The next thing that brings me to is Short Sales. And Short Sales are the least understood and most hyped aspect in the foreclosure Business.

Don’t get me wrong, Short Sales are great.

My wife Laura and I just finished a Short Sale worth over $400,000 to us.

So I am not saying Short Sales don’t work. I am saying the deals that most people are trying to Short Sale are the worst possible Short Sale deals.

Here’s why:

They are going after properties with one or two mortgages that are over financed, meaning 120%, 130% of what the house is worth is owed against it.

And they are trying to discount them to 85% of market value or 82% of market value, something like that.

Here is the problem with that.

Even if the bank says yes—and they are very likely to say yes because they realize that they are going to take a soaking at the Foreclosure auction- but even if they do say yes, you’ll never make a profit on that deal, because your Buyer’s Bank won’t let you flip it.

The seller’s bank is going to want to see a closing or settlement statement that shows they got all the money at closing. They don’t want to see you making a profit on a deal they just took a discount on.

That makes sense to me. They lent the money, they want it back. If they can’t get it back so be it, but they are not going to let you get it instead.

So when you close those deals you have to pay cash. But if you are paying 82 or 85% of market value you are paying too much to pay all cash, and still make a profit.

By the time you raise the financing, make a couple of payments, pay all the closing costs to buy it, turn around and sell it and pay some more closing costs, etc., there’s not enough room for you to make a profit.

And besides, if you want to pay that much for houses, you could probably find a different house that’s already asking 85% or less anyway, and not have to go through the whole Short Sale deal!

For that price, you could could skip Foreclosures altogether!

If you want to pay 85% of market value for houses you sure don’t need to go through all those headaches to get it. But that’s what most people are trying to do with their Short Sales. 100+% financed pretty houses with no reason for a good, solid discount.

They are the worst possible deals.

The reason most people are trying to Short Sale those deals is because they are the easiest sellers to work with because the seller is not giving you anything.

See, things have changed in the last couple of years in Foreclosures.

Number one, the federal government has now made it so that if your seller gets a Deficiency Judgment due to a Short Sale, the bank cannot write it off and charge them for the Deficiency, and they can’t report it to the IRS and have the IRS call that a gain for taxes.

Here is what that means:

It used to be…let’s use our $250,000 house example and let’s say they owed $250,000 and then you discounted that down to $200,000 and turned around and made a profit on the house, ok?

Well, if the bank decided not to come after them for the balance due, the bank could instead write it off on their bank’s taxes and the seller would have to pay the income tax on $50,000 that they borrowed, but never paid back.

Well, the government wiped away that requirement. The government now is saying, “Hey, we want people to be able to get refinance loans and if they are going to be getting refinance loans we don’t want them to feel like if the market goes down again they are going to get stuck”.

So the government waived those Deficiency Judgment and Tax Liability requirements. And a HUGE number of Sellers just walked away from their mortgages and from the properties, because there was no real downside.

Now, that would stink for the banks, except the government waived another requirement, too.

They waived the bank’s requirement to hold so much money in escrow for each property they take back.

So you may have heard people say banks hate real estate. Well, it is true that banks hate real estate, but they don’t hate it near as much as they used to.

It used to be that if a $250,000 loan went bad the bank had to leave some amount of money, usually close to that $250,000, in a reserve account to make up for the asset that they don’t have anymore, ok?

Well, now they don’t have to do much of that anymore. The reserve rate is at a historic low.

So the bank can have virtually an unlimited amount of REO properties and they are not really held to task on having this huge catalog of unsold properties.

So you have heard people say before, “Banks hate real estate.”

Well, if you watch the REO departments of some of these banks they are swollen. There’s two, three, four, five times as many REO properties as there used to be.

I am going to come back to REOs and how you can make an absolute fortune off of them from the comfort of home.

But for now understand that the Short Sale game has changed. The bank is no longer afraid of owning houses like they used to be because it used to be crippling to their business.

Now it is just sort of annoying to them.

The next thing that most Investors screw up on Short Sales is dealing with the Lender.

