Short Sale Manifesto v 2

The Short Sale Manifesto 2.0

The RevolutionJosh Cantwell

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© 2008 Strategic Real Estate Coach

Table Of ContentsGetting Your Head in the Game ....................................................... 7

What is a Short Sale ..................................................................... 9

The Mortgage Meltdown ............................................................... 14

Lender Updates ......................................................................... 16

Step-By-Step: How to Negotiate a Short Sale and Make Money .................. 18

The Option Contract Revolution ...................................................... 27

Notice of Option Contract (or Memorandum) ....................................... 30

Equitable Interest ...................................................................... 30

The Secret ............................................................................... 31

Understanding the Option Contract and Closings .................................. 32

Taking the Wrong Path (about Land Trusts) ......................................... 35

Inherently Flawed ...................................................................... 35

The Top 9 Mistakes New Short Sale Investors Make ................................ 36

The Real Estate Primer & Referral Marketing ...................................... 47

Working with Real Estate Agents ..................................................... 53

The Realtor Renaissance ............................................................... 54

Why Work with Realtors? .............................................................. 56

Short Sales and the FICO Score ....................................................... 58

The Short Sale Revolution ............................................................. 61

The Short Sale Manifesto 2.0: The Revolution

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IntroductionMy name is Josh Cantwell and on behalf of my business partners Jeff Watson and Greg Clement

I’d like to welcome you to The Short Sale Manifesto 2.0 – The Revolution. Much has changed

since March 2007 when the first Short Sale Manifesto was written. The original manifesto has

been downloaded ten of thousands of times and was responsible for launching Strategic Real

estate Coach. When that report was written the mortgage market and housing values were

topping off but not yet plummeting. Sub-prime loans were drying out and demand for houses

was beginning to wane. Few people had any idea what was waiting for us around the corner.

Since early 2007 there have been a record number of foreclosures, and a record decline in

housing values. At the time of this writing, prices continue to decline in just about every part of

the country and in some areas are projected to drop a total of 45 percent from their 2006 high!

What does that mean for the market? It means there are a ton of houses upside down. At last

count there were over 10 million homeowners who owed more in mortgage debt on

their houses than what their properties are worth. What else does this mean?

It means that short sales are not only an investing strategy for today’s

market, it means that short sales are THE INVESTING STRATEGY

FOR TODAY’S MARKET.

The purpose of this report is

to provide an outline that many

have found useful in building their

own real estate investing businesses.

Is there a code to achieving financial

success in real estate? Yes . . . it’s

called hard work and diligent study.

Are there secrets? Perhaps. I’m always

suspicious of anything that sounds too

It means that short sales are

not only an investing strategy

for today’s market, it means

the short sales are THE

INVESTING STRATEGY FOR

TODAY’S MARKET.


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dramatic, so let’s call them insider information that you would know only after spending several

years working with banks, lenders, sellers, buyers, brokers and agents: there’s a lot to know.

This report will give you structure and help you to shorten the learning curve if you decide to

invest in shorts sales.

I hope that you do.

I’ve called this latest version of The Short Sale Manifesto the “Revolution” because that’s what

we are experiencing. The changes in the real estate market are akin to those of the Great

Depression, when millions of Americans lost their homes. The reassuring (yet painful) thing

about a free market is that if you get too

fat, the market will self correct and put you

on a diet whether you want one or not.

Things are changing fast on many levels,

and I couldn’t be more excited. It’s human

nature when one gets fat and happy to get a

little lazy. Those days are over. The U.S. is

faced with some tough decisions that will make each of us individually accountable for how we

live day to day. When people become accountable, they become resourceful and they create

solutions to problems that demand attention.

Today’s real estate industry has a few problems that need

fixing, and that’s where we as investors step in. That’s

also exactly why more real estate millionaires have been

made in down cycles rather than up cycles. Those who

are resourceful and creative will enjoy the fruits of their

It’s human nature when

one gets fat and happy

to get a little lazy. Those

days are over.


6

creativity and become real estate millionaires through this down cycle.

When the original Short Sale Manifesto was written, few investors or real estate agents knew

anything about short sales. With the dramatic changes in the real estate landscape during the

past few years, it’s now rare to find an

agent or investor who isn’t an “expert”

in this area. Where were all these

gurus a few years back when making

money in real estate was easy?

When I began buying short sales in

2003 I did so not because I wanted

to, but out of necessity. I may have

started out with a few extra pounds, but after several months in the business, I was starving

and I needed to find a way to make money outside of what the gurus at the time were teaching.

Instead of forcing my business model on my market, I let the market show me the business model

I needed to achieve success. You see, my community led the nation

in foreclosures long before the word “sub-prime” became the bogey

man that popped yet another economic bubble that people thought

would go on forever. In my town, the only way to make money was

to find houses in foreclosure, buy them from the bank at a steep

discount, and sell them below market value to an end buyer. Since

then I have bought and sold several hundred short sales. Likewise,

since July of 2007 I have coached and trained over two thousand

real estate agents and investors.

Woodbridge Case StudyNumber of Mortgages: TwoTotal Payoff: $234,138.00Total Discounted Payoff: $145,000.00Resale: $165,000.00Profit: $24,395.09


7

Unless you are working in one of three communities in the US

where property values and demand are still increasing, you

need to know about short sales to be a successful real estate

agent or investor. What was once a niche for a few investors

who enjoyed the problem solving aspect of short sales has now

become ubiquitous in the real estate profession. Even if you have

no interest in short sales, chances are you are coming across quite

a few leads . . . they may even be the majority of leads you are

obtaining. As we sit right now nearly 1 in every 6 properties with

sub-prime loans across the U.S. are in some state of foreclosure.

Either the homeowner has missed their first payment and they are

in default or they are being sued by their lender or the property

is already bank owned. And while

foreclosures will at some point

decline (hopefully), they will never

go away. Keep in mind that I started

investing in short sales during the

up turn in the market and I had

many friends who were investors

doing short sales in hot markets

from 2003-2006. This is a business that if you learn, you will acquire many skills that will easily

translate to other areas of real estate. Not to mention, you stand a good chance of making

some great money along the way.

Getting Your Head in the Game

In any job it is easy to get caught up in the day-to-day struggle and forget where it is you

...nearly 1 in every 6

properties with sub-

prime loans across the

U.S. are in some state of

foreclosure.

I was really skeptical about joining another coaching program. Prior to getting involved with SREC, I had a bad experience in another coaching program. However, I had heard really good things about them and they were operating out of my state, Ohio. This was a major factor for me since I’d been having some trouble in Ohio with closings. So, I went to their training event in Las Vegas in January with very high expectations. I was so impressed that I signed up for their coaching program. Josh, Greg, Jeff and the whole SREC crew really embody the saying “Tis Better to Give Than Receive”. Each coaching event gets better and better and this past weekends event was no exception. I got more than a few gold nuggets. They are constantly giving more and more to their coaching students, exceeding my expectations once again. They are an open book and tell us everything they are working on, planning, and using in their business. They don’t hold back. They give more away for free than most give in their paid programs overall. Their concern and sincerity in helping their students is very real and genuine. The community they create among their students is amazing as well. When you’re in the midst of a deal and need a life line, they are actually available to answer questions.......they actually respond! I highly recommend their coaching. You’d be hard pressed to find a better, more complete program with more sincere or giving people and more knowledge in the short sale business than SREC.

Dee Reller


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ultimately want to go. It’s also too easy to forget the reasons

why you undertook the responsibility of running your own

business – for that is what you are doing. For many investors,

it comes down to choices we each make in how we wish to

live. In other words, why are you interested in real estate?

You probably heard it’s the very best way to make money

quickly and you want a piece of the action. You may have also

heard that more people across the U.S. become millionaires

from investing in real estate

than any other industry. So

you are convinced that real estate can be your treasure chest.

So let me ask you…what lifestyle do you want? For some, it’s

building a large company that will earn maximum dollars with

several employees and offer a lifestyle of the “rich and famous.”

For others it’s building a stable business that generates income

with few headaches and plenty of time for family and friends.

In beginning any business, it’s important to ask yourself why you

are taking on this responsibility.

Is it to achieve financial independence?

• Is it to create a steady source of positive cash flow?

• Is it to leave behind a legacy?

• Is it to get out of your job?

• Is it to show the doubters that you can do it?

• Is it to have the freedom to go wherever you want whenever you want?

Once you begin investing full time you will be tested. There will be days especially at the

Bellflower Case StudyNumber of Mortgage: TwoTotal Payoff: $315,244.00Total Discounted Payoff: $177,000.00Resale: $192,000.00Profit: $13,923.20


9

beginning where you wonder why exactly you made this decision

to work for yourself and invest in real estate full time. At this

very moment is when you’ll have to ask yourself again “Why am I

doing this? What’s the end goal here?” Remember why you got in

the game. Set your goal and expectations extremely high.

The problem with many people is that they set their expectations

really low and then they achieve those expectations. Anyone who is growing is constantly setting

their expectations high and trying to achieve things they never thought possible.

When you see someone driving a sweet car or living in a house on the beach or taking long

expensive vacations, do you just sit there and stare in envy or do you ask yourself, “Why not

me?”

What is a Short Sale?

The easiest way to explain a short sale is to describe what happens when a short sale occurs. A

short sale takes place anytime a property is sold for less than what is owed on the mortgage and

the lenders who own the underlying mortgages

accept less than full payoff as a settlement. This

has become common in today’s real estate market.

This allows the property to transfer to the buyer

even though the lenders did not receive the full

amount that they were owed. Short sales usually

take place during the foreclosure process when a

buyer is trying to buy a property and the purchase

price will not cover the payoff of the mortgages in

Anyone who is growing

is constantly setting

their expectations high

and trying to achieve

things they never

thought possible.


10

full. Most often these properties are bought and sold after the foreclosure process has started

but before the process is completed through a sheriff’s or trustee’s auction sale. This stage is

called the pre-foreclosure stage.

