EP 450 – Targeting Short Sales For Note Deals

Short sales have been a widely held topic in the real estate arena. Why? It’s because it’s a win-win deal for both the seller and the buyer – a short sale can get a property holder out from bad debt while buyers see the price of a short-sale home worth the hassle. Scott discusses how note investors can target short sales as warm leads for potential opportunities for deals and larger lists of non-performing notes. As he outlines the things you can do with short sales, learn the three reasons why investing in short sale deals is like hitting the home run and the things to keep in mind before you jump right in.

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Targeting Short Sales For Note Deals

This episode is going to have a lot of impact on a lot of real estate investors out there if they take to heart what I end up discussing. Our topic is about short papering short sales. A lot of people are like, “Short sales, that’s an ugly two-word phrase. There’s nothing about short sales. How am I going to invest in a short sale?” As note investors, one of the great things is you have to realize that we’re buying distressed debt and distressed debt comes into play when we’re dealing with short sales. Short sales are a borrower who is upside down in their property. They are usually behind and they negotiated with the bank to allow them to sell the property or to list the property with an agent and try to get it sold for cash at an amount below the total payoff. The only person taking a short in this is the borrower. The borrower is owed something, but the lender has to approve the reduced pay off from them.

Why Shorts Sales Deals Are Like Home Runs

What’s great about this is we cut our teeth on short sales years ago. Back in 2007 to 2010, we’re doing short sales in a variety of different states across the country. It’s a different ballgame on what it is now compared to what it was a decade ago. From talking with agents specifically, it’s starting to see an increasing amount of realtors dealing with short sales or short sale agents that are starting to specialize in that aspect. One of the great things that you have to realize is there are some bonuses to looking at short sales right off the bat versus dealing strictly with the bank’s list. When we get a listing from the bank, you don’t know initially if it’s occupied. It might say it is, but you have still got to double check it. You don’t know which way the borrower is going to go. Do they want to strive to stay in the house? You can tell some of the stuff by the pride of ownership when you’re driving by or if they’ve tried to make payments in the backend of the last several months if you can see the servicing notes.

If you see a property listed for a short sale, it’s like a home run in a couple of ways. It’s dependent on a couple of things. First and foremost, I don’t want you to run out to your local agent and say, “Send me all your short sale listings.” That’s not at all what we want you to do. That’s not going to be an effective use of your time or their time. This episode is about outlining a little bit of the things you can do to help specialize this. In a short sale listing, one thing comes immediately to point. The borrower is ready to get out of there. They’re ready to leave the house. They’re ready to walk away without getting any money in their pocket. That’s the thing about a short sale. A borrower walks with nothing. Oftentimes, you’ll have short sale deals where there’s a first and a second. Usually, the second can be negotiated down for 5% of what’s owed or less depending on what the house is worth in the market on the first. In some cases, market values have increased quite a bit so the first is fully paid off and the second is fully paid off. That’s something to keep in mind.

We’ve seen a lot of short sales in hot markets. We don’t see that much here in Austin, Texas but we are starting to see them pop up in other places like Houston, Dallas and some other areas where the market has started to go south and started to get soft. The beauty of it is the borrower ready to get out of the door. The second thing is it’s listed. It means you can go see what’s going on inside of the property without trying to peek in the window. You can get in with a realtor, walk the property and see what condition it’s in. The third thing is you already have a realtor involved. You’ve already got a realtor who knows the homeowner as a contact person. The key to investing in short sales or key about looking at notes that are on a short sale list of property is they don’t usually sell quickly. This is no offense. I will have some realtors that are in short sales that will argue with me like, “We can just negotiate.” I agree with that. Some are great short sale negotiating agents that are phenomenal. They get things done in 30 to 60 days and some will drag it out. This is why you’ve got to be careful when you get a list of notes sent to you and you see a property listed for a short sale.

Things To Keep In Mind

You want to make sure that this realtor is not the borrower’s best friend. We used to drag short sales out when we needed to. One is drag a short sale out for over four years just outside of Salt Lake City because it is a single mom with four kids. It’s an important thing. When you get a listing or you see one of the properties on your list is listed in short sale, look at the days on the market. You want to see what is the listed price compared to the value of the price. Hopefully, they’re not listing it 100% of the value that’s why it may be dragging up. You want to see if it’s hopefully listed at $0.80 to $0.90 on the dollar of value so it entices buyers to put bids in and stay involved to do it. Hopefully, we’ll end up with a discount on the property. On the full value, it’s hard to get people that will hang around for a while if you’re selling close to full value, especially with offering comfort. Those are a couple of things to keep in mind as well too.