Most people are coming at the bank and saying, “You know, I am a friend of the sellers and I am going to try to help him out.”

And the bank is saying, “Ok, great. Well, let me send you a Short Sale package and you send it in and blah, blah, blah.”

And it is taking sometimes six, seven, eight weeks, or maybe they never get an answer at all. I’ve heard of some people taking a year or more to get a Short sale approved!

And what is happening is if you send in a Short Sale package that is not 100% complete and the bank doesn’t think you know what you are doing, they don’t have time to train you and they just ignore you.

I have loss mitigators saying to me on the phone, “Tell people we don’t have time to train them. If they don’t know how to do it, they can’t do it.”

So the bank can’t sit there and hold your hand like they might have been doing before. You better know how to do the process.

You can’t just, you know, kind of give it a half hearted effort and expect the bank to make up the difference. They are not doing that anymore.

Some of the loss mitigators I have talked to have gone from having 30 or 40 files that they are working on to over 300.

They don’t even have time to answer the phone from all the people who are calling, much less teach them how to do Short Sales.

But the banks are more than willing to work with you if you have a different approach.

And our approach is to go to the banks and say, “Listen. We are investors. We know what we are doing. I have everything you could need to be able to do this Short Sale. Just tell me what you need me to send you from the seller for you to give it your ok.”

And they say, “Ok, great.”

You know, you have proven you know what you are doing. You are talking their language.

And all of a sudden you get practically Concierge service. They answer the phone. They know who you are. They know what you are doing. They want you to buy the house and get it out of their hair and off their desk.

You find out what they need from you, and when they need it by, and you get it to them.

And we have gotten Short Sales done in as soon as three weeks. In fact, you’ll get an answer in a week or two, then it just takes a little longer to actually close the deal.

For example, remember the deal Laura and I did where we made over $400,000?

We got our answer back from the bank in two weeks. I offered $800,000 for a house worth more than $1,250,000 and the bank agent doing the Short sale responded with a counteroffer of $808,500 in two weeks.

I know, I know. He surely outfoxed me that time. He talked me up to $808,000… but oh well, it’s hard bargain, but sometimes you just have to bit the bullet and just walk away with 440 grand and change… 😉

But that is pretty much the Preforeclosure game. I could spend a week talking about Short Sales and how to do them right while everyone else can’t do them at all…

But I think you get the point that if you are doing Short Sales the old fashioned way it is frustrating, it is annoying. They are not answering the phone, they are not giving you calls back, and they are definitely not giving you the answer that you want.

And the reason is they don’t have time to train you. So if you give off the vibe that you don’t know what you are doing, they certainly won’t have time to tell you how to do it.

So you really need to know the score. If you just speak like you know what you are doing, it will increase your ability to close these deals by two or three times. Many more of them will get approved, because the other Investors’ deals aren’t even getting looked at.

That’s how you get your Short sales through fast. Then once you understand that, the next thing you need to understand is how to target the best, most profitable Short sales out there- Junior Liens.

See, your best possible Short Sale prospect is a property that has a BIG 2nd mortgage, following a first mortgage that’s low enough you can pay off in full by selling the house.

So, for example, let’s say we have our $250,000 house again.

It has a $200,000 first mortgage and a $50,000 second mortgage and we can negotiate the $50,000 second mortgage down to 5000.

It seems like one of those “80%+” deals I told you were impossible before, right? But because it has a first mortgage that does not need to be discounted, you can sell that deal and pay it off using your Buyer’s money.

Remember when I said that if the bank does a Short Sale, the Bank will want to see a Closing Statement that shows them that they got all the money?

That applies ONLY if the First Mortgage Bank takes the Short Sale discount.

But when you go to close this deal you can easily close using your Buyer’s funds because the first mortgage is getting paid off in full.

Any Buyer can buy it from you. They don’t have to have special lenders. Any lender can fund your buyer’s purchase of this deal because you don’t have to do any weird double closings. You don’t have to do anything unusual.

And there are hundreds of these deals available within an hour’s drive of where you live. And I don’t care where you live.