Lenders and mortgage companies have loss mitigation departments whose responsibility is to

deal with properties in foreclosure. The main objective of these departments is to find ways to

resolve properties in default other than just foreclosing. In other words they’re responsible for

mitigating the bank’s losses and keeping them to a minimum. Those options include short sales,

deed in lieu, loan modifications and forbearance

agreements all of which will be explored in this

course. Foreclosing on a property is a problem

for everyone: the lender, the homeowner and

the community. Lenders and investors who own

mortgages on houses in foreclosure do not want

to foreclose and repossess the property. They

would prefer the homeowner make the mortgage payments. Mortgage companies profit greatly

by lending money and receiving interest payments in return. Many institutional investors also

invest in mortgages to receive the interest payments

in return. Here’s one myth about the companies who

service loans. About 80 percent of the mortgages that

service companies like Countrywide, Wells Fargo,

Option One, Washington Mutual and Homecomings work

are owned by some other investor. Those mortgages are

not owned by the service company who sends out the

mortgage payment coupons and collect the mortgage

payments. Rather, the mortgages are owned by some other “big hitter” like Fannie Mae, Freddie

Mac, FHA, VA, a hedge fund or pension fund. The servicer just collects the payments, calculates

Mortgage companies profit greatly by lending money

and receiving interest payments in return.


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the numbers and answers customer calls.

As a matter of speech I will mention the word “lender” over

and over. Just keep in mind this pertains to the actual lender or

servicer as they are often referred to as one and the same.

Once a homeowner stops paying

the mortgage the underlying

lender or investor has no choice

but to foreclose. This is the only

way the lender or investor can

recover their original loan. By

forcing the property to be sold

at auction the proceeds from

the sale will go back to the lender. If the property is not sold to

a third party the lender will repossess the property and then sell

it as a bank owned property through a real estate agent. Once

the property is sold to an end buyer the original lender receives

whatever monies are left after the sale. The proceeds paid to

the mortgage company are almost never the full amount they

originally loaned. In most cases lenders lose about $60,000 to

$80,000 per foreclosure. This number is climbing almost daily. In

addition, lenders only retain about 50 percent of their original

loan amount when they foreclose and then sell as a REO.

The best way to explain a short sale opportunity is to provide this example:

The homeowner owns a property valued at $500,000.1.

The information we learn from SREC is invaluable. On a weekly – sometimes daily –basis, we apply things we have learned to our short sale business. Just last week, I was negotiating a second mortgage on a property. The 2nd mortgage holder wanted full payoff of their loan. Because I knew what type of loan the first mortgage was, I informed the second mortgage holder that they could only get 3k on the HUD. She called me back 10 minutes later and told me that they would take the 3k as full payoff and they sent me an approval letter

within 30 minutes. That information saved 12k and a whole lot of time negotiating it!

A couple weeks ago we got an approval for a short sale from a negotiator that I have worked with before. I didn’t even have to negotiate!! We sent our package in and attended the BPO – the next thing I knew I was getting an approval letter! We closed the deal and walked away with a check for just under 30k!

Those are examples of the actual transactions but the real benefit to us in being with SREC is the difference they have made in our “business”. We have applied the principles we learned in how

to build and market the business and, not to sound like an infomercial but…, after doing a realtor presentation in February, I was able to quit my job on April 9 and we are averaging about 30k-40k for the past 2 months. We have about 50 deals in our pipeline and are looking to expand our business.

We cannot thank Josh, Greg, and their whole team for everything they have given to us. They are not just outstanding coaches but really the nicest, most sincere group of people you could ever meet much less have the privilege of working with.

Dale Bjordahl and Michele Apt

In most cases

lenders lose about

$60,000 to $80,000

per foreclosure. This

number is climbing

almost daily.


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Lender(s) has a mortgage(s) against the property which were recorded when the homeowner 2.

either bought or refinanced the property.

The homeowner owes a total of $450,000 on a 1st and 2nd mortgage. They put down 10% 3.

or $50,000 dollars.

4. Homeowner is making payments each month on time. 4.

The homeowner loses job. 5.

The homeowner uses their extra funds trying to pay the mortgage and other daily expenses. 6.

They try to stay afloat by borrowing money from friends and family.

The homeowner misses the 1st mortgage payment because of a lack of funds to pay the 7.

mortgage.

The payoffs on the underlying mortgages increase each 8.

month a payment is not made.

The real estate market has plummeted in value and the 9.

homeowner is unable to find a buyer who will pay enough

to cover the full payoffs on all the mortgages.

The homeowner misses a 2nd and then a 3rd payment.10.

The underlying mortgage company files the foreclosure 11.

lawsuit and starts the foreclosing process.

The foreclosure notice is posted in public records.12.

The homeowner receives notice in the mail that the 13.

underlying lender is trying to repossess the property by

foreclosing.

The pre-foreclosure stage has begun and property can be bought through a short sale 14.

negotiation.

The homeowner continues to miss additional payments.15.

The lender receives final approval to foreclose on the property and auction date is set. 16.

The sheriff or trustee (depending on state law) completes an exterior drive-by appraisal 17.

Broken Fence Case Study

Number of Mortgages: OneTotal Payoff: $199,355.00Total Discounted Payoff: $101,000.00Resale: $148,000.00Profit: $34,944.69


13

to obtain value of subject property that is in foreclosure.

The sheriff or trustee sets an opening bid price at 2/3 of exterior appraisal (Typical for 18.

most states).

The property is auctioned off at public foreclosure or sheriff’s auction to highest bidder 19.

with bidding starting at 2/3 of sheriff’s exterior appraisal.

When public foreclosure or sheriff’s auction has been completed the opportunity to complete 20.

the short sale purchase has ended. (Exception: certain states have a redemption period

permitting the sale of the property through a short sale for an additional time.)

The real estate investor buys the property at auction OR the foreclosing lender buys 21.

property back if bids fail to be high enough to satisfy lender requirements. (In 96% of cases

the foreclosing lender buys the house back and the property ultimately becomes a bank

owned property, a.k.a. an REO)

The redemption period begins, providing a last chance for the homeowner to retain 22.

possession of the property (this varies from state to state).

During redemption period, the homeowner can pay off back payments or entire loan 23.

amount and keep the property (depends on state law).

The redemption period ends and property is transferred back to the bank through a 24.

sheriff’s deed.

The property becomes Real Estate Owned (REO) by the bank.25.

The bank sells property through real estate agent to end buyer or investor.26.

The lenders net proceeds from REO sale are the total proceeds they receive back from 27.

original loan amount. On average 50 percent of original loan amount. The original loan

amount was 450,000 so the amount the lender gets back from the sale is approximately

225,000.

Lender pursues the homeowner for the total losses the banks experiences thru a deficiency 28.

judgement issued through the courts. The total lender loss is over 225,000 of which the

homeowner who just lost their house in now responsible.


14

The Mortgage Meltdown

The opportunity to buy and sell pre-foreclosures

using the short sale method has been around for

dozens of years. For those investors who are just

starting to invest in this arena the timing couldn’t

be better. From the years 2000 through 2006 the

residential real estate market was hot. Property

values were increasing in nearly every market in

the country, even in my market ––Cleveland, Ohio

(okay…so what if it was only 2 percent!). Value

appreciation was fueled by several factors. Real

estate markets, stock markets and our economy as

a whole are cyclical in nature with run ups and downturns that can be tracked over the past

100 years. What goes up must come down is true to some degree with these markets and our

economy.

The recent explosion of appreciation in residential real estate

market was far beyond anything previously experienced in the U.S.

Some “experts” thought this would last forever. In keeping things

simple, all you need to know is that housing values were pushed

up by two forces: 1) Lax lending standards; and 2) the belief that

housing was a fail-safe investment. In addition, what former Fed

chairman Alan Greenspan termed as “irrational exuberance” was

fueled by the following factors:

Grand Haven Case Study

Number of Mortgages: TwoTotal Payoff: $306, 236.00Total Discounted Payoff: $165,000.00Resale Price: $210,000.00Profit: $37,266.64


15

The dot-com bubble and bust and its subsequent effect on the stock market.•

The stock market crash in 2001 that forced investors to look for alternative investments, •

such as real estate.

The demand for housing in the Sun Belt and coastal areas throughout the U.S. increased.•

The reduction in mortgage lending standards by almost all major lenders fueled by Wall •

Street financial institutions who took these loans, packaged them and re-sold them for

handsome profits.

The availability of financing through sub prime mortgages: Mortgages sold to home buyers •

with bruised credit. These loans carried higher interest rates, fees and prepayment

penalties to offset the higher risk of default because of the mortgagees previous history

of not paying their bills on time.

The availability of financing using exotic mortgage products like 100% financing, adjustable •

rate mortgages, interest only loans and option arm loans allowed consumers to buy houses

outside of their price range. These products allowed home buyers to afford monthly

payments on properties they previously could not afford.

Investment banks on Wall Street packaged these exotic mortgages

along with traditional mortgage products like 15 year and 30 year

fixed mortgages into mortgage pools. The mortgage pools were

packaged into investment portfolios that institutional investors

like banks and pension funds bought and sold. These investment

portfolios were backed by mortgages that were supposed to give

interest back to the investor who bought into the portfolio. When

the residential housing market crashed in 2007, thousands of

homeowners were left with zero equity or even negative equity

and were unable to refinance or get out of their exotic mortgage

they used to buy their overpriced homes from 2000 to 2006. In

I have tried two other coaching seminars and have not even come close to the amount of “FREE” info let alone the networking that SREC has to offer.

I had never closed a deal with the other two seminars and theirs were a year long. SREC is only 6 months and I closed my first deal after three months and made over $15K. The coaches are hands on and available whenever you have questions or need motivation. Also, they keep up to date on the most innovative technology,marketing systems and ways to keep your business organized and moving forward. No matter what the economic status they will help you find a way. I would recommend SREC to anyone who is serious about getting “on top” of there short sale business.

Marty & Deb Wisniewski


16

addition to homeowners having no equity, the investors who bought these mortgage pools and

funds were left with almost nothing in return for their investment.

With the housing market in a slump and homeowners without options to sell for what they

owed, many fell behind on their mortgage payments. Many more homeowners were left with no

equity in their homes even when they were current on the mortgages because housing values

plummeted. Even more homeowners fell behind forcing lenders to begin foreclosing on a record

number of houses. Now lenders are looking for options to get out from under all these bad debts

(mortgages).

Right now, as you read this report, we are experiencing the greatest opportunity for short sale

investing that has ever been created. The lenders who created the run up in values from 2000

to 2006 because of lax lending standards have now created the greatest foreclosure boom in

history and for those who understand how to negotiate, buy and sell short sales the opportunity

to create their desire lifestyle through real estate has never been

better than it is today.

