Good ‘ole volume 6 of this series.  Don’t have a bunch of time so I’ll hop right into it.

A few posts ago I spoke of a short-sale that I lost.  Well I fell victim to what happens all-to-often to investors nationwide.  There was a guy (yeah him) who inherited a property from his Mom and made it into a rental a few years ago.  He said that he had problem tenant after problem tenant, poured a lot of money into the property, as he did nothing but make repairs and evict people.  The last tenants caused him to become delinquent with his lender (American Home Mortgage) and he wanted to prevent foreclosure.

I was put in touch with this guy way back in January after he responded to one of my signs.  I collected the required paperwork from him and submitted the “short-sale package” to the bank.  The first appraiser (AHM used appraisers with me and not BPO’s) they sent out, probably appraised the thing for over 30K (I don’t know what it came in at exactly).  The house was really only worth about 30K, but they countered my original offer of 19.8K for 32K.  I requested another appraisal and they said I’d have to order my own and present it to them.  So I order another one and the appraisal comes in at 20K.  They then said they’d accept 27K.

I called up another investor who primarily does short-sales, he told me that sometimes banks will try and pull this (asking for more than appraised value).  The only thing you can do is stick to your original offer and explain why they should take it.  Sometimes they’ll come down…sometimes they’ll foreclose.  So I told them that 19.8K was the best that I could do.  They said, “Ok” and foreclosed on the guy.

The crazy thing is, at the sherrif’s auction last Friday.  The property’s beginning bid started at 13K….yes 13K.  And nobody even bid on it.  Oh well….sucks for the bank…and the homeowner.

I learned a good lesson throughout this ordeal.  And that is to stay away from properties when there isn’t much of a spread to be had.  Also, I now know that the bias of the BPO/appraisal is the name of the game.  An 80% below norm BPO bias creates a smaller spread on a 50K property versus a 150K property.  It’s all very clear to me now.  Honestly I dodged a bullet by not getting this property.  At least I now know the rules of the short-sale game.

- Justin

Here we go with volume 5 of this WTF! Wednesday series.  I swear I am running into every possible road block ever conceived in this Real Estate game.  So check this shit out.  I received word last week that the two Champaign properties, which were held-up due to a bankruptcy, were clear to close from my Realtor.  Apparently, bankruptcies take forever and a day to resolve, as these properties were put under contract in February.  So I start making calls and getting things ready for the closing of one of them.

Everything was going smoothly, I went to follow-up with the bank that held the note on the two properties.  The reason being that their original approval letter was vague due to the fact that it didn’t specify what the payoff amount was.  As a matter of fact, I’ll give you exactly what this letter said:

February 18, 2010

To Whom It May Concern:

Please allow this letter to serve as notification of approval for the [Jon and Jane Doe], to sell property located at [1234 Main Street] and [4321 Main Street] both located in Champaign.  Should you have any questions, please contact me at [217-222-2222].

Sincerely,

[Deez Nuts]
Assistant Vice President

So, as you see, this letter is completely vague.  So I made a call to the bank, to request a more specific letter per my lawyers instruction.  See email chain:

—Message Reply—

Justin,

They need to specify the amount of money they agree to receive in exchange for releasing their mortgage on the subject property (i.e., a specific payoff amount).

—Original Message—

[Lawyer],

I guess it’s time to revisit the (vague) bank approval letter.  We spoke months ago about this and you said that once the time came I’d need a more detailed letter.  If you tell me what is specifically needed in the approval letter, I can contact the bank and request what I need.

So I give the bank a call and get connected to the Assistant Vice President that drafted the original letter.  I proceed to request that I need a more specific approval letter.  He then proceeds to tell me that the sellers no longer own the properties and that they deeded them both back to the bank.  And there is no way that he was going to sell for the 30K price I had each under contract for! (and dude kinda copped an attitude)

I was completely baffled by that statement, I thought everything was going smoothly and now this.  First thing I always do in these situations is play “devils advocate”.  So after the phone conversation, I begin to brainstorm how this “deed in lieu” could legally have been done.  These are the points I’m able to come-up with:

