The Good Flippers

By Ben Pargman | Published: January 14, 2010

Finally!  In this week’s Time article, “Home Flippers Are Back in Florida. A Good Sign?”, Thomas Collins writes:

The current crop of investors, analysts say, are playing a crucial role in reviving the housing market . . . Somebody’s got to clean up those messes, and that’s what the good flippers do, observers say. They might try to sell right away or rent the houses for a while. Either way, it’s good for the whole neighborhood . . . “They’re vital,” [says a housing consulting firm] of the good flippers. “I can’t think of a conceivable way that we could turn the market around without them.”

What nice recognition of the important role investors – yes, flippers, play in the fixing of the economy!

The focus of the article admittedly is rehabbers who purchase properties, fix them up and then re-sell them.   I suggest that the “good flipper” label also extends to those investors who add value not just through fixing broken kitchen appliances and pipes, but also to those investors who fix the broken timing and logistics of transactions that keep properties out of foreclosure and off REO inventory by flipping short sales.

The problem that most sellers and real estate agents have with Short Sales is that they take a long time, are unpredictable, and when there are multiple liens on a property, can get very complicated and frustrating.  The frustration and complications cause many Short Sale attempts to fail and houses to go to foreclosure.

For example, I asked a real estate agent this morning, “so are you listing any short sales?”  Her response:

– no, I try not to mess with Short Sales, I tried it twice and here’s what happened.  I had good buyers who liked the houses, but it took months for the bank to respond and when they did they kept asking for more money.  My client agreed, and then we had a problem with the second mortgages…it went on and on and finally, my clients gave up and went and  found another house where they didn’t have to mess with the short sale.  Since then, I just don’t want to mess with short sales.

With short sales flipping, even if there are no physical repairs – no pipes or appliances that need fixing, the good short sale flipper brings value to the equation by fixing the inefficiency and impracticability of selling a short sale directly from a distressed seller to retail buyer.

The real estate investor – who understands short sales, is patient, does not need to “move in the house before school starts”, and who has funds ready to close the transaction whenever the bank decides to get around to approving the short sale – that investor can deal with the frustrating and long process with the bank that a retail buyer is not likely to put up with.

Then, when the good flipper has fixed that inefficiency in the market by riding out the process and cleaning up messes on title (call them non-physical repairs) the flipper can restore the property to the retail market and sell to a retail buyer.  The property now can command retail market price where it could not before.

It’s no different than everyone of us who has ever traded in a car to dealer.  You realize when we say “trade-in”, we are actually agreeing to sell our car at a wholesale – below retail price to a professional car flipper.  The dealer/car flipper may wash the car, do repairs or not.  He may not even touch the car – adding no “improvements” – then he flips it within hours of our selling to him.

The car flipper earns a profit on the difference between what he purchased it for wholesale and what he sells it retail because he understands the process and is willing to take the hassle and headache off the hands of the seller.  Is there anything wrong with this practice?  Of course not!  If a seller wants full market retail price, anyone of us can certainly take out an add in AutoTrader, put a sign in the car’s window and spend our evenings and weekends taking phone calls and showing the car.  If we chose to elect out of that hassle, we can chose to sell the car at a wholesale price to a professional car flipper who understands the business – so we don’t have to.

Banks and anyone else who would suggest that there is something inappropriate about flipping a short sale (without ‘doing anything’) fail to acknowledge the reality that you can’t get the benefits of a retail market without meeting the expectations of the retail market.

Expectations of the retail market include:

  • responding to a buyer’s offer within a reasonable time frame of a couple of days
  • being able to agree to a closing date 30 to 45 days after contract
  • being willing to undertake repairs and respond to or renegotiate after inspections
  • paying a listing agent and a selling agent their full commissions
  • delivering clear and marketable title and clearing up all liens and encumbrances
  • delivering the premises in broom-clean, move in condition

These are the very things that banks DO NOT or just CANNOT do in the Short Sale Approval process.

Until such time as lenders and sellers are can meet the expectations of the retail market, the market will demand and require the role of an intermediary flipper to bridge the gap between the short sale market and the retail market.  Any effort by lenders to circumvent or impede the role of the “Good Flipper” will keep more properties from ultimately reaching the retail market and will cause more properties into foreclosure further swelling the vacant REO inventory.

The short sale flipper bridges the gap created by the lender’s inability to meet the expectations of the retail market and by returning properties to the retail market faster than the REO process, short sale flipping is good for banks, neighborhoods, and the economy.

Hail the Good Flippers!

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“The banks were in denial”

By Ben Pargman | Published: January 13, 2010

For years I’ve been promoting the important role of that short sales  play for the betterment of the economy.  Reports over the past few weeks suggest that the rest of the country is starting to realize this important role of short sales.

