Jim Hastings, Advisory Council Vice Chair and Broker/Owner of Hastings Brokerage, tells us how members can supplement their income through diversification when REO inventories are low. Read on to see which three services he suggests you add to your portfolio today.
Short Sales
A short sale refers to the sale of a real estate asset in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. If all lien holders agree to accept less than the amount owed on the debt, a short sale of the property can be completed.
Borrowers need to contact their servicer and ask about a short sale if they owe more on their home than it is worth, also known as being upside down. In some circumstances, the servicer will incentivize the borrower to complete a short sale. Borrowers must always ask their servicer before considering the short sale option. If the home is sold for a loss the servicer will issue the borrower a 1099c (Cancellation of Debt).
The borrower needs to consult with a tax accountant to find out if there are other opportunities available to them in order to avoid paying taxes from a 1099c. If there are additional loans behind the first loan, they may be able to settle for less than the current balance. The borrower needs to ask each servicer for a settlement offer as needed, especially when the borrower is upside down.
Cash for Keys
When assigned a property from a seller, the first thing to do is check occupancy. Try to get as much information from the occupant as possible, so you can report it back to the seller. If you can’t make contact with the occupant, post your contact information on the front door along with any paperwork from the seller, a process often called “Knowing Your Options.”
If you do make contact with the occupant, ask them for their names (anyone living in the home that is 18 or over), their phone number(s), if they have an active lease, or if they are tenants. Also ask if they are currently active in the military, if they are using Section 8, if they have any plans to move out, etc.
Report any information gathered back to the seller. The seller will then determine the course of action they want to pursue and if they want to offer the occupants cash for keys. If they want to move forward with cash for keys, they will decide how much they want to offer the occupants and a proposed vacate date for the occupants to move out.
Making the Offer
When a seller informs you that they want to offer the occupant cash for keys, contact the occupant and let them know they are being offered relocation assistance. At this time, also inform the occupant that if they accept the offer, funds will not be issued until the vacate date. Notify the occupant that the property must be in broom-swept condition, free from vandalism, and all belongings must be removed from the property.
Make it clear that they will not get the money until the property passes inspection, as some occupants will leave items behind and claim they came with the house. If an occupant asks if they can take any appliances, lighting fixtures, etc., notify the seller immediately and ask them if it would be okay for the occupant to take any of the items in question.
Most of the time, an occupant will ask for more money and/or a longer vacate date, which you would have to report back to the seller as the occupant’s counteroffer. You will then negotiate back and forth between the occupant and the seller until a deal has been reached.
Once a deal has been accepted by both parties involved, send the appropriate cash for keys paperwork for the occupant(s) to sign, and the seller usually has their own paperwork that they want to be signed. Have the occupants sign the paperwork, and then send it back to the seller for approval. Once the seller approves it, they usually will send you the check or have you advance the funds for which they will reimburse you.
If an occupant is asking for more money or a longer vacate date than the seller is willing to give, the seller will usually cancel the cash for keys offer altogether and proceed with the eviction. Some sellers have a set amount they offer and are not willing to negotiate.
Issuing the Check
Once you receive the check from the seller, inform the occupants that you have the check in-hand and ask if they want to schedule the walkthrough for the agreed upon vacate date. Typically, they will set a time and date for the inspection, but some will wait to set up the walkthrough until closer the to vacate date.
After you inspect the property and it clears the inspection, issue the check to the occupants and then rekey the home and secure it. Sometimes, an occupant is almost moved out, but they need a bit more time to completely vacate the home. Ask the occupant how much longer they need to fully move out of the house, then ask the seller if you can grant an extension and how much more time they are willing to give the occupants.
If an occupant fails to vacate completely or in a timely manner, the seller will often cancel the offer and proceed with the eviction. The eviction attorney will then go through the courts to complete a judge-ordered lockout.
Deed-in-Lieu
Agents are typically not involved in deed-in-lieu (DIL) negotiations. DILs are usually negotiated and agreed upon between the seller and the occupant before a property is assigned to you, the agent.
A deed-in-lieu of foreclosure is a deed instrument in which the borrower conveys all interest in a real property to the servicer/lender to satisfy a loan that is in default on order to avoid foreclosure proceedings. In some circumstances, the servicer will incentivize the borrower to complete a DIL, and the borrower must ask the servicer about this option.
When you receive a property as part of a DIL, go out to the property to inspect it, confirm occupancy, and gather occupant information. The seller typically informs you of the former owner’s name and contact information upfront. Inform the occupant that the property has been assigned to you and that we will be inspecting it when they vacate in order to complete the DIL agreed upon.
For DIL properties, sellers usually inform agents upfront if the occupants have accepted the DIL and notify them of the scheduled vacate date. The seller will usually tell the occupants upfront that the property must be in broom-swept condition, free from vandalism, and all belongings must be removed from the home.
In certain cases, you may be informed that the occupants received some funds upfront for signing (usually half of the amount) and that they will receive the rest of the funds as soon as they vacate the home. When the vacate date is near, the seller sends the check to you so that you can complete the inspection and transaction. Once you receive the check, inform the occupants that you have the check in hand and ask them if they want to schedule the walkthrough for the agreed upon vacate date.
Once you inspect the property and it clears the inspection, issue the check to the occupants and then rekey the home and secure it. You should also send date-stamped photos to the seller.