• Bankruptcy actions supersede any previous contracts
• Contracts were expired

Those are the only pro-bank arguments that I can think of.  Now onto what matters, the pro-Justin arguments.  Here are my arguments:

• I was able and willing to close (in March) before contracts expired
• I had the required 3rd party bank-approval (in February) before contracts expired
• I made numerous efforts to update contracts with seller (once in April and in May)

As I write this, I’m still waiting to hear back from my lawyer on this issue.  But, the realistic part of my brain is thinking that pro-bank bullet point #1 is what may be true.  Perhaps, bankruptcy actions overrule in this matter.  The emotional side of my brain is thinking “F#&K You, Pay Me” (cool points to who can name the movie with that quote).  But anywho, this is a stellar example of why I must increase my lead quantity and concurrent deals in the works.  When you’re counting on one deal, it’s almost guaranteed to fall through.

Even if there was some illegal foul-up on behalf of the bank or the seller, it would most likely cost more time and money to correct.  And if it involves court-action, I can forget about it.  These aren’t marginal deals, but court costs aren’t feasible.

I’m curious to hear if anyone else has experienced something similar, or if you have any expertise on the matter.  Please provide your input in the comments.

- Justin

Last week I had to pull out of 3 properties that I had under contract. I knew going into these that they were marginal in nature, I was expecting to make a 2K spread on each one. The reason that they were so marginal was that the owners owed too much to the bank on each house. All three properties had the same owner and were in Foreclosure, however the lender wouldn’t consider a short-sale. The properties were owned by a husband and wife…soon to be ex-husband and ex-wife and the bank felt that the husband’s income at his 9-5 was too high to qualify them for a short-sale. This divorce/foreclosure situation is A LOT more messy than I’m explaining, so I’m just giving the core details.

So I felt like I’d take a stab and them and see if I could move them. I had some interest from the cash-buyer roster that I have in Champaign. But not quite the same response that I had with earlier properties. In the end, after about 6 weeks I pulled the plug, with no contracts assigned. This cancellation was after one contract extension already. I felt it was best to cut my losses (marketing dollars, effort, time, etc.) and focus on other deals. Sadly, they’ll probably get foreclosed on, the bank will buy the property back at auction, list it high with an REO agent and eventually accept a very low offer (perhaps it will be mine). I guess that’s how it goes sometimes….

The moral of this story for me was to never take on marginal deals when your gut is telling you you’re buying too high and so they’re priced too high wholesale. This would’ve been a different story had I had a buyer lined-up that was willing to pay the price I was asking. In that case, 6K for just a few hours of work isn’t bad. But in my case, even if these deals did go through, it would’ve been a total of 6K for hours and hours and hours spent….too much like a job.

No more ‘marginal’ deals for me. Not worth it.

- Peace

Time is flying…unfortunately.  I still have three deals pending.  Two are tied-up in a bankruptcy and will most likely close sometime this autumn (although the Realtors involved think mid-May).  I think September-ish is a realistic outlook (I’m learning that many Realtors are dumb as rocks, by the way. Well at least the one I work with is pretty sharp).

The bank that holds the notes on the two properties has already filed for an “Automatic Stay” and the Bankruptcy Trustee has filed for an extension to review the assets included in the Bankruptcy.  Who knows how long this will take…I ain’t holding my breath.

Also, two days after I quit my J-O-B I found and assigned a duplex.  This closing was scheduled for this Monday 4/19, however it was originally contingent upon the closing of another property of the sellers.  Turns out the property which the contingency was based on isn’t going to close.  Go figure.  But the good news is that I may be able to get that contingency waived.  It’s really more complex than what I’m explaining, but I don’t feel like writing a book on it right now.  Anyway, hopefully this deal will close sometime next week and I’ll give all of the details.

I was thinking the other day of providing some case-studies for absolutely every deal that does and does not close.  What ya’ll think?  I mean I’ve been running into absolutely every obstacle that could be presented (liens, bankruptcy, pre-probate, etc.), I think case-studies may be beneficial to even the experienced.

