Mid-Day Market News & Commentary by Chris McLaughlin, November 7, 2008
http://www.shortsalesriches.com/welcome.html
I hoped you noticed. For the last two months, the smart money started to cut its losses.
Notice how Kirk and his company “Tracinda” dumped all those shares of Ford stock last month? Seems he bought at over $6 a share, yet shortly thereafter, he dumped it at a little over $2 a share. It trades for around that price right now, a month later.
He took a huge loss and walked away. Now, we all know that a smart guy like him would not take a loss like that unless he thought that he’d take an even bigger loss in the future.
So that points out the obvious: there are few high growth opportunities today for investors, yet everyone keeps watching the Dow every day, waiting for that chance to line up like a lemming, and leap off the cliff.
Sorry, that’s a little too risky for my tastes. And I’m a guy who actually sold his company to Jim Cramer of CNBC fame. I sold SmartPortfolio.com to TheStreet.com back in December 2000. I took the chips off the table, and I was glad I did.
Instead I’ll stick with the shifting real estate market. Real Estate has actually turned into the biggest investment opportunity we’ll ever see in our lifetime.
This “down market” has changed everything.
See, buying and flipping pre-foreclosure houses is now in the “mainstream.” That was the first step towards making real estate the best investment today.
The next step was making it possible to turn real estate investing into a structured BUSINESS. That little stroke of genius led to the next step:
Automating a short sale system so it could run by itself at a high sales volume, allowing many small sales to add up to huge profits.
It was like a blessing.
Now, anyone willing to work 3 – 6 months on their short sales business may never have to “work” again!
But don’t take my word for it. Check out the details here:
http://www.shortsalesriches.com/welcome.html
Now, on to our real estate investor education section …
Lender or Servicer?
Here’s a little tip that should help short sale investors when working with owners facing foreclosure or default; few homeowners actually try to negotiate a deal or settlement even when facing financial ruin. Of those that do, most don’t understand the difference between negotiating with the lender or servicer. Here is how to explain the benefits and limitations of each when working with homeowners:
Servicer
Since most home loans are not kept ‘in-house’ but rather sold and serviced by a third party, the first point of contact is often the servicer. The servicer often has limited capacity to extend payment terms – usually up to two or three months. They often send “workout packages’ of forms that require the homeowner to fill out information on their current situation and then establish a temporary intervention with repayment arrangements.
The majority of homeowners that have fallen behind on mortgage payments have already contacted the servicer and may have even attempted a temporary reprieve or loan repayment program. Once the temporary provisions “run out” they homeowner often believes there is nothing more that can be done…to an extent they are correct since servicers do not have the authority to approve more extensive modifications to the terms of the loan. This is where the lender comes into play.
Lender
The lender actually owns the loan and will be the final approval for all major negotiations related to repayment terms or short sale offers. Most homeowners fail to distinguish between a lender or servicer. Tracking down lenders isn’t always straightforward especially when a loan has been sold multiple times (a common practice). Servicers are required by law to provide full contact information for all lenders upon request. Since few homeowners even know to ask it’s not surprising they have never been in contact with their lender. Lenders are often more responsive than servicers since they have the final authority required to negotiate more stringent “deals’.
When negotiating a short sale offer, investors will typically work with lenders. By taking the time to explain all available options, it may be possible to convince current owners to consider a short sale rather than other more punitive or damaging choices.
Exploring All Options: Count the Cost
When working with homeowners in financial distress it is often helpful to explore all their options while listing the time and cost associated with each choice. Not only does it help the short sale investor demonstrate why their offer is more attractive to the bank and owner but helps formalize the benefits in the mind of the seller.
1. Bankruptcy. Not only does bankruptcy ruin their credit score and limit their ability to obtain a new mortgage for several years but it is costly and time consuming. The average cost of filing for Chapter 13 is $3,000 to $4,000 while Chapter 7 typically runs between $500 to $2,500.
2. Refinancing. Although most homeowners considering a short sale will not qualify or be interested in refinancing the home for a variety of reasons, there may be a few situations where they might. In addition to understanding the current market value of the home, it is important that homeowners understand the full cost of refinancing a home including extended payment plans, closing costs and other fees frequently “wrapped’ into the loan. In many cases, the monthly payment might be lower but the long term cost of keeping the home is equal to much more than the current value of the home.
3. Foreclosure. Walking away is easy unless you live in a state that allows the lender to sue you for deficiency; then it can become a homeowner’s worst nightmare. While there may be short term financial benefits to be derived from saving up mortgage payments and then simply walking out on the home, the long term consequences easily offset any short-term gains.
4. Short Sales. Short sales often create a win-win for the current owner and new buyer; understand the current needs of the seller then work with them to create a contract that takes their most urgent and pressing concerns into account. From lease-backs to the ability to financially recuperate from the short sale in a fraction of the time of other options most people will be relieved to learn they still have options available.
See you at the top!
Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com
Phone: (800) 452-7627
P.S.: Are you going to the National Association of Realtors Convention this weekend? Look for us! We’re at booth #2054!