Lender Updates

During the past few months

we’ve heard a ton about

big lenders in trouble. Even some of the biggest hitters

in the residential mortgage industry are reeling.

Fannie Mae and Freddie Mac are in trouble.

New Century Mortgage –– once the biggest

sub-prime mortgage lender –– folded in 2006.

Bear Sterns was bailed out by the government

...we are experiencing the

greatest opportunity for short

sale investing that has ever

been created.


17

last year. Over 273 mortgage lenders have imploded since late

2006 according to www.ml-implode.com. IndyMac bank filed

for bankruptcy and was taken over by the Federal Reserve

creating IndyMac Federal Bank. Bank of America said they’d

buy Countrywide to protect their investment only when there

was blood in the water. They did and now are working hard to

adjust to the demand for short sales and workout plans from their

mortgage holders. Recently they created a triage department just

to analyze short sale offers before they can get past the gate

keepers and have someone negotiate them. It’s bad right now for

these guys, but it’s good for us.

The good news is that the biggest players, Fannie Mae and Freddie Mac haven’t been lost, yet.

With some digging, I learned that under accounting rules Freddie and Fannie have to anticipate

a possible level of loss, and then they have to create reserves to cover the loss.

Trouble is, no one can be sure where the housing market is going to go. Some say it’s down and

out for a decade, others say for just a few years. Prices are still going lower in most parts of the

country. In several reports I have seen statistics that indicate housing prices are falling back to

the same levels they were at in 2002 and 2003. That’s five years of gains that have been wiped

out because of the mortgage disaster. Either way it has created an avalanche of opportunity

for foreclosure investors and for those investors who

are skilled at acquiring, negotiating and selling short

sales.

A couple weeks ago I saw a story where there was a line

two or three people thick stretching around the corner

The good news is that the

biggest players, Fannie

Mae and Freddie Mac

haven’t been lost, yet.

Thanks for a great Friday & Saturday conference 2 weekends ago there in Cleveland, Ohio for the Diamond (beginner’s level) coaching students. I was very encouraged by Josh, Jeff, Greg, & Noah’s presentations. As always, your company events are well organized & enjoyable - especially the party back at your offices. The highlights for me were as follows:(1) the breakout sessions where we worked on each others individual problems in a group setting.(2) the testimonials people gave of their successes - that is always encouraging to those of us who are still working on completing our 1st short sale deal. (3) the “web-2.0” use of the Internet to build & succeed in our business - from getting sellers in foreclosure to actually selling the R/E to the end buyer. (4) Noah’s revolutionary way of examining our life to not only make it better; but to get the support we all desperately need that is right around us was also eye opening

Gary Moses


18

in front of an Indy Mac Bank branch. Dour faced people in shorts stood waiting for the bank to

open so that they could get their money out –– just like those old black and white photos of the

Great Depression.

We’re not there yet, but with housing values

plummeting each month, almost everyone who took

out a mortgage the past couple years is underwater...

depending on your market (we all can’t be San

Francisco).

The banks upon which we depend can’t sustain such

loses . . . so something has to be done.

Anyone remember the S&L Crisis of the late 1980s?

Why can’t we seem to remember why things are regulated to begin with?

Step-by-Step: How to Negotiate a Short Sale and Make Money

As I mentioned earlier, several years ago when we first got in the business, you’d be hard

pressed to find a Realtor or even an investor who knew anything about short sales. Why? With

housing values appreciating and easy money being had, short sales were once considered too

much work for the money. Today, they’re still a lot of work, especially if you don’t know what

you’re doing –– but we’ve proven that a highly profitable, full-fledged short sale business can be

built, grow and prosper no matter what’s going on with the market.

We’re not there yet, but

with housing values

plummeting each month,

almost everyone who

took out a mortgage

the past couple years is

underwater...


19

Today, with banks defaulting

and homeowners under water,

real estate agents, investors

and homeowners must have a

full understanding of exactly

how to negotiate and process a short

sale. Homeowners in default should educate

themselves on this process to avoid the financial

pitfalls that go with having a foreclosure on

their credit report. Real estate agents must be

fully educated on the short sale process to regain

lost commissions. The homeowner, the real estate agent and

the real estate investor need to team up to proactively and aggressively

solve this foreclosure problem. A vast number of listings that real estate agents see

are now “subject to lender approval” and require a short sale be negotiated. Investors

looking for solid investment opportunities are now obtaining a growing number of

leads that are over-leveraged and in foreclosure. “Equity” deals are tougher and

tougher to find.

For the real estate investor, the purpose

marketing revolves around finding “motivated

sellers.” Individuals who are behind on their mortgage

payments are usually motivated to sell to avoid foreclosure.

Likewise, motivated sellers also are usually inclined to sell

their properties for a discount; however, in a short sale

situation homeowner’s owe much more than what the

market will bear. Most houses in foreclosure these days

Most houses

in foreclosure

these days have

zero equity.


20

have zero equity. In over five years of short sale experience I have seen few if any houses in

foreclosure that had equity. To construct a profitable real estate transaction the real estate

investor must pair up a motivated seller with a successful short sale negotiation.

Below is a guide to the exact steps in the short sale process that I have used to coach hundreds

of investors and real estate agents. I have watched as they close on properties they otherwise

would have never been able to close –– so I know

this stuff works. As a result, I have seen real estate

agents earn large commissions on houses with no

equity while real estate investors earn even bigger

profits all from having a better understanding of

short sale investing.

So many people have asked me the exact, step by

step process I use and teach to my students on how

to successfully profit from short sales.

You asked. I delivered. Are you ready? Here we go.

You must identify your “sweet spot” and stick to 1.

it. A sweet spot is an area in your town where

you want to buy and sell houses. Identifying your

sweet spot is fairly easy. Find the areas where

houses resell the quickest, then go market and buy properties there. Avoid areas where

you know buyer interest is low. Try to stick to areas near your office or house where houses

are selling the quickest.

Obtain the list of pre-foreclosures in your sweet spot. You can obtain these lists from a 2.

You must identify your “sweet spot”

and stick to it.


21

courthouse or a list provider. Make sure your list includes

the following information: name, address, city, state, zip,

lender, and the date the foreclosure was filed.

“Scrub” the list with a skip tracer for updated addresses and 3.

phone numbers. Skip tracers have access to databases where

they can find updated information. To advertise to these

homeowners in foreclosure you’ll want the most updated

information including address and phone number. Some

free services include: w3data.com, zabasearch.com, 411.

com, and whitepages.com. Paid services include lexisnexis.

com and accurint.com.

Market to the list of names and addresses in your sweet spot. Marketing can consist of 4.

direct mail, postcards, letters, cold calling, door knocking, voice broadcasts, and free

recorded messages. You can also use referrals from centers of influence. Centers of

influence are other professionals like attorneys, real estate agents, mortgage brokers

and title companies. The idea of marketing for the real estate investor revolves around

finding “motivated sellers.” Typically, you would think, individuals who are behind on

their mortgage payments are motivated to sell to avoid foreclosure.

Your marketing efforts should generate calls to your office from sellers in pre-foreclosure 5.

looking to sell. You should also be a pro-active marketer and reach out to these people in

foreclosure and not just sit and wait for them to call you.

On each “buy call” you must qualify the property and the situation. “Buy calls” are simply 6.

the phone calls you will receive from seller who you have marketed. If they call you it’s a

“buy call.” The goal is to qualify the homeowner and the property to see if it’s worth your

time to go look at the house and attempt to buy it. Also, run comps and score property

with the Realeflow’s Deal Filter. Try to avoid condos, townhouses, new construction and

new loans when prospecting for short sales. The best properties to pursue include FHA

Every event provides more knowledge and insight into the short sale business.

The SREC staff has not only given me the tools for a successful business but they have had a profound impact on my personal growth and development.

The addition of Noah St John has been great. I am working with a group of people who truly care about me! Tammy Maffei


22

loans, solid resale neighborhoods, large 2nd

mortgages, vacant houses, any deal where you

already have an end buyer, and any loan that is

six years or older.

Set an appointment to view the property and 7.

meet the homeowner for the first time.

When viewing the property, make sure to note 8.

major repairs, and the property condition.

Likewise, pay attention to the appearance of the neighborhood. Does the subject property

conform to the area? Is it above or below community standards for that street?

Discussion with the homeowners should be guided by the “Positive Results Conversation.” 9.

This conversation in an educational talk given to the homeowner by the investor.

The purpose is to explain the seller’s options, the short sale process, and how to set

expectations regarding how the short sale process works. You can read “The Positive

Results Conversation” in the original Short Sale Manifesto.

If a short sale makes sense for all parties involved, and the homeowner gives the go 10.

ahead, then start the short sale process.

Set up an appointment to meet the homeowner a second 11.

time in your office with a notary.

During the second appointment with the homeowner the 12.

option contract and other legal docs will be signed. The option

contract is a special purchase and sales agreement used to

control the subject property during the short sale negotiations.

The option contract also allows the investor to resell the property

for a profit. Moreover, additional information will be collected

to complete the seller portion of the short sale package. The short sale package is a

compilation of documents that lenders require to begin a short sale on a house in pre-

I have to admit, the conference was not what I expected. I expected to have many speakers giving a small, token amount of information and then trying to sell their full programs. This was NOT the case! They give it all away. Not only that, we also worked as an entire group; working together to solve some the problems of today’s market. It’s like having an extension of you’re own business team. I could not have asked for anything more! Excellent! Scott Nelson


23

foreclosure. This includes: 2 years tax returns, 2 month

bank statements, last 2 pay stubs, hardship letter, FDMC

financial form, and a listing agreement. Other docs include

mortgage statements, property disclosures, and repair

estimates. Legal docs must be notarized and consist of:

option contract, notice of option, affidavit, disclosures

and the bill of sale. (My attorney and business partner,

Jeff Watson, was instrumental in developing the option

contract method for quick-turning short sales and is one

the best attorneys in the country regarding this topic. Many

real estate trainers have switched away from using land

trusts and are using option contracts for short sales because of Strategic Real Estate Coach

and Jeff Watson. For more information read The Death of the Land Trust… in Short Sales

at www.freeshortsalestuff.com).

Record the Notice of Option Contract in the public recorder’s office.13.