You’re not going to go out and chase short sales as far as contacting every short sale listing out there. There’s an important factor when you’re doing this. It’s not the agent, it’s who the bank is. Who is the bank out there that is going to sell you that note at a discount? When I first got started in the note business and showing some good results, we had a big short sale education company that was teaching short sales on the East Coast and the West Coast. They were doing these big conferences like, “Come on out and we’ll have you talk about the note sale. You can negotiate all the short sales with the banks, buy the notes, we can buy that note at a discount and then approve the short sale at a big discount. You make the difference between the two.” I was like, “It doesn’t always work that way.” This is only going to work if the bank is willing to sell you the note. This eliminates immediately Bank of Americas, Chases, Citibanks and Wells Fargos for the most part. They’re not going to sell you a one-off note on a property. This will fall with those regional and smaller banks that are willing to sell and play ball.

Who knows what they’ll sell the note at? Who knows if the short sale department is negotiating or talking with a special assets department? In some cases, they are in the same department. In other cases, they aren’t even in the same building or the same state. That’s what all comes down to. This is why if you do know a short sale agent or an agent representing short sales, you’re going to want to reach out to him and say, “Would you mind sending me the addresses and the bank that you show as being on as the lender of that short sale?” They send you Bank of America or Chase. They’re sending you bigger banks. You’re not going to deal with those. You’re not going to buy the notes on those. It’s not going to happen. Keep moving. You can’t pull in 50 short sale deals together and say, “I want to buy all these 50.” It’s not going to happen. They’ve got too many of these things wiped out. Let’s keep that straight through your head. You’re not going to buy a note from Bank of America, Chase or Citibank. If it’s 1 or 500 of them, you’re not going to go out and buy the note or some short sales across the country. It’s not going to happen.

I’ve been there and done that. I’ve got the t-shirt and the scars to prove it. What you are going to do is the regional banks. If you’re a student of ours and you are already calling banks and you find a bank that’s willing to sell, that’s great. As you’re getting your list in or you see listings in that institution, that would be a great hot lead into contacting that asset manager and see about buying the note. Let me give you an example of something. We had bought a lot of the years from Wells Fargo Financial when they were in business. They’re no longer in business. They’re a subset of Wells Fargo. They’re the little corner subprime lender doing mortgages and things like that. We were giving their lists in and I was buying three or four assets a month from Wells Fargo Financial on some lower value stuff outside of Texas. Lo and behold, my friend, who was a short sale agent, pulled up a list of short sales and she did that. She pulled up the list of short sales that said, “Third party approval was tagged in the MLS. It’s a short sale.” She was looking at the property listings. There’s usually a button called the realist report that is on most MLS where if you click the button, it will show who the last lender is on public records and who the bank is on that deal. It pulled up and this one was Wells Fargo Financial. I’m like, “Maybe we’ll make this work.”

It was on a property here in Austin, which was even crazier because we don’t see a lot of stuff here. We’re excited about this. It had been on the MLS for closer to nine months. My agent friend called the listing agent and said, “Can you tell me about this listing?” The listing agent said, “We already have a cash buyer in place in short sales. He’s dragging it out there because it’s in probate. I believe it’s about to be finished with the probate aspect of it because the borrower had passed away without a will.” It’s a nice property on a corner lot. It has a three-bay car garage, three bedrooms, two baths. It’s about 1,600 square foot home. We’re like, “Let’s go take a look at it.”

We jumped in the truck, we ran over and took a look at it, opened the lockbox, got the key, walked in and it was a decent property. It has a three-bay car garage, it had some nice appliances. It’s a little older house and needed some upgrades but still had new appliances throughout. Somebody did some updates. Unfortunately, there was a little chihuahua running around in the house that was the borrower’s dog. Somebody is coming in feeding the dog on a regular basis and cleaning up after they’d left the big bowl of food and a big bowl of water. It wasn’t a family member. It was the agent or somebody else coming by.

We walked around and we were like, “This is not a bad house.” It has a couple of cracked windows and beautiful red brick. It needs some landscaping. The three-bay car garage in one of the bays was a 2001 white Chevrolet Suburban. The keys were in the ignition. It was unlocked. I went and checked it walking through and like, “The borrower is dead. Nobody is going to get mad at me for doing that.” The second bay in the garage was filled full of antique furniture from the floor all the way to the ceiling and some display cases as well. The third was boxes of stuff. It wasn’t a hoarder. It was all organized. When you’re walking around this house, there’s still the bed. There’s still furniture and clothes in the closets. There’s a toothbrush sitting in the cup on the sink in the bathroom. The kitchen was not in disarray, but you could tell somebody hadn’t got it cleaned up for the most part. It wasn’t bad in any form or fashion, but you can see somebody ate or left in a hurry here or didn’t make it back home, unfortunately.

