I wanted to quickly answer a few questions you had about this principal reduction stuff I told you about.
So over the last few years, it’s no secret what’s been happening to the housing market. Prices have continued to decline and we’re still seeing high foreclosure rates across the country. Most homes right now are either upside down or very close to being upside down. Very few have little if any equity. This makes it very difficult to sell houses in the event financial situations change which cause homeowners to relocate, or move to a smaller home.
For many, you would think the perfect solution would be a short sale. However, there are a few problems with that…
The homeowner almost always has to move into a different home. No homeowner likes to move, especially if they’ve lived there for awhile. Their credit shows a cancellation of debt which effects buying decisions for the next 3-4 years. In some cases, homeowners have deficiency judgments filed against them forcing them to declare bankruptcy. They also walk away without any money!
So far I’m not seeing a ton of benefits here except that the homeowner avoids foreclosure (which is big of course) and they get to live in a home rent free for a long time 🙂
Even though these are good reasons why a short sale is still a better option than foreclosure, there is an even better way that basically benefits the homeowner BIG TIME!
Not only do they avoid foreclosure, they get to stay in their home, their credit is not affected at all like a short sale, there is no deficiency judgments and here’s the best part, in most cases after they’ve reduced or eliminated their 2nd mortgage, their home now has equity. They go from no equity or negative equity to instant equity so they can now sell their home if they need to which means they can put money in their pocket instead of just walking away empty handed.
Ideally though, by reducing or eliminating the 2nd and 3rd mortgages, it will allow homeowners to stay in their homes because their payment is much smaller now. And that’s what we really want, homeowners to stay in their homes.
Here is an example of one we did recently for a gentlemen. He had a $450,000 first mortgage with a $250,000 2nd mortgage. This is obviously a large 2nd mortgage that I’m showing because you get bigger discounts on larger mortgages. His house was worth $550,000 so he was upsidedown almost $150,000. No way will he ever sell that house. He was actually thinking about “strategically defaulting” on it because it just didn’t make sense anymore to pay what he was paying for a home so far underwater.
We took that $250,000 and negotiated with the bank and they accepted $12,000 as a full payoff of the note. Needless to say, he came up with the money to pay it off and now has equity in his home. Eliminated $230,000 of debt and $2000 a month in payments. This was one of our better settlements. They typically aren’t this good, but they can be and homeowner will love you forever.
Here are a few others we’ve done over the past few years…
– $250,000 second settled for $42,000
– $303,000 second settled for $46,000
– $150,000 second settled for $52,000
– $200,000 second settled for $58,000
As you can see, it’s all over the board. There is not a set percentage of how much you can discount. Obviously, we work hard to get the highest discount but every bank is different, timing can be a huge factor and sometimes it just depends on how well the day is going for the negotiator. You hope you catch them on a good day.
So how do these principal reductions work?
What we are doing is NOT a secret. Every bank in America does this every single day. In fact, if you own a home chances are it’s been done to you. Have you ever received a notification from your bank saying a different bank is now servicing your loan? Well, your note has been sold to another bank at a discounted price. Depending on if it’s performing or non-performing, they may pay more or less for it.
When this happened, did you ever get a ding on your credit? Did you have to move? Did it happen because you were delinquent? Heck NO!
That’s what we’re doing. We are going in and buying the notes for a discount from the bank and allowing the homeowner to step in and buy them from us for that discounted price, plus a small fee of course 🙂 Yes we do charge a fee if homeowners want us to negotiate for them. We charge 3% of the loan amount or $3000 minimum whichever is greater. You can help others for free if you want, that’s up to you, or you can charge people just like we are and who are more than happy to pay it.
Remember too, you shouldn’t charge an upfront fee, only when the note is settled. Homeowners can do this themselves if they want, then there are no fees at all. And homeowners don’t have to be delinquent. Like I said before, loans transfer from bank to bank all the time regardless if you’re paying payments or not. We’ve settled several notes where the homeowners were struggling to make payments, but were never late on any. A few of them were not even upside down. To a bank, it’s all about the time value of money. They would rather take less now because it’s worth more to them.
If you’re an Agent, you will absolutely love this strategy. You could actually get a double payday. One payday when you help settle the note for the homeowner, the other payday happens because the homeowner loves you so much for what you did, they list their house with you too. Then they start referring all their upside down buddies to you and pretty soon you have to start hiring a team to list all your properties and settle those notes.
Our success rate is about 80% and this is the hardest part for people to understand. How can your success rate be this high? It’s because of the relationships we’ve built with banks over the past several years. We do this everyday, we know these negotiators by their first names, plus we are just good at what we do. It’s how we can get the results we are looking for. It’s doesn’t matter where you’re at… it does help though if you live in a city where people took out some massive 2nd and 3rd mortgages 🙂
We love BIG 2nd mortgages and 3rds too just because we can get some huge discounts as you can see from the examples above. But, we take the small 2nd’s too. Unfortunately we haven’t been able to crack the code on the first mortgages, so those of you that like this idea but don’t have a 2nd mortgage, it won’t work for you. At least for right now… we’re working on it.
However, I’m sure you know other people with 2nd mortgages that you might be able to help and earn a small fee for helping them. Or if you send them our way, I’m sure we can work out a deal with you.
You can settle ALL notes (yes rentals too, we did 5 for a guy last year), that are not in senior position. There is one exception… one bank… Yep, you guessed it. Good ole B of A. If you have a 2nd with Bank of America, they are the only one we can’t settle notes with. We’re still working on them. VA and FHA loans, doesn’t matter. They are ALL settlement worthy.
Bottom line, homeowners LOVE US! I mean it’s like we are handing them a huge check and it’s not just a temporary solution either. It’s final.
Ok, I think this helped answer the majority of the questions. I’m sure there will be more, so just leave them in the comments and I’ll answer them as we go.