Everywhere in the country there are hundreds of these.

All you need to do is learn how to discount Junior Liens, 2nd, 3rd mortgages, etc.

Don’t even worry about senior, fully leveraged houses with 100%+ first mortgages for now.

With a little expertise, just knocking down the second mortgage, turning around and selling the house and cashing everybody out including yourself is the fastest and easiest approach to Short Sales you can do.

This is why so many other Investors struggle with Short Sales! Because they go after the worst possible deals – 100%+ financed, all one mortgage properties.

The best candidate is the first and the second when you don’t actually have to discount the first, you only discount the second so you can pay the first in full at closing.

Then you get a retail buyer, use their money to close, get your profits at that closing, and no one is upset with you because you can show it in the HUD one.

And here’s how I speed up the process for Short Sales. This is the absolute best possible way to maximize your chances of success.

I discovered after years of buying Foreclosures and doing Short Sales that I hated doing Short Sales the old fashioned way.

I didn’t like how long it took. I didn’t like having to hold the sellers’ hand. I didn’t like the sellers changing their minds and saying, “Oh, I don’t want to do it anymore,” and I didn’t like how much time it took to get all the paper work and how many times I had to meet with them, drive back and forth, everything.

And I will tell you the truth, even when you are helping people sometimes you just can’t stand another sad story.

I got to the point where it seemed like too much…too emotional for me to really do too many of these Short Sales.

So instead what I did was to start searching for properties where an agent had listed the property at a dirt cheap price and it was a Short Sale. So if I made an offer the agent would go do the Short Sale to get my offer approved.

I thought, “Well, all I have to do is make an offer. I don’t have to do any negotiating. I don’t have to do any of that crap.”

And what I found was these agents were successfully getting the worst kind of Short Sales successfully discounted. They were able to talk to the banks and say, “Listen. I want a discounted first mortgage, and we have to get it down to the cash numbers.”

So those deals where you would say, “Hey. I’m a friend of the seller’s,” that were not getting accomplished because the bank was saying, “Oh, we don’t have time to train you.”

Or you could do it yourself and say, “I’m an Investor, I do this for a living, and I have everything you could possibly need to do this Short Sale”.

But even then I had to hold the seller’s hand, talk him through the process, handle all the issues, take care of all their problems, and it took a lot of time, emotional time.

Well now, I have a real estate Agent do all of that for me, hold their hand and get paperwork and stuff.

When I get a Seller who called me and wants to work with me, but thy need a Short Sale done first, I just call up my Short Sale Agent, get then two of them together, and let her handle it all.

Then the agent gets a listing agreement, I give her my offer for a low price, and when it gets accepted, I buy the house at a dirt cheap price.

And in the meantime, I don’t do anything to get the Short Sale done.

And in some cases I even wrote into our contract that I had the right to hold open houses before the closing.

So I have my buyer on the hook before we ever even close the deal.

You can do more Short Sales, faster, with a better success rate without ever talking to a seller, without ever having to do all the stuff that is how everybody else keeps telling me is how the Short Sale business is supposed to be run.

The key is finding the right Agent, who is already doing dirt cheap Short Sales so you don’t have to train them. Then you have to position yourself as a source of new leads, listings, and eventually, sales commissions (which is paid by the Bank, so for you and I- it’s FREE!).

So congratulations to you for taking the time to learn a better way.

Most people who think they know the Foreclosure business the entire Preforeclosure business starts with buying them cheap and ends with Short Sales.

And not many people will seek out a new and faster, more profitable way to not only do more deals, for bigger profits, but to also do it in less time, and with less work…

But you’re here, sitting at your computer reading this. You’ve seen how this works. And you know that this is a better way to get started doing Foreclosure deals.

So you’re perfect for my new, “Ultimate Foreclosure System” Course.

It will teach how to implement these systems for Preforeclosures, Short Sales, Foreclosures, and REO’s, so you can get started quickly- the right way the first time, jack up the number of deals you do, increase your profits per deal, and put the whole process on ‘97% Automatic Pilot” so it brings you deals, Buyers, and financing.

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