On the short-sale front, I’m at the stage with one property where I met the appraiser at the property, supplied comps, pointed out the issues with the house, etc.  And the appraisal came in too high.  I plan on ordering another BPO from the bank next week and see if I can get a more realistic value.  With short-sale number two, I’m still playing the fax and re-fax and wait game.  So we’ll see about this short-sale stuff.

Oh, and I almost forgot.  Today, I may have found three more deals.  They’re of marginal spread, but I got to do what I gotta do.  I’m thinking about putting an Option contract on these houses as I’m not certain that I can unload these like I did the others.  So I don’t want to be locked in.  But I’m sure going to try.  I’ll give more details as things unfold.

I’m surely running out of time and money.  Something needs to close soon.  Honestly, I have no idea where I’ll stand in two weeks…and it feels kind of good.

- Peace Out

YOOOOOOOOOOOOOOO! What’s happening my real estate peoples? It’s been a long time…I shouldn’t have left you without a dope beat to step to. I took a month off from blogging and folks started coming out of the wood-work about me not blogging. I didn’t know I had that many people that cared. *Tangent* how does one come out of the woodwork anyways?. But I digress.

This last month has been full of so much stuff, I don’t know where to begin. This real estate game is one of “ups” and “downs”. That is for sure. Why didn’t anyone tell me this? One minute you think you have a deal…the next minute, your end-buyer backs out with cold-feet….you discover leaking pipes…mold…etc. WTF! Oh well, if this stuff was as easy as Carleton Sheets claims, I guess everyone would be doing it. And I surely don’t like doing what everyone else is doing. Following the crowd is for lames…and broke people. And I don’t like being either.

Let’s see where do I start? Well, as of 3/31/2010 I’ve been officially unemployed. I’ve taken the plunge and there is no looking back. I’ve only been unemployed for less than a week and this shit is the best! Why didn’t anyone tell me how good this would be? Anyways…I’ve been working soooooo hard it’s not even funny. Because, I quit my job with absolutely no money saved up and this wholesaling thing has got to show it’s ass soon or else I’m going to be washing windows on the corner of Mattis and Bradley (there is nobody else washing windows at that intersection, so I think I could clean up). You may be surprised or dumbfounded. You may think/say….”why did you quit so soon, without money saved”? Well the answer is real simple. I’m single, I have no kids, and if things don’t work-out…..so the eff what! All I have to worry about is me. That 9-5 job that I had was killing me softly. And plus…life is short. I knew this, but things were really put in perspective after the Haiti earthquake…and then the Chile earthquake two weeks later. Seriously…literally after those two events, I was officially done with doing anything in life that I didn’t want to do. Life is too short for the B.S

So, in a nutshell, I have 3 deals that are pending, 1 that I’ve yet to find a buyer for. And I’m working on #5 as I type.  And besides all of that, I have 2 short-sales going.   However, nothing has closed yet. At the quickest, I have a deal scheduled to close in two weeks. And since this real estate world is extremely flaky…I’m not counting on anything closing on time. Closings are a big deal now…since I need closings to happen to cover living expenses and such. But oh well, I’ll just continue to work as if I have zero deals lined up…this has been working for me thus far.

Oh well, that’s it for now. As soon as I get some cushion capital-wise…I will step my blogging game back up. I have soooo much to inform to disclose it’s ridiculous! I mean stuff that most people put in eBooks and in programs for a fee. But I’ll tell all for free ninety-nine. But at the moment, I’m like “who cares about blogging, if I don’t get these deals in place I will definitely get evicted…and squirting windows for-real”. But even still, I won’t let this much time pass again before I update.

- Peace out

So I finally have my semi-automated system in place that will allow me to make 40+ offers per week.  Basically what I have is an Option-Contract and a Cover Sheet that are mailed out to the owners of properties that have been listed and since withdrawn from the MLS.  My Realtor was able to export an Excel file from the MLS that contains the expired property information that I desire.  This spreadsheet was then appended with county assessor information (last date sold, owner name, assessed value, and etcetera).  The Option-Contract and Cover Sheet have mail-merged values that include the property address, offer price, mailing address.  This mail-merge along with the custom Excel doc, makes me semi-automatic.  After all of the printing is said and done, I hand-address the envelopes.  I just sent out my first batch today.  Next week, it’s on and popping again.