Gather the short sale documents from the homeowner mentioned above.14.

Develop the short sale package to submit to the lender. The short sale package consists of 15.

the following:

a. Authorization to release loan information

b. The short sale cover letter (which explains the offer)

c. The option contract for purchase and sales agreement

d. The HUD 1

e. The Listing agreement (if listed with a real estate agent)

f. Financial Statement (FDMC form)

g. Hardship Letter

h. Homeowner’s Last 2 paystubs

i. Homeowner’s last 2 bank statements


24

j. Homeowner’s last 2 year’s tax returns

k. Pre-approval letter for buyer’s financing

Fax the authorization to the customer service department 16.

to make sure you are authorized to talk to the lender

about the account

Order payoffs from the mortgage holders17.

Fax the short sale package to the lender(s). Send this 18.

package to each mortgage holder and then just send the

purchase and sales agreements and the HUD 1 to any lien

holders.

Your short sale package will then be assigned to a loss 19.

mitigator (LM) at each lender.

The file will be reviewed by the loss mitigator (LM) and they will order an interior BPO. 20.

A BPO is short for Broker’s Price Opinion. The BPO is a third party report of the value of the 21.

property. This value could be determined by either a real estate agent or an appraiser.

Interior BPO completed. This is the most crucial part of the entire short sale process. For 22.

a short sale offer to be accepted the interior BPO needs

to come in near the offer price. The real estate investor

should meet the BPO agent to try to validate their offer

price. The goal of the interior BPO is to have the agent

or appraiser value the property as low as possible. This

will allow for the most options for the homeowner and

investor. The investor should bring the purchase and

sales agreement, the comparables that are near the offer price, the construction repair

estimate, the listing history, and the hardship letter written the homeowner who’s trying

to sell the house. See “Art of the BPO.” (more on this in the original Short Sale Manifesto.

See www.shortsalemanifesto.com)

Sleepy Hollow Case Study

Number of Mortgages: ThreeTotal Payoff: $152,831.00Total Discounted Payoff: $104,000.00Resale Price: $121,300.00Profit: $11,155.47

This is the most crucial part of

the entire short sale process.


25

Learn the value of the interior BPO by contacting and asking the loss mitigator “Where did 23.

the BPO come in?” You can also call the agent or appraiser who performed the BPO and

ask the same question.

Begin to clarify your exit strategy. Was the BPO low enough to buy outright or possibly 24.

do a resell quickly (quick-turn)? The property must then be re-marketed to find the end

buyer if the exit strategy is to resell the property and structure a back-to-back purchase

and resale of the property.

If an investor is going to buy the property outright they must be able to purchase the 25.

property near 65% of the as-is value. If the property cannot be purchased at 65% of the

as-is value then the investor should plan on quick-turning the property (buy & resell) for

a profit.

Pull title with a local title company. If title is not clean you must negotiate additional 26.

liens. Lien holder should accept around 10% of their balance. If the property goes to

sheriff’s auction lien holder typically receive zero proceeds.

If the preferred exit strategy is to resell the property and 27.

structure a back-to-back purchase and re-sale then the property

must be re-marketed at this stage.

The buyer, who is the option holder, has an “equitable 28.

interest” in the property through the recorded notice of option.

The option holder, or investor, has the right to list and sell the

property for a profit.

If the exit strategy is to resell the property the house should 29.

be listed for resale with a real estate agent on the MLS as well

as marketed using signs, buyer’s lists, the Internet and flyers.

Send counter offers to each lender. The following is a general outline of what each 30.

lender will accept via a short sale. 1st Mortgage (80-100% of the BPO), 2nd Mortgage (5-

20% of balance owed), 3rd Mortgage (5-10% of balance owed), Liens (5-10% of balance

Detroit Road Case Study

Number of Mortgages: OneTotal Payoff: $262,068.72Total Discounted Payoff: $145,000.00Resale Price: $202,000.00Profit: $38,903.23


26

owed). Counter offers are done via fax. Fax the counter offer to the loss mitigator at the

bank. The counter offer should include the Option contract with an adjusted offer price

and the HUD1 along with a cover letter explaining the counter offer.

Fax the purchase and sales agreement and the HUD 1 with 31.

adjusted offer price to lenders. Increase your offer price through

negotiations. All counters must be made in writing with purchase

and sales agreement as well as the HUD 1. For both the HUD 1

and purchase and sales agreement the price must match. Then

fax the purchase and sale and the HUD 1 to the loss mitigator for

approval. Counter offers are done via fax. Fax the counter offer

to the loss mitigator at the bank. The counter offer should include

the option contract with an adjusted offer price and the HUD1

along with a cover letter explaining the counter offer.

Negotiate the final purchase price. The final purchase price 32.

will depend on the negotiations and the BPO value.

Receive approval letters. Approval letters are issued by the loss mitigators when they 33.

accept your offer price. The approval letter will explain the closing date, the gross offer

price, the net proceeds that the lender will

accept, the real estate agent commissions,

the acceptable closing costs and any other

lender closing instructions. The approval

letter will need to be faxed to the title

company or closing attorney.

Commit to an exit Strategy: Buy – Fix – Sell; 34.

Buy – Fix – Rent; back-to-back quick-turn.

A back-to-back quick-turn must have an end buyer at a higher price than the short sale 35.

price. Tie down an end buyer with a purchase and sales agreement at a higher price

Being a coaching student and coming to SREC events in Cleveland has been a great experience for me in so many ways! The updated information, expansion of knowledge gained, questions & issues that get answered, networking with peers, ambiance of the friendly environment, its just all positive and well worth it! The team of coaches and staff members are super nice and very accomodating! Being in this coaching club has helped my business in so many ways, especially the way I needed it the most: process flow/organizational structure. Were VERY close now to closing on the first of many deals. Thanks for everything SREC! Hands down the best coaching club I’ve ever been involved in!! Ali Kazmi

Negotiate the final purchase

price. The final purchase price

will depend on the negotiations

and the BPO value.


27

than the short sale offer you have made through the option

contract.

End buyer must schedule a closing date.36.

End buyer receives the “clear to close” from their funding 37.

lender.

Close both transactions back to back. 1st the investor 38.

purchases the property. Then they resell it in the same day.

Each transaction must be funded and each closing have it’s

own escrow.

The title company files the deeds and funds each closing.39.

Property transfers – Two deeds are recorded. The first deed 40.

is from the homeowner to the investor (A-B). The second is

from the investor to the end buyer (B-C). The loans (previously in foreclosure) are paid

off (short sold), mortgages released, the foreclosure is then ceased and real estate agent

commissions are paid. The title company will also issue

a profit check to the investor for the difference between

what they bought the property for and what they sold it

for.

The Option Contract Revolution – This is what everyone wants.

Any short sale transaction can get complicated. On paper is seems to be a linear process when

in reality many things can happen. This is true for the real estate industry and it’s part of the

frustration as well as the exhilaration we all feel when we close a deal.

As a kid I remember learning how to tie knots by repeating the mantra “Start hard, finish easy.”

El Camino Case Study

Number of Mortgages: One Total Payoff: $142,644.00Total Discounted Payoff: $122,000.00Resale Price: $135,000.00Profit: $10,128.72


28

In short sales, it’s the reverse. More often you will start easy and finish hard

–– not on every deal –– but if you have this mindset you won’t be caught off

guard when a closing doesn’t happen when you expect it to.

One of the ways we insure that we always start easy, and

finish easy is by using the right paperwork needed

to successfully close a deal. Again, short sales are

linear as outlined above in the step by step process,

but each case does involve several moving parts and

things can pop up along the way that may threaten

the success of the deal. If you’ve ever done a rehab

of a property then you understand this. When

doing a big construction job stuff happens. When

successfully putting a short sale transaction together

stuff can happen there, too. The right paperwork puts us, and you, in a position of success. Many

investors use a land trust for short sale transactions –– something that we disdain because of the

smoke and mirrors involved in land trust transactions. Instead

we pioneered a method of structuring back-to-back transactions

using an option contract. In truth, we borrowed this method from

commercial real estate, where it has been used for decades.

After some trial and error, as well as collaboration with various

title companies and one of the largest underwriters in the U.S.,

Strategic Real Estate Coach (SREC) developed the appropriate documents that are needed to

provide the best opportunity for a successful transaction. These documents include the option

contract for purchase and sale, a notice of option contract, and when appropriate, a release of

notice of option contract.

“(the event was) straight forward, direct, had access to experts, 3 days of solid training! Good information… no bait and switch or tease and sell a second deal. BEST SHORT SALE TRAINING I HAVE SEEN TO DATE!”

Bob Deschnor


29

Note: These documents are now on their third version as we’ve

adapted to the marketplace. If you happen to have a copy of these

documents make sure you are using the most updated versions.

The option contract is a contract for the sale and purchase of real

estate contingent upon the operation of a certain fact. Parties

to this option contract are the seller and or homeowner (who

is probably in default or foreclosure) and the buyer, usually a

business entity by which the investor is choosing to do business.

Instead of earnest money, the investor may use a small option

deposit (this may vary from state to state). The

option deposit is nonrefundable and represents a

small sum of money given for the opportunity to buy

the property in the future. The mutual consideration

between seller and buyer should also be set forth

in the option contract. The opportunity to buy the

property in the future is contingent

upon the successful negotiation of a

short sale. The option contract should

clearly define the terms and conditions

of the short sale. It should also state

that the buyer has an opportunity to

inspect the property, and then it should

cover matters related to title, escrow

and closing. This option contract will

be part of the short sale package submitted to the loss mitigator so it needs to be neat, easy to

read and complete with all the appropriate real estate disclosure forms and addendum such as

Cromwell Case Study


The option contract is a

contract for the sale and

purchase of real estate

contingent upon the operation


30

the lead-based paint disclosure.

Notice of Option Contract (or Memorandum)

The second document in this process is the notice of the

option contract. The notice (memorandum) of option contact

lets the world know that you have an equitable interest in the

property. You have an option to buy the house: You are not

committed to buying the house, but may choose to do so if

the terms are favorable. This document needs to be properly

completed by the investor and needs to be witnessed and notarized before being promptly

recorded at the appropriate County Recorder’s Office. Please be mindful of any state laws that

may exist in your jurisdiction regarding the recording of documents regarding pre-foreclosure

sales or foreclosure purchases. Various states have timelines regarding when documents can be

filed. Please pay attention. As a result of recording the notice of the option contract you have

also now become part of the chain of title on the property. When you negotiate a discount that

is acceptable to you, you can then choose to exercise your option and go ahead and complete

the purchase of the property.