According to the National Association of Realtors, ten percent of all sales last year were Short Sale – almost 500,000 transactions.

A Bloomberg.com article reports that short sales almost tripled to 40,000 in the first six months of 2009 compared to the same months in 2008.

With current estimates reporting approximately 2 million housing units in the US somewhere in the foreclosure process, the Administration continues to search for solution for homeowners facing foreclosure.  However, according to a recent CNN.com report, only about 4 percent of these at-risk homeowners receive long-term mortgage help – the vast majority of people facing foreclosure do not obtain relief that allow them to stay in the house in any sustainable manner.

Citigroup experts recently stated that the government’s current solutions have been ineffective at keeping people in their homes and it is predicted that another 8 million homes could fall to foreclosure.

Given these realities, Banks are finally seeing Short Sales as a necessary and important solution to take seriously.  According to Richard Green, the director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, “It’s really finally dawning on banks that they’re better off with a short sale . . . I think banks were in denial.”

However, the banks are still in denial about one major reality of Short Sales . . .

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Let’s talk first, Florida – Mandatory Mediation in the Sunshine State

By Ben Pargman | Published: January 6, 2010

With nearly half-a-million foreclosure proceedings underway in the Florida courts in the beginning of 2010, the Florida Supreme Court issued an administrative order instituting a statewide “managed mediation” program to facilitate communication between lenders and distressed borrowers and encourage foreclosure alternatives including Short Sales.

Florida is a Judicial Foreclosure state which means foreclosures actually go through the courts and involve a lawsuit.  The massive amount of foreclosures is putting a great burden on the court system in general which has an interest in finding alternatives to foreclosure.  Under the new program, all foreclosure cases in the state courts that involve residential homestead property will be referred to mediation, unless the plaintiff and borrower agree otherwise.”

The mediation program specifically anticipates Short Sales and qualification standards for mediators includes an understanding of Short Sales as an option.

Borrowers who participate in the program and have a Short Sale in the works should submit the standard Short Sale requirements through the mediation online system including:

  • Signed purchase contract for the homestead residence
  • Listing agreement for sale of the homestead residence
  • Preliminary HUD-1
  • Written authorizing to release information

Also, the borrower should be reminded that the sale MUST be an arm’s length transaction, and the property cannot be sold to anyone with close personal or business ties to the borrower.

A mediation must be scheduled within 120 days of a foreclosure filing, with the cost of the mediation being paid for by the lender and the Borrowers must meet with a HUD-approved foreclosure counselor prior to the mediation.

The Court noted that “Florida has the third highest mortgage delinquency rate, the worst foreclosure inventory, and the most foreclosure starts in the nation. The crisis continues unabated.”  The state has consistently been ranked as having one of the nation’s highest foreclosure rates since the onset of the housing crisis.

The Supreme Court acknowledged lack of communication between plaintiffs and borrowers as the most significant issue impeding early resolution of foreclosure cases, and concluded that effective case management and mediation techniques are the best methods the courts can employ to ensure that such communications occur early enough in the case.  “No action will be taken by the court to set a final hearing or enter a summary or default final judgment until the requirements of [the mediation program] have been met.”

While the referral to mediation is required, the parties are not forced to agree to anything in the mediation.  Also, the borrower cannot be compelled to particiate. If the borrower does not participate it just means the lender can go forward with the foreclore.

Also, it doesn’t mean that this is the only place a short sale could be considered.  Even if the parties do not agree to a settlement in the mediation, the opportunity to do a short sale still exists as always.

What does this mean for Short Sale investors?

First, any program that faciliates a borrower avoiding a foreclosure and working out a deal with their lender is a good thing for sellers, the enonomy, the housing market, and our country.  This is true regardless of whether the resolution is a short sale for an investor or not.  To the extent that a mediation program helps find (or pressures lenders into agreeing to) solutions that benenfit sellers – that can only be good for the larger economy and therefore you and me.

However, the more ‘proceedure’ that is added to the foreclosure ‘process’, the longer and more expensive it gets for the lender . . . and the math behind the added process and expense makes a short sale more attractive to the lender. Requiring mediation will add steps, time, and expense to the lender’s foreclosure process.

If you have been to one of our live trainings or have access to the RE$ource Vault, you’ve seen the Lender Short Sale Analysis spreadsheet which illustrates how a bank weighs a short sale offer against what they think they will get if they foreclose on the property and eventually sell it REO.  The longer and more expensive the foreclosure process is, the relatively more attractive the Short Sale offer looks.  To keep it simple . . . the further away the bird-in-the-bush (the bank’s REO proceeds) appears, the more attractive the bird-in-hand (short sale offer) is.

