The following is part one in a two-part series
Here are some rules to live by when working on foreclosures and short sales. Some are more applicable to one or the other, but most are valid for both. They certainly aren’t the only ones, and you should seek the advice and counsel of your attorney and broker before adopting them.
1. Disclose! Disclose! Disclose! – My business partner and I created a much-emulated property and process disclosure that we made sure every buyer and buyer-agent signed when submitting offers. With distressed properties especially, buyers need to know what “as is” means. They also need to know the difference between “marketable title” and “insurable title,” and they should procure the services of an attorney before they submit an offer.
We spell out that all due diligence is the buyer’s responsibility. There are no warranties expressed or implied, and many customary processes done by a conventional seller will not be done by the lender(s) or lien-holders.
That document saved us and our clients a huge amount of time, expense and minimized our liability.
2. Know to Whom You Speak – Before you write the offer, know who the lien-holders are and their decision maker(s). Speak to them all about what you are trying to do to help gauge your prospects for success. In a short sale, the wise agent utilizes the services of a professional “short sale negotiator,” often a well-versed attorney who specializes in the field. Most lenders allow both a professional negotiator and a real estate agent to get paid from the proceeds of the transaction.
3. Communicate to Everyone All the Time! – Distressed properties often involve several parties besides the typical buyer, sellers, their respective agents and attorneys. There can be more than one lien holder or mortgagee whose payback terms are already in default, or in danger of becoming so soon. In addition, there may be utility services, municipal liens or compliance issues that are unresolved. Several parties to the transaction may receive only a percentage of what they are due, especially those that are subordinate to superior lien holders.
The more parties involved with a transaction – and with limited resources to distribute to satisfy debts – the more challenging the transaction. Therefore, it is imperative that everyone communicates fully, and that there is a demonstrated trust and good-faith effort to get the transaction completed to the best of your ability. Failure to communicate in good faith with full disclosure will result in failure nearly 100 percent of the time. A clear resolve to inform all parties every step of the process, and with appropriate permissions from the parties to do so, will improve your chances of closing.
Being known as the agent who can get challenging transactions done sets you apart as the expert in distressed property sales. Word gets around, and when attorneys, accountants and lenders you work with are asked, “Who can help me sell my house,” you are likely to be one of their top agents to get referred that business.
4. Get the Property Sold to the Best of Your Ability – The seller(s), buyer(s), agents involved and all the lien-holders have different motivations and challenges they face in the transaction. Stay on track. Keep emotion out of the transaction. Facts and logic will keep the transaction together a lot better than allowing personal, biased judgment and emotions to rule with the process.
5. Getting Reimbursed for Expenses – Short sale lien holders will spend nothing for repairs or maintenance. Lenders for foreclosures are usually required by local statute to pay for health, safety, hazardous conditions and utilities to maintain a property during the foreclosure process. Most require agents to advance funds to pay for these expenses, and have specific billing processes to get reimbursed for them. It can be quite challenging to fully recover all expenses made on their behalf.
Get all expense requests and approvals in writing in advance of expending any funds for maintenance or utilities, and fully understand the reimbursement procedures for the same. Once the closing occurs, you will be hard pressed to receive any expenses not already authorized in writing, and even then there is usually a very limited time frame for submission of outstanding bills. I know brokers who have lost tens of thousands of dollars in uncollectable expenses.
Stay tuned for part two, which will look at cooperative agents, lender rules, multiple-offer disclosures and treating all buyers the same.
Chris Michaud is the owner of Acceptance Group LLC and ChrisMichaud360, which offers real estate, consulting and educational services to private and industry clients. He is the co-author of a soon to be released book (in early 2015) about the ill-fated government policies that affected the financial and real estate markets, which were designed more for social purposes and political gain rather than economic growth and sustainability.
Chris is an accomplished real estate investing expert, and has served clients for more than 30 years throughout most of New England with real estate consulting services, brokerage, training and development. He has owned, operated or managed several major real estate franchises, including ERA, Coldwell Banker, Century 21 and World Properties International.