We come away. The numbers on the mortgages were the first lien with Wells Fargo Financial back in the day. There’s $220,000 unpaid principal balance and it also had a couple of years of back taxes on it. The value of the house was give or take around $160,000 maybe. It depends on the work. They’re upside down $50,000 to $60,000. I don’t remember exactly how many months they were behind, but we know it had been listed for several months. We assumed it was at least a year behind. My agent had reached out to the listing agent, “What cash offers do you have? Do you need a backup offering?” The agent said, “We’ve got a strong cash offering in the high $150s.” We’re looking for a 10% discount off of value or right about value depending on what your comps came in and rehab. Having a three-bay car garage was a little different with only one in the neighborhood and big corner lot too. What did I do next? I’ve got to make sure I can buy this note before I do anything else. I called my asset manager. At the time it was Steve at Wells Fargo Financial from California. I was talking to Steve and I was like, “Steve, I see you’ve got this house. I bet you see all the note in this area.”

There are also two others with Wells Fargo Financial. They were pending short sales too that we found from doing it. I said, “I see these three. Would you be interested in selling the note on me? He’s off your books. I see they’d been on default over a year. They’re short sales. Especially this one is in probate. Who knows what’s going to come out of probate?” He was like, “Yeah, I’d be interested in looking at a bid and potentially accepting offerings. It depends on what the numbers look like.” I was like, “I want to make sure we run some numbers and get back to you.” He was like, “No problem.” This is the conversation. We’d already built rapport and already closing some assets from a couple of deals. It’s lower valued assets. This was a nice asset compared to some of the other stuff that I was buying. I consulted my realtor. I called Steve back up and I said, “Would you accept $50,000 for this note?” He was like, “It’s $0.25 on the dollar of UPB.” I was like, “It’s a short sale.” It also needs a lot of work. It looks like somebody let the dog run wild in the house. I took pictures of the dog when I was there. I took some pictures and provided Steve as well. He was like, “Let me think about it and get back to you.”

A couple of days later, I picked up the phone and called Steve because I hadn’t heard from him in a couple of days. He was like, “The lowest I could go on this, Scott, is $75,000.” I was like, “We can make that work.” I hung up the phone before I tried to do a dance. I was excited and jacked up. I was like, “We can buy this on $75,000. There’s a high $150,000s or maybe low $160,000s cash offering.” I pulled my comps, I pulled the listing on the asset, I pulled the conservative values and pulling comps as we would with anything else and then went and talked to my money partner. Mr. Johnson here in town had funded some deals for me before. He was also an active investor. He’s a mentor of mine and made a lot of money in the note business earlier on RTC days. I said, “I’ve got a note deal here. It’s an unlisted property. It’s a short sale. I brought my agent along as well and my agent says they’ve got enough cash offer in the high $150,000s. Do you want to fund this deal and we’ll split the profits?” He was like, “Yeah, let me take a look at it. Can I go by the house?” He wanted to see the house. We jumped in our car and drove to the house. We drove down south and got in the property.

We walked around it and showed him everything. He was like, “I’m glad to fund this deal. We’ll split it.” I was like, “That’s totally fine by me. I have no problem splitting the profits.” He wanted the assignment and everything recorded in his entity. I was like, “That’s fine. No problem.” We had our own agreement anyway. There’s a separate agreement for that. That’s what we did. We called Steve up. We’ve got a loan sale agreement on it. We’ve got the collateral files on this stuff. Everything looked clean on it. We pulled the O&E and realized there’s only a couple of years of back taxes where we were like, “There’s no problem with that.” We funded the deal. We wired into Wells Fargo Financial. I picked up the phone and called the listing agent. I didn’t have my agent do it. I had the information. I left a message and said, “This is Scott Carson. I want to give you a phone call. I represent the bank that has bought the note on 9016 Collinfield Drive.” About 30 minutes later, I got this phone call back and she was frustrated.

This realtor has put a lot of work into it. It was heavily invested in the deal. I was like, “I’m under the understanding. You said you’ve got a pending offering on this thing based on what the MLS says. Is it a true offering? Can they close in 30 days?” She was like, “Yes. I don’t want to have to try to resubmit it.” I was like, “No, we’re good. If you can send me the contract from your buyer, that proof of funds and then also have the title company send me over an estimated HUD-1. That’s the closing document that outlines the costs and things like that, we can get this thing closed in 30 days.” She was like, “Are you kidding me?” I was like, “No, I’m 100% serious. Here’s a copy of the assignment. It hasn’t even been recorded at the county. We can’t proceed unless it is recorded, but I want to give you a phone call that you don’t flip out and cancel the listing and move on your way.” Some agents will do that. They’re tired and want to be sold or tired doing work after several months. They move on because it’s not worth their time to work on an asset like this that’s going to drag on.

