Here’s the set up.  Your seller owns a home that you sold to them 5 years ago.  It has a mortgage on it for $350,000 but the house is now worth $175,000.  Your clients, now motivated sellers, lose their job and call the lender looking for assistance.  The lender says your clients do not qualify for a loan modification but could short sale their home considering their hardship. 

Following the advice, they come back to you, the top agent in town who knows their way around the short sale process really well.  After a bunch of work, confirming the situation with the lender, and starting your marketing machine — you find a buyer who is well qualified and who offers full value for the property, subject to the lenders’ approval of the short sale, of course.

Being the best and most diligent real estate agent in the world you work feverishly to meet all of the terms of the lender, do their regular complex job of keeping the sale working by coordinating inspections, ensuring lender approval on the buyer, pest inspections, escrow coordination and the list goes on from your professionally prepared checklist that you have got from your real estate mentor – me!

You supply the needed information requested by the lender, including the completion of their paperwork (multiple times, as they seem to lose everything).  You secure a sale approval from the lender.  The buyer, of course, is happily waiting for all of this because you took a huge deposit along with making the buyer pay for an inspection and appraisal up front, prior to approval. 

All is looking great and you can imagine all the places your commission can be sent.   You get the call from the escrow agent to arrange your signing.  The buyer goes in and signs.  As the sellers go in to sign, the lender, who agreed to the short sale, calls at the closing and does one of two things:

1.      States they have done another BPO and want more money from the buyer or seller, or they will not       close.  OR

2.      Pulls their approval and refuses to close on the short sale.

The buyer and the buyer’s agent are furious!  Believing that all was okay and escrow was about to close, the buyer has given notice at their current home.  They have the moving truck packed and they want to sue.  They aren’t sure who to sue, but I’m sure their attorney will help with that part!  They probably can sue, too. 

Your sellers are furious as they have done everything the lender demanded.  They agreed and now they are reneging.  They also want to sue.

You have saved the day, sold the property, got the bank back their lions’ share of their investment, and have done it all in record time.  You want to sue.

Can you all go after the mean bank and sue them?  Generally, while acknowledging that every situation is different, the answer is no.

Related to the lender, as much as you do not want to hear that answer, under the pre-existing duty rule, an agreement to modify a contract without legal consideration is not valid.  Putting this in more clear terms, the lender is owed $350,000 under a contract with a pre-existing duty to pay that lender that $350,000.  You, the seller, and/or the buyer are trying to hold the lender accountable for an agreement to take less than is owed to close the sale.  However, a basic premise of a contract is money consideration or some sort of consideration.  That subsequent agreement, to take less in an existing contract, is not supported by any consideration.  The seller is actually going to pay less than the pre-existing duty requires, therefore no consideration, and the lender is going to get less than their existing contract states, no consideration there either.  The agreement they have made that they would take less is not enforceable for lack of consideration if they change their mind.

This pre-existing duty rule is usually referred to as the Foakes v. Beer rule.  This very fundamental case was decided in 1884 and is the leading case from the House of Lords on the legal concept of consideration.

The buyer cannot sue the lender as they do not have a contract with the lender.  The seller has a contract with the buyer, which is subject to the lender approving the short sale.  The buyer may want to argue that the lender agreed and they detrimentally relied on that approval and have been damaged.  While that argument may have some weight, the lender is going to argue that the buyer should know of the pre-existing duty rule and know that even if they agreed to the short sale, it was not supported by consideration and they can change their mind.  You, the listing agent, have to close the transaction to earn a commission. 

In conclusion, the general rule is in the lenders’ favor, and it will be a very complicated and expensive litigation with great risk to pursue it on alternative theories.

This is where you have to be careful because the real estate agent does not want to represent to the buyer who was approved by the lender who approved the short sale and now the buyers have an enforceable contract.  Agents who do that may find the buyer, in relying on the representation, may be claiming they are damaged by giving notice and moving, and may subsequently have an action against the agents involved.

I know this does not seem fair!  However, fair or not, the most important piece of information here is to understand these risks and act accordingly.  Sellers should be careful what they represent, agents should be careful what they represent, and buyers should not put themselves in harm’s way until the transaction actually closes as the lender can change their mind to the buyers harm right up to the actual close.

