Negotiating is a vital part of your business when it comes to cashing big on short sales. It is always important to know who the investor is on the loan, and I’m not referring to who is servicing the loan and collecting the Sellers payments. There is an investor behind the scenes. Also, find out the type of loan, ie: private, conventional, FHA, Fannie Mae or Freddie Mac and whether there is private mortgage insurance (PMI) or mortgage insurance (MI) on the loan. Knowing all these facts allow you to negotiate based on the percent of value each one of the Investors and/or Private Mortgage Insurance Companies on the Loan will accept on a short sale.
I found this new information to be very interesting and should not be taken lightly when negotiating on a short sale. Many Sellers are behind on their monthly payments which include principal, interest, taxes and hazard insurance. When the Sellers make their payments, the taxes and insurance monthly payment is placed into an escrow account to pay the taxes and hazard insurance when they become due. When there is not enough money in the Sellers escrow account to pay taxes, the Lender will pay them. However, when there is not enough money in the Sellers escrow account to pay the hazard insurance policy, the Lender still pays it, but it becomes Mortgage Forced Insurance. This is in place only for the protection of the Lender, not the Sellers, and normally costs 2 to 3 times more than normal Hazard Insurance.
In a current deal, I was arguing that the value that the Short Sale Lender has on the property is incorrect (way too high) due to the following problems that were discovered in the home inspection: electrical wiring was not installed properly hanging out the walls, termite and beetle damage done to the wood frame of the home, roof damage caused by the storms, and a spiral stair case that is not up to building code as the only access to the second floor. We went back and forth several times when the negotiator stated that should the buyer not close with the approved short sale price, then they will just file a claim. To me that was a red flag!! This was a conventional loan and conventional loans do not have private mortgage insurance on the property. A question was asked to the negotiator was there private mortgage insurance on the loan and she said “I’m not saying that.” However, it was too late she let it slip out. You see if there is private mortgage insurance on the property, then even though there is an Investor on the loan, the private mortgage insurance company has a say whether they will approve the short sale or not. Many negotiators do not even submit the entire short sale package to the private mortgage insurance company, therefore withholding the facts about the Sellers during a short sale negotiation. Or if the purchase price does not meet the Investor’s guidelines to approve, the negotiator won’t submit it to anyone, they will just deny the offer.
There are 5 Private Mortgage Insurance(PMI) Companies that the Lenders use and all of them use the social security numbers of the Sellers in order to determine whether or not they have insurance on the Loan. Many real estate investors when negotiating a short sale will not even contact the Private Mortgage Insurance Company, they will just deal directly with the Short Sale Lender’s negotiator. However, I deal with both, as sometimes the PMI Company will approve a short sale even though it doesn’t meet the guidelines of the Investor on the Loan. I contacted all the PMI companies on this deal, only to find out that the Sellers do not have PMI on the property. At that point, it got me thinking! Then what type of Claim is the Short Sale Lender going to file and with whom? After thinking about this for about 24 hours, it hit me! They were going to file a Claim on the Forced Mortgage Insurance Policy (Hazard Insurance) which they got on the home.
I contacted the Short Sale Lender’s insurance department only to find out that they only have information on the Sellers Hazard Insurance Policy and not the Forced Mortgage Insurance Policy. I contacted customer assistance twice to find out what company has the insurance on the home, only to find out that they did not even know how to provide me with this information.
