How To Work With Distressed Sellers: Answering All The Questions

How To Work With Distressed Sellers: Answering All The Questions

Working with sellers is the lifeline of your business. Regardless of how you market, all roads will eventually lead to you getting a seller to agree to the deal. This is even more pronounced if you are targeting distressed homeowners. Any type of foreclosure or pre-foreclosure sale needs to meet the approval of the seller, regardless of their situation. You may not think they have any leverage, but they still own the property and do not have to sell. Even if your offer makes sense, you need to be ready to present it to the homeowner. With this will come plenty of questions objections. You need to be ready for all of them. Knowing how to work with a distressed seller is critical to success.

The first think you need to understand is that this is a difficult time for any homeowner. Nobody wants to be late on their mortgage and staring at an uncertain future. If you put yourself in their situation, it should be easier for you to think of some of the questions they may have. Many investors will lose potential deals by trying to expedite the process and push the deal along. If you go into a meeting armed with some common objections, you will be much more likely to leave with their signature on the contract.

It is no secret that the foreclosure process can take months and, in some extreme cases, years. While the process for lenders has improved, it is still rather lengthy. Your objection to this question should be that you are at the mercy of the bank, but can make the process quicker if you know how to work with a seller. The number one reason they are going to sell is to avoid foreclosure. This starts after they are four months late on their mortgage. If the process is started, but not completed, it is much less damaging on a credit report than if the foreclosure goes through. That should be what you stress, and the primary goal for the transaction. If they want to drag the process out through the foreclosure, they can, but the deal gets much less attractive to you the longer you wait. There is no telling where the market will be in nine months. The homeowner can stay as long as the bank allows, but the longer they do the worse the impact on their credit report.

Why don’t I just do a do a short sale?

They can always work with a realtor and list the property, but there is not saying that it will sell. If they have equity and the goal is to avoid foreclosure, selling before it gets to that point is the only way it will happen. Once they start the short sale process, it can take several months. However the damage to their credit will be done. If there is a short sale or foreclosure, it can be years before they can purchase again. If they are just 90 days late and want to sell, they can do it without that stain on the credit. A short sale will buy some time, but it will be much harder to recover from.

Another investor offered me more for the property?

Ask them if they saw the property and ran all the numbers. Many novice investors will blindly offer an amount in the attempts to start the process or begin negotiation. They should be careful of working with someone they haven’t met or that hasn’t seen the property. If you are late on the mortgage, every week that you waste brings you closer to foreclosure. This doesn’t mean you have to rush to accept an offer, but you do need to act quickly. If another investor hasn’t put an offer in writing, you should be skeptical that they will after they see the property.

What do I get out of selling?

If there is any equity, they will receive that amount, minus closing cost and commission. If the foreclosure has started and it is a short sale, they may be able to get a small amount of money from the bank or from the seller. Keep in mind that they have no equity and are staring at foreclosure. Any money they receive should be viewed as a bonus. Even if the property is listed as a short sale, the foreclosure does not go away. Depending on the state, there will only be so many extensions before the bank finally takes the house. Getting some money to move out and move on is nice, but it is up to the lender or the investor to do so.

I think I am going to wait to see what my options are?

You, the investor, are not an attorney and should not give legal advice. If they want to talk to an attorney or their lender, you should encourage it. Here is where you should let them look around. You will gain credibility and trust if you do so. No investor should expect a signature on a contract after the initial meeting. Instead, give a deadline of a few days or even a week to think about it and find out any information they can. If you push during this time, you will lose the deal.

Dealing with distressed sellers requires a balance between pushing the deal forward and knowing when to back off. Every meeting you go to you should be ready to be bombarded with questions and scenarios. The more prepared you are for this, the more deals you will likely to receive.

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