Sure enough, we signed the mortgage and it got recorded. A week-and-a-half later, we agreed to the contract. It was a total 45 days from the time that we’ve funded that deal to the time that we closed on the sale of the property. We were around $150,000 and we ended the deal for $75,000. $150,000 is what we netted after some closing costs and some of the things like that and taking care of commissions. We were splitting roughly about $65,000 in profits on a $75,000 investment. It’s not a bad day in 45 days. I wish every deal were like that. That’s why it can be a nice payoff if the bank is willing to accept it. If you can get the bank to accept 20% less than what’s owed or 20% below market value, you can still make money with that, but you’ve got to be careful when you start chasing these. Sometimes the bank knows what the offering is and they’re willing to hold it out. Here in Texas, you’ve got to be careful a little bit. In different areas of the country, you might get a bigger spread than any of the other parts. You have to play the game. It’s a numbers game.

Warm Leads Into The Bank

Most of the time, I am given the details of the note or the details of the short sale listing. If they’re already through it, they may not sell the note. It’s a powerful tool. That short sale listing is a warm lead into the bank for their other list of assets. That’s what you want. If you can buy that note and then make some money on it, make the agents happy, make the buyers happy, make the seller happy, that’s great. Sandwich yourself and squeeze in. If you make 10% to 20% in 60 days, that’s nothing to cry about. You and your investors are all going to be happy with that aspect of things. The thing to keep in mind here is it’s all about getting the list of other things they have on their books. It’s all about getting the list of other assets they have, whether it’s locally or the rest of the country that you can work through. That’s what the golden goose is. You can use it in a short sale.

Short Sales: You got to be careful when you start chasing things.

I spent some time calling on four institutions that my short sale friend in Dallas is calling to track down some of these bankers on these assets so we can get the short sale bought. I have a couple of conversations. We’re reviewing some things. She’s supposed to be sending over a nondisclosure agreement to me. They’ll send me over the list of assets and the notes they’re looking to get rid of that hopefully includes one, two, three or four of these lists or one of these assets that my friend is working on as a listing agent. Because then I can help speed up the foreclosing timeframe and approvals and it works as well. That’s one thing. How do you find listing agents that are short sales agents? You find these by going to local real estate clubs. You find these by going to meetup groups, “Do you have an agent in your office that specializes in short sales?” Jump on the MLS and look for a third-party approval and acquire the short sale listing. A lot of the MLS will have that note tag keyword in their MLS because they had many of them a few years ago. It’s rebounded but that’s not saying you won’t find short sales in every market. You’ll probably find a short sale or two here. If it’s in your backyard, more power to you, but realize it can be tough depending on your market.

Here in Austin, I don’t expect the bank to approve short sales at a big discount because we’ve got such a hot market and low inventory. We have less than a few months of inventory on the MLS. You have to realize this is a numbers game just like anything else. You call in and say, “Can you send me your list? You now have an asset. I’m calling regarding the note on 123 Main Street or 123 Collinfield or 10701 Pecan Park or whatever it might be.” That gets a little bit more attention than, “Can you send me what you have on your books?” Another thing is you’re not going to call the loss mitigation department. You’re not going to call the short sale department in the bank and say, “I want to buy your notes.” It’s not going to work. It’s not going to happen because those guys and gals in the short sale negotiating department of the banks, they’re not happy campers. They probably did something wrong in their previous life or did something wrong previously with the bank to keep the job in the short sale department.

Why do I say that? It’s because they’re not happy folks. Usually, they’ve got a stack of files on their desk and they’re going from one file to the next one. They’re making sure everything is there before they put it down. With the help of some other technologies and things like Equator, a software service Bank of America developed. Some banks are much easier to operate. They basically log in to your system if you’re a short sale agent and upload the documents. What do you have to upload if you’re a realtor trying to get a short sale? You’ve got to send over the borrower’s financial. That means their tax returns, their pay stubs for the last couple of months, copies of the bank statements and a hardship letter. They’ve got to send over an authorization to release information. You’ve also got to send over a copy of the listing agreement with the realtor. You also have to send over an offering and a contract with a cash offering and approval for financing. This takes some time.

A lot of times your short sale agents will deal already with investors who will write up and sign off on a contract and send over proof of funds letter to get this ball rolling. Sometimes you’ll have agents that get approvals and their investors are like, “I don’t want to fund that deal. I sent you a contract to get the ball rolling.” I have to ask our friends in the short sale if they still see a lot of that after the banks have gotten onto that. It’s smart where it’s not an actual valid contract. I used to do that for several short sale agents. They would call me up, “Do you mind if I send you a contract you sign off and some of your proof of funds letter so I get the short sale ball rolling?” I’m like, “That’s completely fine.”