Equitable Interest

The option contract and the notice of option

contract gives you, the investor, equitable interest

in the property. Moreover, it allows you to re-list,

market and sell the property because you have this

equitable interest. This is important so that during

Devonshire Case Study


...effective way to make money on short sales is to conduct a

double closing


31

the negotiation process an end buyer can be found who will buy the property once the bank

has agreed to an acceptable short sale price. The most common and effective way to make

money on short sales is to conduct a double closing using two separate transactions funded by

two separate escrows. In essence, while you, the investor, are negotiating with the bank to

complete the first transaction and buy the property, you are at

the same time looking to find a buyer to buy the property from

you to complete the second transaction.

The Secret

Now, the secret to how the option contract works with the notice

of the option contract is as follows. You have two transactions set

up: A to B where you are B the buyer; then B to C, where you are

B the seller. The transactions are scheduled to happen on the same day at about the same time.

The end buyer, C, is getting a loan to buy the property. Their lender orders a title commitment.

The title commitment is prepared and sent to them showing that you as the option holder are

an exception on the title. This means that your

option needs to be removed or satisfied for

the buyer to have clear, marketable,

insurable title. Your option can

be removed in one of two

ways: First, by releasing

your option; and second, by

satisfying your option. The

easiest way to “satisfy” your

option is by having a deed from

the homeowner in foreclosure

Josh and Greg are very good speakers; providing (us with) much detail and they really retain (our) interest. Their honesty and integrity shines through the presentations and the work they do. It is obvious that they spend much time preparing for the weekly coaching calls and have a deep commitment to their coaching students. They are innovative and they think outside the box!

Mary Ann Heindorf:


32

transfer title to you and then you deed the property to the end

buyer. The back-to-back recording of deeds that is disclosed to

the parties in the B to C transaction, is the way your option is

completed. You get paid and resell the property. Depending upon

the end buyer’s criteria and their closing instructions, there may

be various subtle changes to this scenario, but that is the general

idea of how a transaction would look. Please note that the end

buyer’s lender is being told that it is a short sale and is also being

told who is the current vested owner (which is not you) but the

homeowner who is in foreclosure. Moreover, they are told that

you have an option on the property which is consistent with the

contract that you have used for the B to C transaction. All of this makes sense; it is open and

transparent to everyone so that the transaction can go forward.

Understanding the Option Contract in Closings

In understanding the closing process when using the option contract, the first thing to realize is

that there are two closings that are going to be done back-to-back, either the same day or on

two consecutive days.

The term “back-to-back” is a far more favorable term to use rather than the term “simultaneously.”

The term “simultaneously” implies funding is being used for the second transaction in the first

transaction. This type of pass through funding is no longer legal without the consent of all the

parties in the second transaction. Any title agent that is doing this is violating a number of

regulations from their underwriter as well as various state and possibly federal laws.

Colinas Case Study

Number of Mortgages: TwoTotal Payoff: $321,703.00Total Discounted Payoff: $210,000.00Resale Price: $275,000.00Profit: $37,755.79


33

In the option contract method the two closings are done

in the following manner. The first transaction which is

referred to as the A to B transaction is where the vested

party (A) usually the homeowner in default is selling to the

optionee/investor (B). The investor who holds the option

to buy is the optionee in that transaction. They have the

right to go ahead and buy the property provided certain

conditions are met.

That transaction is closed in accordance with the terms set

forth in the option contract. That closing occurs between

the vested party (A) and the optionee/investor (B) in the A to B scenario. That transaction must

be closed and funded prior to and independently from the second transaction.

It is important to understand that the option that has been recorded is a matter of public

record and it needs to be released or removed from the public record for the end buyer to

receive marketable insurable title or to get it off the record of title. There are two ways of

removing that option from the record of title. One is a release and the second is by completion

of it. By completing it there is a deed transferring title

from the vested homeowner to the optionee/investor.

Title will be transferred from the vested party to the

optionee/investor, thus satisfying the option. Then

title will transfer from the optionee/investor to the

end buyer.

Since title vests for even a few moments in the name of the optionee/investor that party is then

able to extract whatever profits they have earned by negotiating the discount and reselling for

State Route 225 Case Study

Number of Mortgages: OneTotal Payoff: $154,729.00Total Discounted Payoff: $55,000.00Resale: $87,000.00Total Profit: $28,602.02

It is important to

understand that the option

that has been recorded is a

matter of public record


34

more.

It is important to understand that the property will be resold by the optionee/investor for an

amount less then the original indebtedness owed by the vested homeowner. The B to C sale price

must be less than what A owed on the property. When the property is resold by the optionee/

investor for an amount less than what was

owed by the vested party there can be no

argument regarding mortgage fraud, equity

skimming or undue influence of appraisers.

The proceeds used for the A to B transaction

are not the funds from the B to C transaction.

Each transaction of the back-to-back

closing must be an independent stand-alone

transaction. In addition to each transaction

being an independent stand-alone transaction,

each transaction will have its own separate HUD-1 and what is disclosed on the HUD-1 will be

the true essence of the deal with the numbers being accurate.

In understanding the transactions it is important to note that

subsequent to the A to B closing, the B to C transaction will close

and fund, thereby transferring title from B to C. The end Buyer’s

lender will be funding this transaction. The first transaction will

be funded by the Optionee/Investor (B).

You always have fresh, new content

at every event! The information is

always on point. THANK YOU for

the Property Launch Formula info!

John H. Grant


35

Taking the Wrong Path (about Land Trusts)

For years, many real estate investors have been taught

to use land trusts to facilitate their short sale either

for privacy purposes or as a way of using it to assist in

the quick-turn transaction. In recent months, increasing

legislation and greater regulatory scrutiny from many

state governments, various attorney general’s offices,

title insurance companies, and lenders have caused land

trusts to become difficult or impossible to use in short

sales.

The following information, while at times complicated,

is being set forth as informational material to inform the

prudent real estate investor.

Always consult a local attorney if you have any

specific questions.

Inherently Flawed

Land trusts are used in short sale transactions for one specific reason. Most investors are trying to

create a simultaneous purchase and resale of the property, otherwise known as a simultaneous

closing. The problem created when trying to do a simultaneous closing is that most people

buying the short sale from the investor are going to obtain a loan to buy the property. Just about

all lenders providing loans to buyers have a seasoning requirement. Seasoning requirements

Always consult a local attorney if you

have any specific questions.


36

state that the lender will not loan money on the property

unless the homeowner has been on title for at least 6, 12

or 24 months. Since the investor has not been on title this

creates a problem. Land trusts have seemingly provided a

perfect foil to this obstacle –– when in fact they are deeply

flawed. In using land trusts investors are able to show

that the homeowner or seller is still on title when in truth

they are not. The homeowner initially is the beneficiary.

As soon as the seller has assigned their beneficial interest

in the property over to the investor they have broken the

chain of title because the investor now has the interest in

the property though the assignment. The issue here is that this assignment was never disclosed

to the end buyer’s lender. The land trust, especially the assignment of beneficial interest,

was a “smoke and mirrors” tactic used by the short sale investor that allows them to pull all

the strings behind the scenes to gain the profits from the transaction when actually they are

misrepresenting to the end lender the true nature of the transaction. Likewise, investors using

the land trust as a method to conduct a simultaneous close are committing actions that border

on bank fraud.

Check out www.freeshortsalestuff.com to download The Death of the Land Trust in Short Sales

for more information on this topic.

The Top 9 Mistakes New Short Sale Investors Make

No matter how much you prepare in this business, you’re

going to make mistakes. In the above outline I took you

Phillips Case Study

Number of Mortgages: TwoTotal Payoff: $138,000.00Total Discounted Payoff: $79,500.00Resale Price: $105,000.00Total Profit: $20,511.53

No matter how much you

prepare in this business,

you’re going to make

mistakes.


37

through a step-by-step process on how to successfully put together a short sale transaction.

Below I am going to give you a list of all the places where mistakes can be made along the

way. I wanted to do this so that you could avoid these mistakes and allow my learning curve to

shorten yours. The following list was compiled not only

from mistakes I made as a rookie, but from mistakes I’ve

seen from countless students in our coaching program.

It’s amazing how we all make the same mistakes! Read

through these, keep them in mind, and do your best to

avoid ‘em. The one thing about real estate, mistakes

can really hit you in the pocket. These mistakes may not

cause you to lose money on a deal but they will cause you

to make less money on a house or not make any money at

all which isn’t so much fun.

1) Paying too much for a property

What’s the golden rule about real estate investing? You make money when you buy, NOT when

you sell. This is the single most common mistake investors make that ultimately causes them to

get out of the real estate business and find work at the local hardware store.

When you pay too much for a property, it can drive your business into the ground. When we

began our business, we were brimming with confidence and so excited about buying houses

that our optimism got in the way of sound judgment. The problem is, that one mistake can

wipe out the profits of three properties that you got right. And

the mistakes tend to hang around month after month –– in some

cases it took us over a year to sell our problem houses, and the

monthly holding costs were like a dagger constantly pressing in

Christian Case Study

Number of Mortgages: TwoTotal Payoff: $282,000.00Total Discounted Payoff: $154,000.00Resale Price: $171,000.00Total Profit: $12,011.70

EXCELLENT INFORMATION! You’re approachable, and that’s cool. Thanks for sharing so much real and applicable info, strategies, and energy. You’re all GREAT!

Paul Vyhnalek


38

our backs.

You need to be conservative. Here’s good calculation that is sure to help you buy smart.

a. Take the after repaired value.

b. Subtract the amount of repairs needed.

c. Multiply times 70%. This should be your maximum offer. So your initial offer

would be less than this. Maybe 60% or 64% or 67% of the AS-IS value.

Here’s an example. A house is worth 200k once it’s fixed up. It needs 20k in repairs including

kitchen and bathroom updates, a new roof, a new furnace, carpet, paint, and landscaping. All

told it adds up to 20k including labor. So the AS-IS value = 180k (200k – 20k repairs). Multiply

180k times 70%. That would equal 126,000. That’s your maximum buy price.

