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Remember the Resolution Trust Corporation? It was the government created corporation assigned the task of liquidating thousands of properties worth billions of dollars foreclosed by Savings and Loan Associations who made questionable loans in the early to mid 1980's. Well it's happening again! Only the money brokers are keeping it a secret. Once you understand what's happening you could win FAT profits in your own local market.

Approximately three years ago Fannie Mae (Federal National Mortgage Association), the largest purchaser of loans on the secondary market, made a major decision, which “moved the cheese” for real estate investors and set up a whole new avenue for profits. I believe they reviewed the avalanche of bankruptcies, which began rocketing up during the Clinton years, and realized if they didn't take action that the avalanche would fall on them in the form of loan defaults and foreclosures, the likes of which hasn't been seen since the Great Depression of the 1930's. They realized that society no longer saw a stigma with bankruptcy. Borrowers were filling in droves to stop payments and delay the inevitable foreclosure due to very lax requirements of the Federal Bankruptcy laws. Quietly Fannie Mae contacted all the loan servicers such as Countrywide, GMAC and several hundred others. Loan servicers are the companies who collect the payments from the borrowers, maintain the escrow accounts, confirm and pay insurance, pay taxes and enforce the terms of the mortgage. For these services they strip off a fraction of a percent of the interest collected and send the balance on to the “real” lender – Fannie Mae and other large buyers of notes and mortgages. They collect these and pay dividends to their investors who buy stock in blocks of investments called mortgage backed securities that are sold through Wall Street brokerage houses.

Fannie Mae mandated that any company who services loans for them must set up a “Loss Mitigation” department. These divisions would be charged with the responsibility to do a workout with the defaulted payor, if a workout were possible. That includes some money now, the balance later; some money now, the balance paid monthly (at zero interest) along with the monthly payment; some money now, with the balance added to the end of the loan; no money now, just start up the payments again and we'll work out the balance later; a Deed to the lender in lieu of foreclosure; or even cutting loses now, while the house is still occupied and accept less than is owed on the mortgage for a payoff now, rather than a sale much later after the property has been foreclosed (perhaps further delayed by multiple bankruptcies), fix up expenses if vandalized, after all attorney fees and costs of sale including Realtor ® commissions, property taxes, insurance, utilities and the risk of liability on the vacant property, plus lost investment opportunities. So, taking all these costs, cash requirements and risks into account, it made pretty good sense to get part of the loaf now and move on to a new bread factory (reinvest the cash in hopefully a better mortgage).

Here's where the cheese is for you real estate mice out there. The system is called a “Short Sale”. What is a Short Sale? The borrower must be ready to sell the house. The new buyer makes an offer to buy, which is less than the mortgage balance due. If the servicer/lender
accepts, then the sale can proceed and the seller moves on down the road. There are some nuances and procedures, which must be followed, but it is a fairly simple process. A few caveats are in order here. First, this really doesn't work too well without the cooperation of the defaulted borrower. You see, they will have to agree in writing that they are to receive zero proceeds from the sale. The short sale also requires a bona fide contract between buyer and seller showing zero money going to the seller. The contract would be for the short sale amount. You must be sure to address delinquent taxes, who's paying the closing costs and that the property is being sold “As-Is”. You will also need a hardship letter from the seller describing the predicament that got them into this mess; a proposed HUD-1 standard closing statement showing how all the numbers add up. This is a “proposed” closing statement submitted to the lender prior to any acceptance. Sometimes they also require W-2's, tax returns, etc. I usually include a “ BPO ” (Broker's Price Opinion) stating the “quick sale” value placed on the property by my friendly Realtor ® , who also is aware of the “real” condition of the property. Often the lender will still require and pay for an appraisal. Sometimes they will accept my local contact appraiser. I always include photos if it looks bad. We usually give comparable sales data to assist the appraiser in determining the low price I've offered to the seller. I also always include a cover letter explaining what is happening and what we are looking for.

Don't be discouraged if you don't get a quick answer. I worked on one property for over a year and still didn't get the deal! Realize that not only was the loan in default, but the lender didn't receive a single payment while this was going on!

FAT PROFITS CAN BE MADE. I recently negotiated a short sale on a property worth $450,000. The lender accepted $236,000 on a $285,000 balance and the second lender accepted $21,500 on a $160,000 loan. My costs were $8,000 for repairs, $8,000 back taxes and $2,300 for closing costs. Even though I incurred an additional $25,000 in interest expenses and sales costs, that's still a $150,000 profit just on that one deal!

What I've started doing that really works is to submit my package to the lender – not ask for their package. Mine is designed to justify the discount shown on the Purchase and Sale Agreement.

Don't miss this marvelous opportunity to cash in on property generally ignored by most investors, such as deals with little or no equity, deals needing extensive repairs and deals with huge payment arrearages. The lenders are ready to deal. All you have to do is work the program to get huge profits.

The lenders win because they save all the costs, delays and risks. The sellers win because they get rid of the unwanted house and debt. And you win fat profits because you were smart enough to get this Certified Deal Specialist Training.

I hope I opened up a whole new way to riches to you on deals ignored by your competition.