Check The Fees

That’s a couple of things to keep in mind too. If you’re negotiating or buying a note, you’re becoming the bank and there’s the first and the second. We approve about one short sale a month by one short pay off a month on what we’re doing here in our own portfolio. The borrowers are trying to sell the property. They owe more and we’re negotiating things down based on either they owe more or the values have dropped. One thing you should look at if you are the bank, you’re going to look and see the copy of the contract. Make sure you’re not increasing 8% in realtor fees. You have the right to squeeze the realtor fees down if you want to. I wouldn’t squeeze them down beyond 5% maybe 4%. It depends if there’s been a lot of time involved in the deal or not. A lot of times realtors will have short sale negotiators working on. They’ve got to get paid a fee. I’m fine if they’ve helped this thing along making sure that they get paid. Sometimes they include it as part of the commission where each of the buying and selling agents will give up 1% or a third of their commission to the negotiating company to do that. Realtors are cheap, unfortunately, you’ve got to make sure and check that or check what type of fees they’re adding onto which is usually line $1,300 or line $1,400 of the HUD. That’s the thing too. What are these expenses? What do they include? What don’t they include? You can go from there. You want to make sure too that the borrower is not getting anything as well.

In some cases, they’ll include the sale of the fridge or sell the furniture. That’s okay. I’m not worried about that. In the good words of my friend Rachel Gile who used to be the Head of the loss mitigator for EverHome Bank in Tampa. She was like, “If we’ve got to bleed, everybody has got to bleed.” Another short sale story and it includes my friend, Rachel Gile. We were negotiating a short sale at EverHome Bank and we got a foreclosure sale delayed on a property here in Austin because we called to negotiate it. We say, “We have a buyer. We needed to delay another month. Can we get this thing sold?” I realize that you didn’t want a short sale agent or short sale bank. They’re probably not having a great day because they’re constantly in a fight. People are back and forth for the values of closings and then the foreclosure department and stuff like that. I said, “How was your day?” Rachel started laughing and I said, “I mean it.” “We have eight of us here in the short sale department at EverHome Bank and we’re all facing foreclosure as well.” They’re out of Tampa. She goes, “I’ve got a mortgage with Wells Fargo in my condo. I’m upside down because the market dropped and I and everybody else here is facing foreclosure. Do you do short sale negotiations for people outside of Austin?” I was like, “Yeah.”

I hear her put the phone down and goes, “I’ve got a negotiator who’s willing to help all of us with our mortgages and our own short sale properties.” I was like, “I’m glad to help out.” We ended up getting all eight of those people. It was ten properties in total and some had a couple of investment properties. All of them had their primary residences and able to work out negotiations in short sales or loan modification for all of them with other lenders besides EverHome Bank. I was talking to Rachel and said, “I’d love to have you come out to an event to talk about the market, to talk about short sales, to talk about negotiation, things we should and shouldn’t do, things we should look for, and things we shouldn’t look for in the negotiation side of that aspect. I’d love to pay your way.” She was like, “What?” I was like, “We’d love to have you.” I’d pay out a Southwest flight and that’s what we did. We had an event going on here. It’ when I was working with my previous mentor, Bob Leonetti and Jayme Kahla and I said, “We’ve got a head negotiator for a short sale company from a major bank coming into the event. How’s that sound?” They were like, “That’s awesome.” We flew Rachel out, we put her up on a hotel. She came and spoke on stage. She was the hit of the event because people love the personality or spunk. She is maybe five feet tall. She’s a little dynamo on there. She had a good time visiting. She flew back out that Sunday night and we continued to talk on other assets.

Every time I had a loan from EverHome Bank, that’s who I called. I was able to get a few more. I negotiated down because of the fact that I had built a relationship with her. That’s what it comes down when you’re dealing especially good short sale agents. They end up building relationships with one or two people in the bank’s short sale department to say, “Here’s what I’m working on. Here’s what we’ve got going on. Let’s work to make this a good thing.” A good short sale agent is not made overnight. It takes years of working through stuff and months of working through some things. I know several like Melody Medley, Nicole Espinosa and Yvonne out of Houston. I know some people in different parts of the country, but here in Texas, those are the three that I would turn to. These are deals that are distressed. The bank is going to want them off their books.