However, next week I’m going to use my Tax Delinquent list and not the MLS expired list.  I have a Tax Delinquent list left over from the tax sale last October.  With the MLS expireds, there is way too much additional manual-work needed…it’s best to check if the property has since been relisted, if the property has been sold, and etcetera.  This extra work takes the automation right out of the equation.  This is still a task to pursue, but best in addition to something that’s close to automatic and always running in the background while I perform the tedious composition of some offers.  With some of the offers that I’m making, many will go straight to a waste-basket, I’m sure.  But I need to boost the amount of “hell naws” that I receive so I can accept more “yes please” replies.  We all know this is a numbers game.

And to the email naysayer #242 who wrote:

…I seen your 40 deal a week strategy. Thats almost impossible dude…

This is my formal response:

Please Believe That.

- I’m Out

So I did some research and also consulted with my lawyer regarding the legality of compensating a seller post-short-sale.  On the internet I found an article on the Kick Ass Short Sales website.  After reading it, this made a lot of sense.  However, I still sought out the advice of my lawyer and this was his email response.

A Bill of Sale raises a red flag (in terms of fraud) but is not, by itself, a fraudulent act.  For example, if the Sellers have a working washer/dryer and sell it for $500, there’s a legitimate argument that it was sold for its fair market value.  If there were ever a legal challenge, we would need to show that $500 was a reasonable price to pay for that year, model and condition of washer/dryer.

Fraud only exists when an intentional act was done to harm another person.  For example, in a short sale, the lender usually issues a short sale approval letter that says, among other things, that the lender should receive X dollars and the Seller must receive no more than $0.00 at closing.  If I use a Bill of Sale to purchase the washer/dryer, and pay the Seller $5,000 when the fair market value of the washer/dryer was $500, then I’ve probably committed a fraudulent act.

As an attorney, I usually suggest that if you think you’re committing fraud, there’s a good chance you shouldn’t be doing what you’re doing.  That said, there are many, many instances where a Bill of Sale is a very useful – and legal – tool to purchase personal property.

After this email response, we had a follow-up chat and I asked about my specific situation.  The Department of Health and Family Services was the only lien holder to discount their note.  This sole discount allowed for the other liens to be paid in full.  However, the DHFS did indeed specify the amount that they’re to be paid at closing, BUT did not specifically state that the seller is to be paid $0.00 at closing.  I asked, since that wasn’t specified in my correspondence with the DHFS, if that means the door is open to compensate the seller.  My lawyer replied that it does.  However, with any “gray-area” there are inherent risks.  He approximated, in this situation, the risk to be minimal.  But there’s still a risk, none the less.  The risk being that the DHFS, upon learning of seller-compensation, could come after me and argue that the seller compensation restriction was implied.

Here is the latest email correspondence with the DHFS:

Sale price $9,000.00 less $3,590.00 for mortgage, $275.00 City of Champaign nuisance lien, $315.07 Urbana & Champaign Sanitary lien.  H&FS will release it’s lien for $4,819.93.

Please send payment of $4,819,93 to Technical Recovery P.O. Box 19174 Springfield, IL 62794.  A release of lien will be prepared and file when payment is received.

See, nothing says that the seller must receive $0.00 at closing.  But all of this may be neither here nor there.  I was scheduled to meet with the sellers yesterday (the original scheduled date of closing) and try and renegotiate something that would allow them to walk away with at least a little something from the deal.  Not 9K, but something.  But…they canceled on me.  So that was it for me.  It’s time to play rough!  I’ll let yall know what happens once the gun-smoke dissipates.

- Peace Out

It’s been a while since my last post and a lot has gone down.  I’m going to change my Accountability Mondays to Accountability Tuesdays.  Mondays are just way too busy for me.

So to address the “40 offer/week” goal that I’ve had for the past 4 weeks.  I still haven’t reached it.  HOWEVER, next week it should be reached.  This is quite a lofty goal that is definitely obtainable, but not easily however.  I’ve almost perfected the process that I have in place to efficiently make these offers.  I definitely could’ve made the 40 offers in a manual fashion, but that’s just not my style.  I HATE to work HARD and NOT SMART.  That’s just plain dumb!  I’m sure you’ve heard the Abe Lincoln quote:

Give me six hours to chop down a tree and I will spend the first four sharpening the axe.