In some markets you will want to be extra careful. You should always consider what you think

the house will sell for in three to four weeks at that moment, then multiply by 60 percent.

Remember, this is a negotiation with the bank, and that the purpose of your offer is to get the

ball rolling and have the lender order a BPO.

What’s great about short sales and the option contract method is that they provide the ability

for the investor to re-sell a property immediately after the initial purchase. This removes the

possibility that we may have offered too much. Through a back-to-back purchase and resale we

can almost remove this risk entirely.

I have never lost money on a short sale when I used the option contract method and a back-to-

back transaction; however, I have lost my shirt on several occassions buying and holding real

estate.


39

2) Underestimating the cost of repairs

If you’ve done any rehab work, then you know that no matter how

good you think you are at getting the cost of repairs correct, the

odds are against you. If you are doing full rehabs, you need to be

conservative and build in additional dollars for all the

things that may go wrong during the project.

I once had three estimates on a house all around $10,000 to $13,000. Then the

boiler caught fire one Thanksgiving Day morning in the basement. My total cost of

repair easily doubled the initial estimates.

You just never know . . .

Here’s the good news: If you learn how to conduct back-to-back

transactions for short sales you will limit your exposure to these

type of incidents. The most rehab you will do will be minor paint and

carpet –– just enough to make the house presentable. Total expenses should

be no more than $3,000 to $5000. Remember, you are buying a property well below

market value, and selling it well below market value. Sometimes you need to leave a little fat

on the bone for the end buyer. If you do, you’ll have no problem selling your properties.

3) Neglecting to stage property

If you want to give your property the best chance for a quick sale, then consider staging it.

Rent some furniture from Cort and keep the costs down. The goal is to suggest what the house

might look like if it were being lived in. You do not need to go overboard, just include enough

It was great that Josh and Greg were up on stage often to teach the material. It was also great to have a loss mitigator from a bank join us. You really leave the seminar more equipped to be successful in the short sale business. I loved this seminar. The SREC team RULES!

Florissa Regnoso


40

furniture or accent pieces in different rooms to create a positive

energy for those potential buyers doing a walk thru.

The purpose of staging is to make the house look, feel and smell

new. Stage the outside to give the property an attractive curb

appeal. Stage the inside to make the property look feel and smell

new and roomy. Short sale or no short sale always, always stage your

properties to get the maximum re-sale value.

4) Failure to build a workable buyers list

As a short sale investor, you will want to sell your properties to end

buyers who intend to live in the house. Retail buyers pay retail prices which means more profit

for the investor. This means that you will need to learn

how to work with real estate agents, a topic of discussion

found later in this report.

However, there will be times when you have properties

that would be ideal to wholesale and it‘s a good idea

to draft a list of potential buyers. This list is generally made up of those investors who either

specialize in rehabs or rentals. Unfortunately, this group often needs to buy as steep as you to

make the deal work, so profits will be smaller than short sales that are sold to buyers who want

the house for their home. Landlords will buy at a higher margin.

It’s a good idea to go to REIA meetings and to network with other investors in your community.

Moreover, you can also create a list of buyers fast by placing and advertisement in the classifieds

stating that you are liquidating a portfolio of properties and need to sell fast.

W 16th Case Study


The purpose of staging is

to make the house look, feel

and smell new.


41

An issue of importance is how to create a workable list that is organize and used effectively.

After all, haven’t we all done the spreadsheet and failed to use it when we need it most?

Our preferred method for keeping track of contacts is through Realeflow – a fantastic business

management system for real estate investors. This BMS includes a buyer and seller matching

component that does exactly what it sounds

like it would do. Just enter the properties

into the system that you are selling and enter

the buyers from your list and their criteria

and they automatically match up. All you

have to do is make the phone calls to see if

they are interested.

5) A failure to secure private money

If I could go back to the first day I decided

to buy and sell real estate for a living, the first thing I would do is study the most effective

marketing techniques to fill my pipeline. The second thing I would do is to make raising private

money and finding partners to team with a top priority. When we started we thought we could

do all the deals ourselves. When we were quick-turning one or two houses per month, no

problem. But anything more we simply didn’t have the money to buy the property and quick-

turn with any confidence.

So how do you find private lenders and partners? Spread the word.

Pass out business cards. Go to REIA meetings. Google “hard money

for real estate.” Let people know that you need large sums of

The concept of revealing the nuts and bolts of your company, the idea of not holding any facet of this business back, and the feeling that you want us to SUCCEED!

Dania Fadeley


42

money for short periods of time ranging

from a day to a few days and that you

will pay them a point (1%) on what they

loan. In order to structure a back-to-back

short sale transaction you’ll need money

to fund the first transaction. Use other

people’s money if you don’t have any of

your own.

6) A failure to plan multiple exit strategies

Many investors think they can only do it one way: They have to retail everything; they have to

wholesale everything; or they have to lease option everything. Use the exit strategy that will

make you the most money commensurate with the time, effort and risk you put into the deal.

Buying a house and selling it for a profit does always mean you have to sell to a retail buyer who

has great credit and can get a loan for the asking price. Likewise, it doesn’t always mean you

have to sell on lease option when you have a buyer right now.

The three most popular are retailing, wholesaling and lease option.

Retail: Give you the best chance to realize the

greatest profit. The only downfall is that full

income taxes need to be paid and if using a real

estate agent, you will be responsible for paying

commission.

The three most popular are

retailing, wholesaling and

lease option.


43

Lease Option: This is a good way to build for long term wealth. If

you buy right, using a lease option you can cash out some of the profit

immediately through refinancing and leave some of the equity in the

property to build wealth. Then a lease option buyer or a renter will

pay the mortgage for you along with generating some positive cash

flow. Then if they buy you out down the road you have more profit to

cash out from the equity that remained in the house. Unfortunately,

depending on your particular market, the floor may be dropping on

housing values, so be careful.

Wholesaling: This is seemingly a simple and fast way to make

money; however, profits are considerably smaller than retailing or lease options. Wholesaling is

a matter of finding a buyer who buys at a discount. It could be an investor or an owner occupant.

Ultimately, since they are taking the risk, they will want the property to be significantly

discounted. Expect to make $5000 to $7000 per transaction in today’s market.

When conducting a short sale back-to-back transaction we

will always look for a retail buyer; however, if we love the

property and know we can get it cheap from the lender, it may

be worth our time to buy, rehab and either sell or keep in a

rental portfolio. Seldom will we wholesale to investors simply

because we target our marketing efforts in areas where we

know there is demand for retail.

7) A failure to focus on revenue producing activities

Your objective each day needs to be focused on spending as

much time as possible doing revenue producing activities. How

North Cove Case Study

Number of Mortgages: ThreeTotal Payoff: $417,547.00Total Discounted Payoff: $285,000.00Resale Price: $340,000.00Profit: $28,808.66

Irish Hills Case Study



44

much time do you spend right now doing revenue producing activities?

The short sale business is divided into three main areas: acquisition, negotiation, and disposition.

Each of those area includes tasks that we’d define as revenue producing activities. Please note,

that revenue producing activities do not include such tasks as organizing your files, cleaning

the office, or playing solitaire. The administrative responsibilities should either be

outsourced or hire an office manager.

Focus on tasks that will create short sale opportunities such as

marketing to find or to sell houses in your sweet spot,

improving the effectiveness of your marketing,

improving the efficiency and response of the

marketing programs, managing money making

projects like marketing and BPOs, setting up

referral systems and apprentice groups to

bring in leads (typically for free), and creating

scalability in your business.

8) A lack of a coherent system to organize your business

A Business Management System (BMS) is essential

for establishing a business that you run, instead of a

business that runs you.

Each short sale case you work will involve plenty of

paper, and phone calls that seem to number in the

hundreds. All of this is manageable when you only

A Business Management

System (BMS) is essential

for establishing a business

that you run, instead of a

business that runs you.


45

have several cases, but when that number grows to 20, 50 or 80, eight hour days become 14

hour days and the weeks seem to never end.

I don’t know about you, but while I love what I do, there are many, many other things that I’d

rather spend my time doing. The point of building a real estate business for me was to create

a business that would allow me to design a lifestyle. Some people want toys, but for me I just

want time to spend with my family and to enjoy those activities that charge me up. Toys are

cool, too.

If you don’t have a system to effectively keep things organized and streamlined, you will get

jammed up, stressed out, and you’ll lose deals.

Many real estate investors use a combination

of Outlook and Excel spreadsheets –– and don’t

forget manilla file folders covered with yellow

sticky notes.

An effective systems needs to track case notes,

calendars, tasks, leads, prospects, buyers, sellers,

estimated rehab costs, contacts, marketing, deal evaluation, potential

exit strategies, bank contacts, account numbers, payoffs, title searches, document creation,

utility companies, and the closing process. Our business management system, Realeflow, does

all this and it’s web based. It can be accessed from anywhere in the world on your computer.

No need for sticky notes, manilla files, excel spreadsheets, outlook.

Check out www.realelfow.com.


46

9) A failure to implement an effective and consistent marketing strategy

This is the number one reason real estate investors fail. Their marketing is ineffective, so they

have no leads and little opportunity.

The short sale business is cyclical. The usual process for beginning

investors is to begin a marketing campaign, get deals, in the

pipeline and begin working those deals. What happens is that

the focus switches from getting deals to closing deals, and the

advertising becomes and after thought in the face of the struggle

to get deals done. Invariably, deals will close, but without more

deals being added to the pipeline, the new investor will begin the

process again.

Negotiating a short sale can take some time. For this reason it is

of paramount importance to keep a steady stream of new cases coming into your business to

avoid the feast and famine cycle that drives so many investors out of business.

Simply put, when we failed to make money in

the early years, it was because of a failure to

consistently market. When we have leads, we

get cases and we make money.

So the question is how do you find deals? Here’s a short list:

Real Estate Agent Referrals1.

Mortgage Broker Referrals2.

Title Company Referrals3.

Bankruptcy Attorney Referrals4.

NE 16 Terrace Case Study


Negotiating a short sale

can take some time.


47

Find a buyer’s agent who can go scour the MLS and network with other agents for you to 5.

find short sale opportunities

Go to the courthouse and extract the new foreclosure leads. Take the list of new 6.

foreclosure lawsuits and market to those people telling them you buy houses

Postcards marketing to the N.O.D. (notice of default) List 7.