The 3 Biggest Things Investors Are Struggling With

You already know that you’ve got a willing and able borrower willing to work with you to walk away so you don’t have to deal the whole aspect of trying to reach out to right party contact because you’ve got right party contact already. You’ve got values. You’ve got interior views of the properties. Those are the three biggest things that most investors struggle with. Can you hold the right borrower and know what they want to do? What did the inside of the property look like? Do they have a buyer too? Short sales are not going always to end up being a loan modification. That’s not going to end up happening. It can be a nice return made. Buy the note, approving the existing sales contract in place and making a difference between what you buy the note for and what the final closing is. It comes down to the main factors. It is one of the banks that’s willing to sell the notes that you’ve got a relationship with and are they willing to take a big enough discount where you can squeeze yourself between what you’re buying the note and the final sales price?

Short Sales: A good short sale agent is not made overnight. It takes years of working through stuff and months of working through some things.

That’s the thing you’ve got to keep in mind. It comes down to those major things right there. The thing is finding out what the sales price is, what’s the listing price, what’s the highest sales contract that the bank or the realtor has from an investor or buyer. If you’ve seen this listed for six months or nine months, if they had an original buyer on the hook, that buyer has probably moved on because they got tired of waiting especially if you look at the time of year that’s going on. A lot of people move two times a year, Christmas holidays or summer holidays. As we’re getting closer being to summer, now is a great time to be diving into that aspect and to be making those relationships. Go out and talk to your agents. If you are a realtor and you’ve got access to the MLS, look and see short sale listings and short sale agents. Look in your market, pick up the phone and talk to an agent. If you’ve got Keller Williams, JBGoodwin, Century 21, RE/MAX or eXp Realty. Talking to those departments or calling those offices and say, “Is there a realtor that handles your short sales in your office? I would love to visit with them.” When you start speaking about the fact that you buy notes and you talk a little bit about this stuff for them, they’re going to get excited about it. What you have to do is set expectations.

There’s no guarantee I can buy these notes. We do buy them. It’s a matter of seeing where the bank is at and if they’re willing to sell this one off or use it to sell other ones. It may lead to more listings for that agent. It may lead to potentially more short sales for that agent, which is a win-win. Now you’ve got a partner working with you. If there are more distressed assets in the neck of the woods, what are realtors going to do? A lot of realtors go out and knock on doors to get short sale lists like, “I see you’re in trouble. Let me help you sell this house. You’re staying in the house while we’re selling it versus you can sock away, save a little bit of money. We’ll get this thing sold and go from there.” I am a fan of short sales. It’s one of the ten different exit strategies we have. That’s a little different mindset about going out and approaching the agents that have that available. Some people are like, “Scott, that’s great, but how do I raise the capital for it?”

It’s the same thing. You bring on your money partner, you go to your local real estate club and you have your investor do the numbers with you. Work through the due diligence. You’re both working through this so it’s not a security. You’re working through with pulling values or seeing exit strategies and you’re talking. That’s a great solid thing. In some cases, some people will do short mezzanine financing. Some people will want a flat interest rate and some will want to do a split. It’s all with what you can negotiate with your borrowers. You may want to look at creating a fund that focuses on this. The thing you’ve got to be careful about with this though and create a fund is you want to have that money allocated and working through on a regular basis. Short sales are not going to be the same thing as buying a note or rehabbing the borrower and get them to stay in the property. I’m not saying you can’t do that by buying notes and say, “Would you like to do a loan modification?” You could do that, but if it’s already listed for sale with a pending contract, you can’t go back and say, “We’re going to cancel the contract because I’m going to stay in the property now.” It doesn’t work that way. That’s a way to burn a bridge with the realtor fast and you don’t want to do that.

We had an amazing group of students and spent a great couple of days on one of our Fast Track Training. I look forward to seeing what these guys and gals are going to be doing in the next few months and in the next years. They are rocketing things along. I have to give a big shout out to everybody out there who are posting comments on Facebook, posting comments on YouTube, leaving reviews on iTunes or Stitcher or any of the other platforms out there. Thank you so much for reading this. Thank you for sharing. You keep sharing that you enjoy the stuff, we’ll keep cranking out content for you. We’ll keep providing as best quality content as we can and trying to stay on top of what we’re doing here in the note business space or the real estate space. I’m excited because we’ve got some great interviews from some of the speakers for the Note CAMP Commercial that is coming up in July. I know we’re getting an early start on that. We were excited about that. We think there’s going to be a lot of positive impacts.

Short sales and commercial happen too. It’s one thing to consider in mind as well too. Sometimes short sales happen a little bit more often in commercial, especially if it’s in vacant properties. It’s harder to pull an NOI and capital rate when you’ve got a vacant property with no renters in place. It’s harder to get that and sometimes the banks are willing to negotiate on that, but sometimes they wouldn’t let you have a joint venture or carry the financing to higher valued assets. They can move that note off the bad side of the books to the good side of the books and recast it to you or your team as a new and performing note versus nonperforming notes. Short sales are making a comeback. Several agents that I’ve talked to are negotiating on over 150 listings. A lot of that is the bigger banks, but that’s okay. If they’re getting 150 short sales and then you’ve got 10% of those that you can work here and buy, that’s fifteen deals. If you’re making $20,000 on a short sale note deal like that for fifteen deals, that’s enough. That’s a good ROI.

