fax this over now?"Obtain the banker's fax number and tell them you are going to send it right now. Ask them to put you on hold, while they retrieve the fax from their machine. If at all possible do not let them get off the line. Move forward with this on your schedule; not theirs!
When the banker comes back on the line and says they have received the authorization form; reiterate the story briefly adding a little more color to the picture you are painting. Something like this:
"The situation for (Insert your seller's first and last names) is that (Tell a little of the seller's hardship story here. IE: lost job, poor health, death in family, divorce, etc.), so it isn't likely they are going to turn this around. To complicate the situation, (Insert your seller's first names) haven't been able to keep up with maintenance and now the house has (Insert some of the bad things the sellers told you about the house here. IE: poor plumbing, leaking roof, out of date electrical, mold, etc.), so the house is going to be difficult to sell."
Next explain that you are interested in buying the house, but naturally you couldn't possibly pay the amount that (Insert your seller's first and last names) owe on the house. Ask "would the bank be willing to consider a Short Sale?"
This isn't the first time someone has called this banker for this reason. Most banks have a required package that they need to have on hand in order to make a decision on a Short Sale offer. Ask the banker what forms and information are needed.
Carefully record all the information the banker requests and read it back to her. Ask if the fax number you sent the authorization to is the best one to send this information to? Also ask for her email and tell her you will be sending some photos of the property. Ask if she has a direct contact line and if there is a "best time of day to call". Thank her for taking the time and promise you will be back in touch shortly. Keep in mind that you are trying to forge a relationship with this banker. Be professional, courteous and keep your promises.
In the next chapter we will discuss securing the necessary documentation and information from the home owner to reinforce our negotiating position. For now, let us assume we have obtained all of the information required by the bank and are ready to begin those negotiations. For our purposes, we will assume that we've forwarded the documentation requested by the bank and are telephoning our bank contact to follow up our fax and email.
Remember the banker will have to follow procedure and will only have limited decision making capability. In fact, it is likely that as you get started in short selling, the individual bankers who really need to speak to are guarded by the 'gatekeepers' that answer the phone at the department. Be patient and persistent and you will gradually make stronger contacts.
Your follow up phone call should highlight the reasons why it is in the bank's best interest to accept your offer. Typically this offer will be 40 to 50% of the retail value of the house, so you need be armed with a variety of tools.
Included in this package of 'tools' will be all the information you've gathered about the current owners inability to pay, along with:
- An itemized list of repair cost estimates at retail prices. This is not the time to show how inexpensively you can do rehab. work! Get estimates from big retailers (like Sears) that a bank would be likely to use. If there are no repairs needed, estimate the cost of remodeling the bathrooms or updating the decor. With imagination, it is fairly easy to create an extensive list. (Use a separate sheet for Mold and/or Pet Remediation)
- Comparable sales prices of similar distressed properties sold recently in this same area. The key here is to compare with only distressed properties. Reiterate to the banker that the reason you have used foreclosure sales to compare likely selling price is because that is a more realistic pricing guide than owner occupied, well maintained properties.
- Hardship Letter from current owner (See Chapter 5). If possible also include a letter from an attorney advising the owner to file bankruptcy to avoid foreclosure.
- Net sheet projecting the banks closing costs (a title company can assist you with these numbers) and their net amount at closing at the price you are offering.
Typically you will need to make at least three or four calls to the bank before you get a decision. Most likely your first offer will not be accepted. The bank may choose to counter offer, but more likely they will just ignore you or ask you to make a higher offer because their superiors simply won't entertain your previous offer.
We won't be getting into the dynamics of negotiating or individual property pricing analysis here (See Chapter 12 for other sources of information), but following are some keys to successfully steering your way through this process:
- Don't make emotional decisions! Your offer should be based on sound, logical strategies (see Chapter 8). Though your initial offer will usually be lower than your 'top dollar', your subsequent offers should never exceed that threshold.
- Be willing to walk away! There are lots of deals!
- Establish relationships with the banker(s). Listen to them and learn what are their motives and interests. Structure your offer to include benefits to them (i.e. improved default rate).
- Create Empathy and Emotion on the banker's side of negotiation by always referring to the home owner(s) by name and looking for reasons the deal will benefit the banker.
- Be Prepared & Professional. Make the banker's job easy. Make her feel comfortable working with you. Follow the banks procedure for submitting information and offers.
Use a strong cover letter with your follow-up offer(s). Explain why you are will to increase the offer, but why you can't go higher. Give the banker ammunition to 'sell' your offer to her superiors.
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Randy Lee is the author of the best selling educational text book for real estate investors "Short Sales: The Secrets & Strategies of Pre-Foreclosure Investing". Randy is also an active investor and a licensed real estate agent in the states of AL, TN & GA. In TN & GA he is an Affiliate Broker with ERA Real Estate of Chattanooga and in AL, Randy is an Affiliate Broker of Keller Williams in Huntsville.
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real estate formulasLabels: avoid foreclosure, investing, negotiating, pre-foreclosures, Profits, real estate, Short Sales