Yellow Letter marketing to the N.O.D. (notice of default) list 8.

Direct Mail Marketing to the Chapter 7 discharge, dismissal and relief from stay list 9.

Create business opportunities by using Web 2.0 techniques10.

So that’s part of my list . . . please take each point into careful consideration and know that

if you make a mistake, it’s okay. You just don’t want to make too many. Get out and get your

hands dirty. Learn the business by doing it, then once you understand what needs to be done,

outsource the basic but essential tasks to someone else and free up your time to focus on those

areas of the business that need your attention to grow.

The Real Estate Primer & Referral Marketing

I have received emails from many investors who have credited the

original Short Sale Manifesto as the reason they either created

or turned around their real estate business. The ideas in that

e-book have changed the lives of thousands of investors. The

conversations and the emails were great, but as I heard from more

and more people in the real estate investing industry, it dawned on

me that we had completely overlooked a significant issue common

to everyone who buys and sells houses. Sometimes it’s easy to

forget the challenges of the past when faced with the challenges

Nassau Case Study



48

of the present, and this is exactly what happened to us. You see, in working hard to build our

investment business, and then our coaching business, we lost sight of a critical issue not only

important to the survival of our business, but the survival of investors everywhere.

That one issue, and overcoming it, makes the core of

this report and it will be the core of your business . . .

it has to be ––– it’s that important. After working one-on-

one with hundreds of investors over the past four years, I

have seen this single problem deleteriously affecting the

businesses of our students and associates time-and-time

again, regardless of experience.

What I hear from new investors: “I don’t have any deals in my pipeline to make a profit. How

do I get new deals into my pipeline and not kill myself with expensive direct mail marketing

campaigns? What other things can I do to find deals besides the same old direct mailers? How do

I find motivated sellers who want to work with me? How do I find the right marketing programs

to get sellers to flock to my phone and email? How do I get my first deal closed before I go

bankrupt?”

What I hear from experienced investors: “I don’t have enough leads and deals in my pipeline to

consistently pay my employees and to make a consistent profit month after month. I experience

these wild and drastic ups and downs in my business and I struggle to create consistency. It

seems like one month I love this business and the

next month I am doubting if I’ve made the right

decision. One month I have five deals that close

and I make 100k plus and I am flush with cash and

I feel like a king. The next month I don’t close any

Sometimes it’s easy to

forget the challenges

of the past when faced

with the challenges of

the present...


49

deals except for a small 8k wholesale deal and I am right back where I started. I want to be

in a position where I can cut back on my marketing expenses. I want to be able to shut down

my billboard campaigns and my expensive direct mail marketing –– BUT I need to create profit

checks each month with consistency. How do I do it?”

The rub is stability and consistent cash flow–– how do you achieve it?

I have coaching students all across the U.S. who have a jam packed pipeline of pre-foreclosure

and short sale leads AND THEY’VE SPENT ZERO MONEY ON MARKETING.

How did they do it you ask? It’s simple. They have solid sources in their local markets who

force feed them referrals to these properties. AND THE LEADS ARE FREE.

Below is a list of potential referral sources.

Attorneys:

Bankruptcy•

Divorce•

Real estate•

General Practice•

We will occasionally get referrals from attorneys. Attorneys can and do accept referral fees. The

strongest potential lies with bankruptcy and divorce attorneys. Attorneys who focus on divorce

are able to refer short sales and preforeclosures as a side part of their regular law practice.

They come across clients who are going through a divorce and neither spouse wants to pay the

mortgage so the property goes into foreclosure. Neither spouse wants to take the responsibility

for staying in the house and paying the mortgage and the lender has no choice but to start the

They have solid sources in

their local markets who force

feed them referrals to these

properties. AND THE LEADS

ARE FREE.


50

foreclosure process. Same with bankruptcy lawyers. A client

who is filing BK has many financial issues to work though.

They most likely have a huge amount of credit card debt

and other outstanding bills. A good bankruptcy lawyer knows

that if a client files BK the client should still sell the property

to eliminate the foreclosure from their credit report once

the BK has been discharged. Referrals are infrequent from

this group because they are not really in the residential real

estate game unless as a hobby. Most real estate attorneys

work on commercial real estate. There just aren’t many

attorneys who incorporate residential real estate into their

law practice.

Mortgage Brokers

Since so many mortgage brokers have put people into houses that they couldn’t afford, they

often feel some sense of obligation to help distressed homeowners who were once their clients.

The first common recourse is to an attempt to refinance the home, but with so many homeowners

over-leveraged, and with falling house, refinancing is usually impossible. Many mortgage brokers

use the phrase “65 and alive.” This indicates that if a

client has 35% equity in the property and the house

has 65% loan to value or less then the client can

usually refinance because the bank has little

risk. The mortgage broker can bring in leads. Consider

structuring a promotion with the mortgage

broker where the two of you promote each

other. For example, the mortgage broker

Prairie Case Study



51

can create a direct mailing campaign to generate possible leads for refinancing; however, the

broker can include in his marketing that for those people precluded from refinancing there is

another option –– you. Conversely, the you as the investor can do the same thing, but with a

twist. You can market the option of either

selling the house or trying to refinance.

Ninety percent of attempts to refinance

end in failure, so the lead will come back to

the investor. Make sure that the mortgage

broker pays for the direct mail campaign.

When a deal closes, pay the mortgage

broker $200 to $2,000.

Title Companies

Title Companies work with mortgage brokers who are attempting to refinance a person facing

foreclosure. If the title company is aware of the work that you do, and you send them business,

they will send you leads for those refinance deals that failed. Title companies are also staffed

with people who are in the real estate business. They hear things going on throughout the area

and the industry. If they are aware that you want those leads and will also pay referral fees they

will send you these leads when they come across them.

Construction Crews

The very nature of their profession creates and environment that allows contractors to fall

behind on payments. After all, they can suffer the same feast and famine cycle that afflicts

real estate investing. If you are working with a contractor, see if that person can act as a “bird


52

dog” for leads with other contractors. Contractors, builders and odd jobbers are surrounded

by people who are in the real estate business. They come across other people who may need

your help or know someone who might. Again make sure to advertise your referral fee of

$200-–$2,000 and continue to create relationships with these people and they will bring you

opportunities.

Friends and Family

Keep your GRIP (Gift Referral Incentive Program) flyer and business card handy. You don’t need

to come across like an insurance salesperson, but a quick elevator speech with the GRIP Flyer

or card for them to hold onto is always a good idea.

Other investors

When most of the real estate investing community was into

rehab, we were focusing on short sales. We quickly realized

that many investors didn’t know what to do with properties

that were over-leveraged and heading to foreclosure. We got the word out to these investors

that we wanted those deals and would pay them a fee if it closed –– usually $1000 to $2000. This

was a great way for us to meet other investors, learn about their business, and pick up several

additional leads each month.

Sellers

When a deal closes, and the goodwill of the homeowner is at a peak, always ask for referrals

and testimonials. Bird of a feather flock together! People in foreclosure know others who are in

foreclosure. It happens all the time. Just ask and see who they know.

...make sure to advertise

your referral fee of $200-

–$2,000 and continue to

create relationships...


53

Working with Real Estate Agents

Let me ask a few questions:

As an investor what group of people were 1.

you taught to completely avoid at all

costs?

As an investor what group of people were 2.

you taught killed more deals than they closed?

As an investor what group of people did you just 3.

laugh at and think, “Why do they just work for a small

commission when they could be making the big profit

checks?”

What group of people represent 75% of all real estate 4.

transactions across the US?

What group of people have one of the strongest lobbyists 5.

in the country?

What group of people are required to go through hours and 6.

hours of training just to get their license?

What group of people have to continue to complete 7.

Continuing Education (CE) each and year to keep their

licenses?

Do you have an answer? Realtors.

We have developed through a great deal or trial and error


54

a marketing program that we know will have an impact on your business the way it had an

impact on ours ––– and take you to new heights.

If you still don’t know what I am referring to, keep reading. Using this approach you’ll get free

leads with a built-in Realtor that brings you deals and also helps to sell them –– you just have

to make the offer, do the BPO, negotiate the short sale and manage the process. The best part,

they are qualified and they are consistent . . . oh . . . and did I mention cheap?

Did I say cheap? I MEANT FREE!

The Realtor Renaissance

The residential real estate profession has for many years been a house divided. In one camp are

those individuals who have attended formalized instruction to become a licensed real estate

agent and earned a Realtor’s designation, and in so doing have

committed themselves to being part of a regulated industry.

In the other camp is the investor, whose real estate training

is experiential in nature and whose actions represent both

the best and worst practices in the capitalist paradigm.

At times, both groups have regarded the other with suspicion

and disdain. For instance, the standard opinion investors have

of real estate agents and Realtors is that they understand

little about real estate beyond how to list and market a

property on the MLS. Conversely, Realtors have long regarded investors not only as competition,

but also as a general nuisance and source of endless real estate scams and deception.

Lamotte Case Study


Did I say cheap? I MEANT FREE!


55

In today’s market, one filled with depreciating values and stagnation, both the real estate

investor and the Realtor have much to gain by working together as a team instead as rivals.

Both groups represent a blend of skills, experience and understanding that together can solve

the riddle of a market that is forcing record numbers of

members in both groups out of business. By combining

what both do best – the Realtor’s knowledge, marketing

skill and access to the MLS with the investor’s innovation

and problem solving ability – an opportunity exists for

both groups to enhance their businesses while making a

positive affect on the community at large.

The objective of the SREC Realtor Renaissance is to

provide a template for how both groups can successfully

work together on short sale opportunities. This report is

written from the perspective of the investor, although

we have many coaching participants who are themselves

real estate agents and Realtors. The effort to compile

what we’ve learned about working with Realtors is

important because of the myriad complexities that can

arise in any potential case. In approaching Realtors,

many of whom only have cursory knowledge about short

sales, it is important that the investor is well armed

with the information that a Realtor will need to make

an informed decision.

Both groups represent a

blend of skills, experience

and understanding that

together can solve the

riddle of a market...


56

Why Work with Realtors?

