The Pre Foreclosure Niche Presentation For Real Estate Agent

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The Pre-Foreclosure Niche

How to Grow A Pre-Foreclosure Focused Business Strategy


Agenda

• What is the definition of Pre-Foreclosure?

• Why Should I Care?

• How Does the Process Work?

• What Opportunities Exist for Real Estate Professionals?


What is Pre-Foreclosure?

• When a seller is in financial distress and a lender approves a sale even though the property will sell for a price less than what is owed to the lender.

• Short sale and Pre-foreclosure sale are synonymous – Pre-foreclosure (PFS for short) is more correct.


Why Should I Care?

• Defaults are up 47% nationwide• Up 54% in Florida• National delinquency rate in Q2, 07 =

4.84% of all residential loans (MBA, June 14, 2007)

• National foreclosure rate an additional 1.28% of all loans (MBA)

• In some areas, as many as one in five homes are in some stage of default/foreclosure


Why Should I Care?

• Fully 1/3 of all loans made in 2006 in the US were considered subprime (USA Today)

• Subprime foreclosure rates (650 FICO or below):– Florida rate of loans made in 2006 = 17%– National rate anticipated to be approximately 15%

(Center for Responsible Lending, 2007)

• “The number of homes entering foreclosure is expected to top 1 million this year, with 60% of those being subprime mortgages,” says mortgage giant Freddie Mac.


Why Should I Care?

• The Mortgage Bankers Association predicts that “adjustable-rate subprime foreclosures, already at a record, will rise into 2008, affecting borrowers, lenders and such Wall Street firms as Goldman Sachs and Bear Stearns, which packaged subprime loans into bonds.” (USA Today,

6/14/07)


Pre-foreclosure Might Be an Option When…

• A home is worth less than is owed

• A potential seller has a demonstrated financial hardship (definition later)

• The potential seller submits all required verification and documentation to their lender within timeframes

• Junior (HELOC) lenders are willing to accept little or nothing


PFS Isn’t Typically an Option When…

• The seller is an investor (unless significant financial hardship is documented)

• The seller has financial ability to pay, supply funds to close or can refinance

• The seller has filed for bankruptcy protection (consult a legal professional)

• Seller isn’t willing to actively participate in providing documentation according to timeframes


PFS Benefits to Seller

• Credit rating can be preserved

• Less stressful than foreclosure

• Preserves other assets (non-judicial)


PFS Potential Pitfalls

• Tax implication to the seller (debt “forgiveness” can result in 1099 income – consult tax professional)

• It can take up to 60 days to get approval from some lenders

• Meeting all lender timeframes is paramount• Typically requires seller to continue to make

mortgage payments (workouts and payment plans are possible)


PFS Approval Process

• General Process– Identify the property and seller as short sale

candidate (hardship, loan to value etc.)– Borrowers (sellers) fill out “third party”

authorization form


Third Party Form (Sample)

NOTE: If you would like IndyMac Bank to discuss your loan with a 3rd party such as a spouse, relative, friend, realtor, attorney, or lender, etc… you MUST complete and return this form to us first.

THIRD PARTY AUTHORIZATION FORM I hereby authorize IndyMac Bank to discuss my request for payment assistance with the individual(s) that I

have identified below as my designated agent(s) (hereinafter the “Designated Agent”). Further, IndyMac Bank is hereby authorized to negotiate the terms of a workout agreement with my Designated Agent and to deliver documents to my Designated Agent which concern my request for payment assistance. I understand that I will be fully responsible for reviewing any information that is sent by IndyMac Bank to my Designated Agent. This Authorization will remain effective until I specifically notify IndyMac Bank’ Workout Department in writing that this Authorization is of no further force and effect.

My Designated Agents are: _______________________________ _________________(Insert name of 3rd party) Phone # _______________________________ _________________(Insert name of 3rd party) Phone #Date: / /

BorrowerDate: / /

Co-BorrowerLoan # _______________________



• Borrower to call loss mitigation and talk to a Workout Specialist.– Inform of intention and commitment to

timeframes.– Ask about current turnarounds.

• Prepare and submit Borrower Approval Package



Borrower/Seller Approval:• Submit financial information (varies by lender) but

includes:– Financial Statement (basically a detailed 1003, see example) – Hardship explanation form and/or letter– Most recent checking and savings account statements for all

borrowers. Some lenders require 6 months.– Proof of all sources of monthly household income, such as pay

stubs for the last 30 days, or if self-employed, profit and loss statements for the last two quarters along with the most recent federal tax return. Leases and social security, pension, or disability statements are required if applicable.

– Any other documentation or information you feel may be relevant to the situation



Property Approval:• A signed and ratified listing agreement• A sales contract signed by buyer & seller, subject to

Lender Approval.• An estimated settlement statement showing all proposed

seller paid closing costs.• Proof of Buyer’s financing (i.e. pre-approval letter, etc…)• Broker’s Price Opinion (BPO).

– Some lenders require up to three different BPO’s.

• Title report• Junior lien holder release agreement


PFS Opportunities for Real Estate Agents

• Conduct educational seminars for distressed borrowers– Partner with a lender and credit repair company

• Aggressively seek listings armed with a competitive advantage– Very few agents know how to do these deals

• Market expertise as the PFS expert• Call on owner-occupied borrowers in default

– Review and pre-qual for PFS opportunity


IMPORTANT!

• Do NOT contact lenders to get distressed borrower referrals– Privacy laws prevent lenders from referring

borrowers in distress to others

The Pre Foreclosure Niche Presentation For Real Estate Agent

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