At the end of the day, the effectiveness of the program will depend on how it is administered.  The court asknoweldged that judicial resources for such an undertaking were “limited”.  I hope the program is successful in addressing the blazing hot foreclosure crisis in the state where I grew up and were most of my family still lives.   By adding more process, confusion and delay to the foreclosure pipeline, I predict one impact will be that a wholesale short sale offer from an investor will appear more attrative to lenders in the Sunshine State.

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Obama Administration Continues to Encourage Short Sales; However . . .

By Ben Pargman | Published: December 29, 2009

I’ve always said that Short Sales are good for the economy and good for the country.  The Administration continues to agree.  The Treasury promulgated final guidelines to urge servicers to follow through with short sales as an alternative to foreclosure for those homeowners that don’t qualify for a modification.

To encourage servicers to accept a short sale, the Treasury is offering incentive payments of $1,000 per completed short sale.  Seconds (and other junior lien holders) will be paid to release their liens, up to $3,000 of the short sale proceeds as long as the primary investor agrees to share the earnings, and for this the government will pay the first up to $1,000.

In the program, the Seller/Homeowners will get up to $1,500 to help with relocation, and must be fully released from any future liability.  The Treasury’s program – called “Home Affordable Foreclosure Alternatives Program” or HAFA was initially announced back in May but it has taken several months to announce the final plan that was just released.

Prior to moving forward with a foreclosure, the borrower must be considered for the HAFA short sale program which requires the servicer to obtain an independent value of the property and requires that the lender respond to a Short Sale offer within 10 days!

There is more good news for real estate agents (no surprise – as they are a very well organized lobby) – the program prevents servicers from forcing agents and brokerages to reduce their commissions as a prerequisite for approving the short sale and requires that properties be listed prior to short sale approval.

The BIG HOWEVER . . . some “bad news” for real estate investors.  A Short Sale Agreement under HAFA must contain a restriction that a purchaser may not sell the property within 90 calendar days of closing.
Is this the end for short sale investors?  It will certainly be a big topic inside the RE$ource Vault, but in short, remember, the HAFA guidelines do not apply to all short sales and lenders have been and will continue to do short sales outside of HAFA.

I’ve always said that if a house can “solve its own problem” by simply being listed with a competent agent and the investor is not adding any value to the transaction, the investor should not be involved anyway.  HAFA appears that it may streamline the process for those short sales that can and should be approved directly from a borrower to an end user purchaser when a real estate agent can handle everything themselves.  This will be a good thing for the overall economy and therefore the future of real estate investing and our country.

However, there will continue to be millions of potential short sales that do not fit the guidelines and/or will not be able to “fix themselves” without the involvement of a competent investor (a move back to the days of “ugly, weird, haunted, or high-end”).  Where an investor can add value, contribute, and construct deals that would not happen without them, there will continue to be an abundance of opportunity.

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Holiday Presents from Lenders

By Ben Pargman | Published: December 22, 2009

Jingle Bells Jingle Bells . . . tiss the season to be jolly . . . so here is some good news for the holiday season . . .

Short Sale Service sets record in December!  With a few days still to go in the month, the Short Sale Service has set an all time record in successfully obtained short sale volume.  It’s more evidence that banks (1) want to do short sales, and (2) the end of the year is always a strong time with lenders pushing a high volume of files off their desk before the close of the year.

At the same time Fannie Mae, Freddie Mac, Citigroup, Bank of America, JPMorgan Chase, and Wells Fargo have announced they will suspend foreclosure actions during the holidays.  The Bank of America actions apply to their investment portfolio loans and those which they service where investors agree with the moratorium.

Is the moratorium a huge big deal for short sales?  I don’t think so . . . people (even at the banks and foreclosure law firms) take vacations and many businesses generally slow down during the holidays anyway.  The holidays will pass and the banks will ramp up their foreclosure machines in January.

However, in the meantime it’s good PR for the banks, may give the loss mitigation departments some time to move some more shorts sales as we’ve seen by our record month at the Service, and also give some borrowers a little peace of mind for the holidays . . . and that’s a good thing for everyone.

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ARE YOU NUTS??!!!

By Ben Pargman | Published: December 1, 2009

I personally don’t think most real estate investors should bother trying to negotiate Short Sales themselves. Frankly, it’s just too time-consuming for most people and the stress of being put on hold and arguing with the banks’ loss-mitigation people is just too distracting to your overall business. You’re probably much better off finding a service provider who can negotiate on your behalf for a fee.

But if you ARE convinced you want to negotiate your own Short Sales, you definitely want to pay attention to what I’m about to say:

“ARE YOU NUTS??!!”

That’s what I heard one of my company’s professional Short Sale negotiators scream into the phone recently.

Yep, that’s a direct quote. I don’t advise doing this often and certainly only if you are a skilled negotiator with experience – but sometimes it does actually pay to “flip out and lose it” on the phone.

But hold on before you go throw a gasket. When you do this, it should be a conscious and purposeful negotiating decision – NOT because you are just upset and need to blow off steam.