Working with Realtors benefits the investor in two important ways: 1) as a source of leads to

problem properties, including short sales; and 2) as a source for buyers. While approaching

Realtors requires more effort for the investor than implementing a direct mail campaign,

the payoff can be huge and much less expensive. Lenders are now asking homeowners facing

foreclosure to list the property with an agent. As a result, three out of four properties in default

are under the control of a Realtor. Investors can continue to cold call, door knock, and send

direct mailing pieces to gain access to a small portion of the 25 percent of properties that are

not listed; however, it makes sense to go after the remaining 75 percent. Likewise, by building

a network of relationships with Realtors, the investor is also creating the possibility that his

or her pipeline of deals may be filled by enthusiastic individuals who will pursue short sale

opportunities and work as a team.

In the past, real estate agents were reluctant to pursue

short sales for several reasons. First, they found

them to be a waste of effort and time when an

acceptable discount could not be achieved.

Second, estimating how long it would take

the bank to approve an offer or what

commission the bank would pay often led

to unhappy clients and colleagues. Third,

agents are naturally hesitant to submit

a short sale hardship package or make

an offer when a buyer has not yet been

secured and/or a buyer was secured but

the offer not approved.


57

Since the majority of Realtors have received little training, they tend to make the following

mistakes:

Realtors will approach a lender and send the short sale hardship package before a buyer •

is secured

Realtor may waste time waiting for lender specific documents, otherwise known as a •

short sale package from the lender

Realtor will send the purchase and sales agreement to the lender without including a •

complete short sale package. Often what is missing is the estimated HUD-1

settlement statement.

Realtor does not understand the importance of the interior BPO•

Realtor is not present for the BPO appointment with the BPO agent•

Realtor expects the process to be much shorter than is realistic•

Realtors often list property above market value to cover full payoff•

What investors offer to Realtors who are interested in collaborating on short sales is the

following:

Realtors can quickly sell properties that have no equity•

Realtors will find new opportunity in a growing market that has little competition•

Realtors can earn full commissions on sales that would have been lost without a short •

sale

Realtors can outsource the time consuming task of negotiating the short sale offer•

Realtors now have a way to help people in financial difficulty who otherwise could not •

be helped

Realtors can easily demonstrate the benefits to sellers in need•

Realtors can receive strong testimonials and referrals from people who could not be •

helped by anyone else.


58

If investors fail to get involved with Realtors early in this housing crisis, brokers will begin

establishing their own in-house short sale service. The good news for the investor is that until

the past few months, the majority of real estate agents did not know what a short sale was

or how it could be used to help their clients. In the flurry of articles and Realtor training

sessions now being offered in every city, there is still a great deal of misunderstanding about

the foreclosure process and short sales. The savvy investor has an opportunity to establish

relationships today that will mutually benefit both parties in years to come.

Shorts Sales and the FICO Score

It’s not hard to find chatter on the blogs concerning how a short sale or a foreclosure affects a

FICO score. Frankly, even if it were the same, the differences between a deficiency judgment

and a negotiated note are considerable: There’s no gray area here.

As a homebuyer you need to be sure to explain the

benefits to the homeowner if you are able to buy their

house, as well as the negatives if the house should be

sold at auction. In the past, investors have claimed that

a foreclosure would greatly harm one’s credit while a

short sale would allow the homeowner to move forward

to enjoy a faster recovery. What has been implied in this

statement is that the overall damage to one’s credit in

terms of points would be

greater in a foreclosure than a short sale, when in fact there may be little credit preservation

advantage of a short sale over a foreclosure.


59

As a result, many homeowners have been

advised by real estate professionals who

saw little benefit in a short sale to allow

the house to go into foreclosure. This was

wrong. Make no mistake, there are definite

advantages to a short sale beyond allowing

the homeowner move on emotionally from

the foreclosure, but it has little to do with

how many points a short sale will drop a

FICO versus a foreclosure. Naturally, the best outcome for the homeowner is to sell the house

for what they owe on the balance of their mortgage, if not more. For real estate agents, this is

what they hope to do for each of their clients. Unfortunately, in most communities, houses are

over valued and markets will no longer support asking prices. Likewise, as of this writing, only

three communities in the U.S. currently having rising appreciation, strong sales and few if any

foreclosures. Only three! If the homeowner is unable to structure a workout or a forbearance

agreement with the foreclosing lender, then a short sale is the next best option.

The benefits are twofold.

First, be aware that Fannie Mae recently established a 2-year elapsed period for reestablishing

credit for homeowners who sell their homes through a short sale. Two years may seem like a

long time to wait before being able to get a new loan, but compare this to what happens if

the homeowner goes through the foreclosure process. According to the Fannie Mae guidelines,

effective May 31, 2008, a homeowner who has filed a foreclosure will be “ineligible” for a loan

for five years.


60

Did you see that? FIVE YEARS!

Two years or five years…? That’s something definitely worth considering.

(See https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf)

The other benefit involves something called a deficiency

judgment. When a house is sold at auction, the chances

of the foreclosing lender filing a deficiency judgment

increases dramatically. As investors, we’re in the

business of buying properties, but often the negotiation

process used to achieve a short sale with the bank gives

the homeowner their only shot at avoiding a deficiency

judgment. A quick review… As many of you know, a deficiency judgment is obtained when a

property is foreclosed and sold (usually at the courthouse by the clerk of the court) to the

highest bidder. In most states a deficiency judgment can be obtained for the difference between

the high bid and the higher foreclosure judgment amount. Usually the court determines which

value is higher, the high bid or the appraised value of the property on the date of the public

sale. The higher of the two is taken to determine the difference from the judgment amount,

and this difference is the deficiency judgment (what was owed subtracted by what

the final sale price). Deficiency judgments are just that: judgments. They are an

albatross around the neck of the debtor and can only be removed by paying

it off or by bankruptcy. Furthermore, deficiency judgments usually earn

interest until paid. In Florida right now that rate is 11% a year

––better than the bank by far! If a homeowner is saddled

with a deficiency judgment, guess what? They won’t

be able to buy anything using credit. New house?

Forget it. New car? Forget it. While in the past

Did you see that? FIVE

YEARS! Two years or

five years…? That’s

something definitely

worth considering.


61

we have seen few deficiency judgments filed against

foreclosing homeowners, today that landscaped has

changed. We once were under the impression that

banks seldom enforce deficiency judgments, which is

true ––they sell the judgments for 5 to 10 cents on the dollar. Here’s the deal that the bank

has to consider . . .for a $100,000 deficiency judgment they invest $500 in attorney fees and

get $10,000 in return just for pushing paper. What do you think they are going to do? For those

unsecured promissory notes you negotiate on some of your deals, the same is true. The banks

do the same thing –– getting 5 cents on the dollar. Another point of consider, if the house goes

into foreclosure and is taken back by the bank to be listed as an REO, the meter keeps running

on the costs incurred by the bank until the REO department sells the house. This can make the

deficiency huge. Again, as investors we offer homeowners a way out. Whatever effect a short

sale has versus a foreclosure on one’s FICO score pales in comparison to the long term harm of

a deficiency judgment and the inability to be approved for a loan for years to come.

The Short Sale Revolution

Remember when I said I am always suspicious when I

read something that seems a bit over the top? Then,

please forgive my use of the word “revolution” to

describe what’s happening in the housing market, and

allow me to have a little fun.

In a certain sense, using “revolution” to describe what is taking place in the housing market may

be not be so extreme. The word originates from the Latin revolutio, meaning a “turn around.”

While we are not storming the Bastille, overthrowing the Russian Czar, or declaring independence

from the British, we are all included in the reordering of priorities and a restructuring of the

Again, as investors we offer

homeowners a way out.


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way we’ve lived our lives in the U.S. The housing market is a definite part of this trend.

We need to turn some things around.

Concerning revolution, Che Guevara stated that, “The revolution is not an apple that falls when

it is ripe, you have to make it fall.”

When discussing socio-political revolutions like what we’ve seen in the past, Guevara may be

right; however, when it comes to what’s taking place in the U.S. housing

market today, the apples are falling.

Will you be there to catch them, or will you give way to other

who are willing to invest the time to learn how?

I wrote this second version of The

Short Sale Manifesto to provide

for more of a meat and potatoes

experiences for those new and experienced

investors. Unfortunately, there is just too

much information to cover, too many topics and

too many things to share in a report this size. For a

broader perspective of the short sale business, please

read the original manifesto, which you can find at www.

shortsalemanifesto.com . By reading both you will have a macro and micro perspective that I

believe accurately represents the short sale business.


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I’ve also never had so much fun, made so much money, and before entering the business, never

considered that I’d be able to impact so many lives in my community and beyond.

You can do the same.

Here’s to your massive short sales success,

Josh Cantwelland Strategic Real Esate Coaching Teamwww.strategicrealestatecoach.comwww.freeshortsalestuff.comwww.shortsalemanifesto.com

I am one of Jeff’s coaching students under the Strategic Real Estate Coaching (SREC) program, and am writing this letter to commend him for his commitment to excellence. I recently met with some unexpected complications with one of my closing. At a loss for what to do, I called Ted Cowan, who contacted Jeff Watson immediately. Jeff, who is a full-time lawyer, was scheduled to appear in court that day, but he took the time to speak with me and talk through the situation. He understood the problem immediately, and set out to rectify it as fast as possible. Jeff spoke with the title company on my behalf to clear up the confusion regarding the closing, and stayed on the phone with them well past office hours. Because he is located on the East Coast, he spent the majority of his Friday evening mitigating the problems with the West Coast title company. He stayed on top of every aspect of the the issue even with his own work pressing, and kept me updated on the progress of the situation throughout the entire weekend. Jeff Helped to resolve all the issues and we were able to close the short sale transactions.

Jeff was easy to work with, and his infectious positive attitude made the entire process even more enjoyable. His focus and expertise have exceeded my expectations, and he was the epitome of professionalism. Jeff always stood true to his word, and kept himself open for easy communication. I am glad that I have had this opportunity to work with Jeff Watson, and look forward to doing so in the future. I would highly recommend Jeff Watson, Ted Cowan, and the rest of the SREC team to anyone who wants to be successful in the short sale business. The consummate professionals at SREC truly care for their students, and it makes me feel more confident in my business with the supportive SREC team on my side. Thank you again, Jeff, for your commitment to helping your coaching students to succeed.

Susanna Mardjuki

Documents

Short Sale Manifesto v 2