I couldn’t agree more.  Spend the first four hours sharpening the axe and you could probably chop down 3 additional trees with the last two hours that you have to work.

I spoke once before about the system I’m creating for my offers to expired MLS listings.  I got hung-up for about a total of 8 hours on an Excel spreadsheet that would recognize my VLOOKUP function (if you’re an Excel pro, get at me, I’ll pay you).  I think there’s a bug in Excel that’s preventing me from doing what I want, so I’m transitioning towards the use of a SQL database.  I’ll then be able to write some queries that will spit out my data to a spreadsheet and then, I’ll get my mail-merge on.  *The geeks that are reading this, know what I’m talking about.*  If you don’t know, I suggest finding someone who does so you can work smart too.  So anyway, I say all of that to say, “I haven’t reached my 40 offer goal yet, keeping the same goal for next Tuesday”. Broken record I know.  But if you’re meeting ALL of your goals everytime, their not set HIGH enough.  There, I just made myself feel better.

Onward an upward. So on a positive note, I’ve progressed quite a bit in other facets of my business.  I’ve acquired an additional Realtor to include in my inner-circle.  This is actually a big-deal, because she is a Realtor that has numerous ties to investors in California.  I mentioned a while ago, my efforts to obtain cash-buyers that invested in a new condo construction near the U of I campus.  Well, this Realtor actually sold about half of the units in the complex and still corresponds with many of the out of state investors she sold to.  Her and her brokerage has a working relationship with the Marshall Reddick Real Estate Network in California.  We met on Saturday and discussed ways that we can work together in the future.  Basically, if she can bring me a cash buyer from her network, we’ll split deals down the center.  This is good.

Also, I met with one of the sellers from the everlasting wholesale deal #1.  I could tell that he was beginning to avoid my phone calls, so I got him to agree to a meeting with me.  Preparing for this meeting took an entire Saturday morning and the meeting went down Monday evening.  It turns out, he was just severely confused about the entire situation.  Confusion leads to frustration and  speculation.  Not good.  I explained all of the details with his liens and all of the options that he (doesn’t) have with this property.  I inundated him with information and had an answer to each of his rebuttals.  Following the meeting, I could see the defeat in his face.  He now really realizes he’s not going to see any money from this deal because it’s essentially a short-sale.  I meet with his Sister Wednesday night.  Once I explain everything to her, I should be able to speed this thang up and avoid any possibilities of legal action (specific performance suits, i.e. more time sans check).  By the way, I feel like a Realtor with all of this hand-holding.  It SUCKS to be one of them! I’m not holding your hand, I don’t know you like that!  In the future, I’m going to avoid these types of small, complex deals like people with halitosis (you thought I was going to say the plague, right).

And lastly, I met with the distressed landlord who wants to short-sale his rental.  I picked up 90% of the paperwork today and will return on Thursday to get the rest.  This guy is the epitome of a distressed seller.  And since he is an investor, I barely had to explain anything to him.  He pretty much knows how it works and is educated about what a foreclosure can do to his FICO.  His main motivation is to preserve his credit.  I wish all sellers could be like this.  Hopefully, I can get many more short-sales in the pipeline.  This is the second short-sale lead that I “stumbled upon”.  I can’t wait to start marketing to pre-foreclosures with a REAL effort.

And lastly (for real this time), I had my second meeting with a future business partner for a Tax Lien investing company.  I’ll reiterate that the Tax Lien/Tax Deed investing game is supremely slept-on.  Most investors who invest in these most likely don’t tell anyone and keep it a secret.  But, I don’t care, I’m going to start sharing it all.  After watching a fellow Champaign investor write a check for $560,000 at last years lien sale, I know this is something worth exploiting.  Me and my biz partner are going to create money out of air.  The plan is to borrow money and invest the borrowed money into Tax Liens.  We’ll profit the spread between the cost of the money borrowed and the net proceeds from the lien penalties whether redeemed or foreclosed.  Simple as that!

- Peace Out