Go And Talk To Your Real Estate Clubs

Here are some things out there that you may want to talk about, going and talking at your local real estate clubs. Most real estate investment clubs have needs and wants as part of their networking. In the new month coming up, get up and say, “I’m looking for short sale agents. I’m looking for realtors here in a local market or anybody has realtors in a nearby market.” You might make metroplex. “I want to talk to short sale agents. I’ve got some things that we’re working on.” You will also reach out to title companies in the area. Who is your biggest closer when it comes to shorts sale? Oftentimes, there will be agents that will dabble in short sales but they’re not a big fan. Most agents that I know when they get a short sale, a lot of times these agents will refer that listing off to a person or an expert in their office or in the area that is a short sale expert. They’ll take their third of the commission referral or quarter percentage of the total commissions as a way to still make some money but without having a headache when it comes to having the mind-numbing thing of dealing with banks and short sales.

Which Bank To Target

Some are great and some are streamlined. The smaller the bank, the more you’re going to see the short sale being handled by the bank. I’ve seen this happen quite a bit with smaller banks. One-off branches where the actual person made the loan which was responsible for the loan and they’re the one handling the short sale. You’re not going to have good luck with those, for the most part. I would be targeting banks that have at least five branches more, but it doesn’t hurt to pick up the phone and give them a phone call. If you do get a list of short sales, call the small banks and talk with them. Cut your teeth on those conversations and don’t say, “We’re not going to sell a note on a one-off branch,” as the rule and the ten commandments of short sales or note buying. Realize it’s a small bank. Realize, the bigger the regional banks, the more branches they have, the more states they’re in, they’re going to have a bigger pattern of coverage and you’re going to see short sales. You’re going to see defaulted things.

Short sales can happen for a variety of reasons. It’s not that they’re behind. It could also be that the values have dropped. It could also be the market. If something is going on in a nearby market. It could also be a major employer is leaving the area or market values have dropped for foreclosures. There are a whole variety of different things that can cause a short sale. There’s a place called Del Valle, South side of Austin. It was heavily ravaged in short sales when the market turned south. Part of it was people getting into it that shouldn’t have gotten into it with 100% financing or $500 down. It was also a heavily defaulted area where when the tax values came out, their tax size is a lot higher because it was based on the full structure and the lot and not just the lot beforehand. That affected a lot of things negatively there as well.

That’s the thing to keep in mind. Short sales are your friend. I like to joke about that. We’re the fastest short sale negotiation lender in the country because the fact is if I’ve got an asset, all I’ve got to do is look at that final estimated HUD-1 bottom line and look at what I paid for my expenses along the way. As long as my expenses and cost of note are less than what the final bottom line is, I’m making money. It doesn’t mean I won’t push back. Sometimes I’ll ask the realtors to reduce it from 6% to 5% commission. I’ll ask them and say, “No, you can’t do this. You’ve got to adjust this.” If there’s a second mortgage involved on the property too, I’m not only going to give them $1,500 usually because that’s what it would cost for me to foreclose and wipe them out completely.

Short Sales: Short sales are something you should not cringe away from. They are opportunities to find other deals.

You’ll often have some second lien holders that want to play hard like, “We want $50,000 or 50%.” I’m like, “No, it’s not going to happen. Here’s a letter and you’re going to get $1,5000 or 5%.” If I’m going to get fully paid off because the value of the house fully encumbers the first, at least I can get what they can get. You’ve also got to be careful about that because if that’s the case and the value is there and you’re fully encumbered, the original bank may not be willing to sell that first lien at a substantial discount. They may want to be close to par and that doesn’t make sense at all for you.

A short sale is something you should not cringe away from a lot of people. I look at them as opportunities. It’s a great way for us to find other deals out there and use those warm liens to get into the banks and their special assets department or their secondary marketing managers. What if the agent decides to sell it off? It doesn’t matter. Once you buy the note, you bought the note. The agent is not going to go around and try to contact the banks directly. They don’t have the time. I love agents, but most of them are busy enough working on one thing. They don’t have the time to add a lot of extra due diligence to try to track down the special asset manager at the bank who’s handling this stuff. They don’t get it. They don’t speak the right thing. They’re going to call loss mitigation. They don’t understand that special assets and secondary marketing managers are often different people and institution. They didn’t have enough time. I’m not worried about that.