Skilled negotiators manipulate their own STYLE and STRATEGY. You can be strategically adversarial and stylistically cooperatives OR sometimes your style needs to shift to something… shall we say, more combative.

However, those shifts into yelling and screaming are the stylistic and purposeful CHOICES of a skilled negotiator.

When I heard one of my negotiators yelling “are you nuts!!” at a lender, I knew he was allowing himself to “get upset,” but I also knew that he wasn’t really upset.

He was making the choice in his negotiation plan that “getting upset” was necessary in order to accomplish a certain outcome. It’s all part of what it is to be a skilled and experience negotiator – they keep their cool, even when it appears that they’ve lost it!

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Where do you add the most value?

By Ben Pargman | Published: November 23, 2009

Not too long ago I held a Short Sale training where we walked through a deal where an investor made over $300,000 on one single house!

The opportunity right now is truly staggering. I have to admit – when I started the “done-for-you” Short Sale industry years ago, I never imagined the abundance of opportunity that we are currently experiencing.

I said a couple of years ago that we were heading into a market correction – the sheer volume of work to be done is beyond anything I imagined. It is as if every single house that was purchased or built in the last five years has to go through its own market correction through either a short sale or foreclosure.

There is so much work out there to be done. My suggestion: pick an area of focus and become THE go-to-guy or gal in a section of town or the market. Some areas you can specialize in are:

  • lakefront
  • waterfront
  • beachfront
  • golf course communities
  • mountain-view and ski resorts
  • intown
  • or simply your own neighborhood

That’s just a few off the top of my head. Whatever it is… pick a segment of the Short Sale market and become the expert on all pricing, all sales, all agents, all factors and then insert yourself as the solution provider go-to source for all of that market.

Remember, we are rewarded for the value we bring to a transaction and the marketplace – go be someone who can truly add value to a segment of the marketplace and you will be rewarded for it. I can’t promise you that your next deal will close with a $300,000 profit, but we have proof that it could!

Ben

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More than one way out of a Short Sale

By Ben Pargman | Published: November 20, 2009

There is so much attention on back-to-back closings . . . can you, should you, how do you….and on and on.  The attention is merited . . . there are a lot of things to line up correctly and be careful about; but don’t forget . . . there is more than one way out of a Short Sale.

On our last Short Sale Success Webinar, I interviewed a pair of students who who had just completed a nice transactino that involved a Short Sale and made more than $37,000!   But these guys were not able to do back-to-back closings.  Instead of buying the property and re-selling it immediately, these investors needed more time to pull everything together.  So they simply borrowed the money to purchase the property, held it for about 30 days and then resold it.

Now, personally, I don’t really want to be a landlord and I already have a house for my family and me to live in, so I’m not necessarily looking to hold onto properties.   Just don’t forget that just because you can’t figure out the back-to-back closing doesn’t mean there aren’t other options.

I understand why back-to-back closings are so popular. There’s very little risk of getting stuck with a house and the financing via “dough-for-a-day” lenders is so cheap because they already know there’s an end buyer when they lend you the money for the A to B purchase.  A Back to back closing is great when you can do it; however, they are becoming increasingly difficult and are under intense scrutiny from title insurance companies, regulators, state attorneys, and other investigative government agencies.   Doesn’t mean you can’t figure it out just don’t forget . . . there is more than one way out of a short sale.

We’ll be studying several ways out of a short sale, including back-to-back closings at my next Breakthrough Live Training Event   “California Gone Crazy: The Short Sale Breakthrough Event”.

Ben

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RIP Option Contract

By Ben Pargman | Published: November 17, 2009

R.I.P.
The Option Contract
Born: 2008  Died: 2009

The option contract is dead. Basically what happened is that a whole bunch of people got sick of them and now they’re pretty much useless if you want to close every single Short Sale deal that comes your way.

But there are STILL BUNCHES of ways to make your deals legit and make your closings smoother. Do you like having smooth, peaceful, relaxed closings or would you rather be sweating it out on closing day like a nervous mess?

That’s why I’m going to interview an actual working Title Agent this Thursday night. This is going to be FULL of new content that deals with all the latest issues for Short Sale investors.

We’re doing the free training at 9 p.m. EST (6 p.m. for you guys on the West Coast). Go here to register for it!

Ben

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Don’t mess with Texas Short Sales!

By Ben Pargman | Published: November 16, 2009

I’m really looking forward to this one… I’m going to be in Dallas later this week, so I went ahead and scheduled an Evening with Ben for Thursday night.

If you’ve never been to one of these events, you really should come out. First of all, it’s FR’EE. But secondly, it’s a great chance to get your questions answered by me in person!

So if you’re in Texas, go sign up now for Evening With Ben. See you there!

Ben

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