Tuesday, April 27th, 2010 at 9:24am

Legitimate Investor Flips Reduce Loan Losses

Posted by Ron Ballard

As the saying goes, “if all you have is a hammer, everything looks like a nail.” The gist is that one’s view of solutions is biased toward one’s window on the world.

A fraud investigator may think of business in terms of losses, often neglecting to check off each element for a claim of fraud before allowing an article about it. A loss analyst thinks in terms of the difference between principal amount and payoff. 

Few people involved in short sales see all sides of the deal AND what it takes to make deals work versus deals that fail. Short sales negotiators, especially those who negotiate investor deals and “retail” end-buyer deals, see how deals actually get made and how they fail.

The loss analyst might see a principal reduction of 22% on a investor purchase and a subsequent resale that would have been only a net reduction of 10% and think that the 12% difference was an avoidable loss. In most multi-lien cases, the loss likely was not avoidable because the retail buyer would not have been willing, or able, to make the deal succeed.

The valid economic and public policy comparisons are not the differences between the wholesale investor purchase payoff and the retail sale payoff, but the return to the note holder between the wholesale purchase payoff and the likely lower net return on a foreclosure which eventually sells as an REO property. This is due to the fact that the retail sale never would have occurred but for the role of the investor.

Ben Pargman, an attorney who heads a large, national short sales negotiation service, cogently explains how this happens in his blog post titled “Without a Deal Maker, the Deal Does Not Get Made!”

You can read it at http://bit.ly/cupA6P

(It should go without saying that this discussion applies only to legitimate investor flips in which their is a true seller hardship and the parties make appropriate disclosures. Previous posts and webinars by this author and others have made it clear that the “appropriate disclosure” that an investor should make is that the investor is making the purchase for rapid resale with the intent to make a profit. This does not extend to disclosing the offers that the investor is subsequently receiving or eventually putting under contract. As everyone active in real estate knows: a deal isn’t done until it’s done.)

3 Responses to “Legitimate Investor Flips Reduce Loan Losses”

  1. Rick Colson says:

    I appreciate your honesty and integrity and after reading your blogs I like the way you stand for good things.
    I’m really interested in helping some distress luxury home owners out and will sign up to use your forms when making these deals happen. I think it will be fun helping others out while making some money.
    Thank you,
    Rick Colson, Realtor 322-4567
    Coldwell Banker Laguna Beach
    [email protected]

  2. Ron Ballard says:

    Hi Rick,

    Thank you for your kind comments.

    Working with distressed homeowners can be rewarding, frustrating and profitable — whether as a real estate agent, investor or both (with proper role separation in each deal).

    Maintaining good communications with everyone involved and having systems operated by a team (at least two people — one member must be solely focused on the transactional paper flow and negotiations progress) is one key to success.

    There’s various trainers/coaches and software/ASP providers out there to support you. I interface and provide support in the training of several systems so I won’t list them here.

    When the deal is completed successfully with good rapport all around, the thanks received from the relieved homeowner is as worthwhile as the income.


  3. Rick Colson says:

    Thanks Ron,

    Your words flow with wisdom. Maybe your the modern day Real Estate Attorney like a biblical Joseph type. I’m just sayin!

    Yes I feel Real Estate is frustrating right now but the more I learn and grow the better I feel equiped to help others and sort of carve out a much needed nitch for myself.

    Three weeks ago I’m the Realtor on a (beach front condo in Laguna) listing presentation and find out there are three liens on the property: two IRS liens ($45,000) and one HOA lien ($18,000) and a private note from a friend for $85,000. He’s a sweet old 83 year old man that has nothing but another Realtor telling him he can get him $75,000 for his furniture at closing. Which I feel falls under something discriminatory towards senior citizens if he does not perform and the lender really wont like it the kick back. I’ve seen his furniture and it’s not great at all.
    His property is worth $1.4 maximum and he owes $1.7M. NIce ocean view and corner unit thou. Good location, Lido Condo’s in South Laguna. They have there own little beach cove plus the place went through a exterior upgrade 3 years ago.

    Since I did not get this listing I want to see if the Realtor will let me Loss Mitigate this deal!

    Also I would need to find a private lender for the closing of the A to B contract. I assume that is for the full negociated price from A’s lenders plus full closing cost and Realtor’s fees.Does that sound about right?

    How would one find a private lender? Maybe a local bank with no seasoning on the monies? Hard money lender? Or just private investor that jumps in with all cash.
    What’s best if I have no private investor?

    Thank you for your time and consideration in answering these questions.

    Rick Colson, Realtor
    Coldwell Banker Laguna Beach
    [email protected]

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