We had an investor inquire about when was the best time to approach homeowners facing financial difficulties to see about working with them to help solve their “hiccup” by listing their home for short sale.
Stage 1 Delinquency on Mortgage:
This is where the homeowner starts to be late on their mortgage payments. You can purchase lists from credit bureaus of 30, 60,90 day lates and start targeting them with marketing. What is the upside? Less competition from other agents and investors because you obtain the client info early before the Notice of Default (NOD) or Liz Pendence is filed with the county and others have access.
The downside? It’s almost to early in the process. They have more time to think about short sale and consider mortgage mod. Once a note goes 90 days late, it becomes a lot easier to negotiate on the purchase of the note with a bigger discount. While there is less competition, the homeowners often have their head stuck in the sand and refrain from doing anything for the most part. It would be good to talk to them first and start a relationship with them. Because in phase 2, they will feel a sense of urgency. This is my second favorite stage for short sale listings.
Stage 2 NOD/Derogatory filing with County – Filed within 90-180 days of first delinquent payment in most states with County Recorder’s Office
Upside: Client is more desperate therefore realistic and likely to agree to short sale listing. Downside: we are not getting them as early in the process, we may be competing with more realtors and we have less time to close the short sale. Obviously there is more competition, but if you can target them in stage one and follow back up after the NOD/Liz Pendence is filed, you can often capture a nice percentage. At this stage the note should be discounted around 70% or greater depending on how long it takes to foreclose. This is where the majority of business takes place because the homeowner is now getting proded constantly by the bank with letters and calls. This is my favorite phase for short sale listings due to the fact that homeowners know that they must act now or face loosing their home.
Stage 3 Auction/ Tustee Sale Date filing with County
Upside: Client is even more desperate in this stage than Stage 2 therefore realistic and likely to agree to short sale listing. Downside: We are not getting them late in the process and either may be competing with more realtors or have very little time to close the short sale.
With the foreclosures taking place the first Tuesday of every month here in Texas (and filings must be filed at least 21 days prior to the auction) this does produce a much higher “call to action” amongst the clients. Depending on the state’s foreclosure laws (months to foreclose), if you are able to get the auction delayed through a short sale, TRS (temporary restraining order) or BK filing, this can add a minimum of 3 more months to the process which can often motivate the bank to sell the notes with steaper discounts. The positive side is that as long as OTC can get a signed offer, Authorization form, and a estimated HUD-1 to the bank several days before the auction, most banks will delay the auction to negotiate the short sale as they don’t want to take the property back (which automatically provides more time to buy the note). I’ve gotten foreclosures saved minutes before auction on the courthouse steps. This can be done, but it is stressful and time consuming for all parties involved to get that extension.