I then went down to Farm Bureau Insurance, in the same complex as my office, and asked them if they issue Forced Mortgage Insurance for Lenders. I was informed that this is a specialty insurance and that the Lenders work directly with Insurance Companies that only provide that type of insurance. I asked for names and numbers of companies, but they were unable to give me any. I then asked them about the process of a Claim. I spoke in detail only to find out if the Short Sale Lender did obtain an insurance policy that would cover roof damage, termite or beetle damage, or any specific type of insurance for that property that “YES” they may be able to get paid on the Claim. To me, I thought any Insurance Company that would insure a pre-foreclosure or vacant home would be out of business quickly should they be paying out on Claims for these types of matters. Normally, in order to obtain hazard insurance, the insurance company has to have a 4 Point Inspection ie: Roof, Electrical, Plumbing and AC/Heating System in order to obtain a policy. I reviewed the fact that my Seller’s house has been vacant for some time and the Short Sale Lender did keep changing the locks without permission. So, MAYBE an insurance agent did get inside the property. However, Farm Bureau’s Agent did inform me that just because a Claim has been filed on an insurance policy, this doesn’t mean that the Claim will be paid. He said that there are lots of exclusions, ie. was the electrical and roof in that condition prior to being insured? When did the termite and beetle damage occur, prior to insurance or while being insured?
This house is scheduled for a foreclosure sale on September 4th. What is my next move? Since this is not the Sellers insurance policy and a Claim has not been filed, I will have no leg to stand on trying to get the Claim denied or showing them the condition of the home now. So … what can I do? I will need to sell this house to the highest CASH Buyer which will not be an investor it will be a homeowner, see if the Short Sale Lender will approve it, and request the Sellers to obtain an attorney to postpone the Foreclosure Sale if I am unable to get it postponed and closed. I have a small likelihood of getting this one through, however, if the Foreclosure Sale can be postponed, a new value will be ordered by the Short Sale Lender and my chances of success are much higher. I do not give up on a short sale until I get it approved or, on occasion, it goes to Foreclosure Auction.
There are many successful tips I provide to you on short sale negotiating which I include in my course. Remember, we don’t get every short sale, but we never give up. We owe it to our Sellers to do everything possible to help them. And…..making some money on a deal is better than no money.
Thank you so much to all of you who continue to send me your questions and topics that are most helpful for you to read about. Your Success is important to me, please let me know how I can help!!!
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Kimberlee Frank Broker Short Sale Expert
Kimberlee Frank is known as “The Real Estate Junkie,” for her unique ability to find ways to creatively help buyers and sellers no matter which direction the real estate market is heading. Kimberlee had already worked as a legal administrator for an Attorney, Builder and Broker for 18 years when she began her Real Estate career in 1998. She dotted the i’s and crossed the t’s on hundreds of real estate transactions and thousands of documents, making her an expert in real estate documentation. Kimberlee’s success began in Fenton, Michigan. She specialized in selling, purchasing, renovating, retailing and lease optioning single-family homes. She has helped many sellers get rid of their “headaches” and helped many buyers find their dream homes!
Since 2003, she has specialized in foreclosures and short sales. After realizing how many families were being forced out of their homes due to financial difficulties, Kimberlee had a heartfelt obligation to use her experience to help those families. She has mitigated and closed over 500 short sales with the mortgage companies, saving Sellers from going into foreclosure. In 2006, Kimberlee and her family moved to Florida. She lives in Oviedo and her Sell Fast Realty Office is in Winter Springs, serving residential and commercial sellers and buyers in multiple counties in Central and Southern Florida.
Kimberlee is also a Trainer and Mentor and has created several different “How To” systems on real estate. Her unique strategies continue to educate real estate professionals across the country. If you have a proven system to help others out of hardship, why wouldn’t you duplicate it and share it with as many people as you can? Kimberlee continues to work with this philosophy!
Kimberlee Frank has been featured on ABC, NBC, FOX, CBS as well as Wall Street Journal, Newsweek, USA Today and numerous other publications. She is the bestselling author of “Big Ideas for Your Business” (Advantage Media 2009). She was also selected as the #1 Short Sale Expert by America’s Premiers Experts.
Please contact Kimberlee at her office at 407-888-3433 to schedule a Free Facts About Foreclosure Seminar. She has numerous testimonials from sellers, buyers and other real estate professionals who are familiar with her giving heart. Whether it is 1 person in need or 1,000…..Kimberlee will educate them on real estate and give them a solution with a peace of mind!
Are you unsure what to do with your house? Do you need to educate yourself about your options. Click the following link Free Facts About Foreclosure for more information.
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