One of the beautiful things that we have done is we had our Banking Blitzkrieg where we had 25 people come in. We provided lists in a variety of states where people were calling and tracking down the special assets and secondary marketing managers at these roughly 5,400 banks and lending institutions out there. We don’t always have the email, we don’t always have the phone number, we don’t always have the name, but a lot of times we do have at least a name and a phone number or at least a name and a LinkedIn profile and that’s helpful. We’re stoked about this. I’m a big believer that it’s going to rear its head again. It’s smart to be prepared so much that we are going to be spending some time at the Mastermind talking about how to utilize these leads as potential sources. Not only for one or two short sale listings but getting your foot in the door, getting your foot into the special asset manager to give the list sent to you on a monthly basis, on a quarterly basis or on a weekly basis in some cases.

I’ll give you an example. Here in Austin, Texas, I’m probably not going to see a lot of short sales, not for a while anyway. It doesn’t mean there isn’t any, but there may not be. There may be somebody who was probably predominantly with the bigger banks. I’ll have to reach out to my buddy Boyd and check out here. I’ve already started reaching out to agents in other areas, San Antonio, Dallas and Houston as markets here in the Lone Star State where I can see if I can get the agents that send me over their list of banks that they’re negotiating with or servicing companies. I’ll give you an example. One sent me a list. I called out. The bank that they show is the name of the origination side of the thing. The secondary marketing side is with a parent company that I had to negotiate with and I reached out to in Pennsylvania, not here in Texas. It’s in Pennsylvania that I had to reach out to get on the phone, get transferred and track down the bank president or the special asset managers through an email, on LinkedIn calling the switchboard. I got bounced around. They were like, “We don’t have that.” I was like, “No wonder, you’re a different institution name. Your special assets department is handled by your parent company, that’s why you don’t see the switchboard. You transferred to your parent company switchboard and worked with them and go for it.”

You have to realize that if you’re a note investor, this is an opportunity if you want to work it. This is an opportunity for you to work it. This is something you don’t have to do initially between 9:00 AM and 5:00 PM. If you make contact with your agents and they send you a list, this is something you do some sleuthing after hours between 7:00 PM and 2:00 AM. Where at? In LinkedIn and you can also jump on and use a couple of the list scrubbers. There are a couple of different applications you can use to find email addresses of people at organizations or you can jump on and buy lists. There are some different lists that you’ve got. You can jump on Lane Guide or FDIC.gov if it’s a bank. You’ve seen a lot of lending institutions that aren’t banks that are into the game. There are lending companies and private funds that are coming in and originating and selling off at Wall Street. You’re not going to find that contact information on Lane Guide or FDIC.gov. You’re going to have to track them down primarily on LinkedIn or other special groups and trying to find who the person in charge is and maybe even pick up a phone and try to track that person down.

We have reached out on Facebook before for people when we find a name and see if they had a Facebook profile, LinkedIn, Twitter accounts and things like that. Social sleuthing will help you with your short sales or what we like to say short papering. It’s a short sale, but you’re buying the note and getting the note shorted on the paper so we call it short papering. It’s what it was tagged and termed years ago by a man much smarter than me when it comes to buying and selling notes. Hopefully, it was as valuable for you guys and gals. Reach out to your local short sale agents. Pick up the phone, give them a phone call and tell them you’re looking to buy the notes so that you can buy the notes. Chase, Bank of America or Citibank, I’m not going to be able to deal with those guys. They want $50 million.

If you’ve got some smaller regional banks or if you want to send me your full list of the addresses and the bank names that are on that, you can pull off the realist report off the MLS. If you’re not a realtor, you’re not going to want to talk about it. When you’re talking to a realtor, they’ll know what you’re talking about when you’re looking at the tax records off the MLS. It’s usually a button that links into local county records for most MLS’ and there’s usually a button that says a real estate and little flag. If I click on, it will often refer to if it’s a pending foreclosure as well.

If you don’t know a short sale agent, google short sales in Seattle, short sales in San Antonio, short sales in Dayton or pick up the phone and call your local title representative and say, “Who’s the big short sale agent in your area?” If you put some time into this, it can pay some dividends. It can pay you some big checks. It’s not going to be a loan modification. It’s not going to be a trial payment plan. A lot of times if the homeowner has already moved out of the property in a short sale, which I never understood but still happens a ton of time, don’t be surprised if the bank finds that out and it goes back and changes the locks to protect their assets. The bank has the right to do that if they find out the property is vacant. We do that several times, too. If we find out the property is vacant, we’ll go secure it immediately and change the locks to protect our investment as the bank. Hopefully, it was helpful for you guys and gals out there. Go out and make something happen. Have a great day and we’ll see you at the top.

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