In doing my research on this, I used sources from Kimberlee A. Rode and David A. Pereira.  It seems that the short sale pain never ends so the following systems must be put in place:

1.      List short sale property only when the seller actually cares if it sells.

2.      Spend less time at a short sale listing presentation by ordering a title package to determine additional liens.

3.      Only take one lien or one lender short sales.

4.      Refer the rest

5.      Spend less time at a short sale listing presentation by sending educational materials before you get there.

6.      Ask for more commission, a longer time frame, and any fees that you incur from the seller.

7.      Spend no money on marketing.  90% of all properties sell based on their price.

8.      Accept the offer that is going to close, not the highest price.

9.      Counter all offers on deposit, lender, affiliates, and timing; if the buyer is really interested, they will invest in an inspection and an appraisal up front.

10.    The bank can not interfere in a contract between you and the seller.  Commission reduction requests are tortuous interference of a contract.  If they want more money ask for it in sales price, not commission. 

11.    Try to get both ends of the deal. 

Short sales are going to be a fixture in our industry for awhile.  Don’t take the painful ones.

Here is a question that reminded me that lead generation is a combination of many forms of media.

Question: 

Hi, Walter!  Do you have a letter to use with Old People Big Houses?  Also, can you suggest a letter to use to send out to people who have put their houses on Zillow.com as “Make me move”?

Thanks!  Alex

Answer:

Hey, Alex!  Yes, I have worked up solicitations for these two demographics.  They are in the new letter book, which you will be getting in about 90 days.  Below are the main points:

1.      Here is the value — save on taxes, save on utilities, reinvest equity toward retirement, save on upkeep, and increase security.  At the same time, get record low interest rates on their new purchase, therefore freeing up more money for retirement and investment.   Also, tell them that this market requires a substantial amount of research to achieve their goals so you should meet with them before they probably believe is really necessary.   

2.      Make me move.  This is a weak lead; however, go over the “buying up in a down market” scenario.  Discuss the fact that record low, bottom of the barrel interest rates will not last.  Present them with this information: “Did you know that a 1% increase of your rate on a $200,000 home will cost you $XXX,XXX.XX over the life of the loan and drop the value on the same home by $XXX,XXX,XXX.XXX?  You presented the challenge so when can we meet, allowing me to learn your exact needs and develop a customized plan to achieve them?”

During the past few years, I would talk with agents across North America, and I could tell there were going to be some bumps in the road.  I would ask the agents to be just a little bit more careful.  I would ask them not to get the 95% interest only loan.  I would ask them to save a little money and not buy so many toys.  I would ask them to watch their overhead and initiate new lead generation systems that would supply a fuller pipeline.

Some listened and are doing just fine right now in the midst of our challenging market.  Others are scratching their head and wondering what their new plan should look like.  In fact, they want to make up for lost time.  These are the agents who are reading the articles about how the government used the social security trust fund for general spending.  These are the agents who forgot to put money in their 5-2-9 for their kid’s education, and they haven’t been funding their SEP IRA.  On top of that, some of their real estate nest egg has “cracked,” and it is now time for them to start getting serious about real estate again. 

There is a plan that works just fine in this market.  I worked the plan through two tough markets, and it’s the same plan my coaching clients and thousands of others follow today.  It’s time for a reality break.  The market isn’t changing soon…so you’d better change!

There are many success stories in this market.  If you are not one of them, you are not doing hard core prospecting for at least four hours a day.  You also need to overcome today’s client objections, make a listing presentation that wins, and quit wasting time on stupid business.

If you aren’t a “success” story (yet!), it’s time to get to work!  What kind of work?  Prospecting.  I know – that’s the second time I have talked about it.  You need to talk to ten “warm” seller leads before you get one listing presentation.  Stop your feng shui class.  Quit your staging instruction. 

Announce to your Facebook, ActiveRain, and Twitter followers that you are going to back to work, and you’ll keep them updated on the value you are providing your new demographically proper sellers!  Don’t spend a lot of time announcing it to your Facebook friends, if they don’t really care; in fact, if they don’t care, are they really your friends?

Time block your prospecting, your listing leads, your current listings, your buyers, your pendings, your communication (email and phone), your database follow up, and your goal planning.

Wait, goal planning?  Yes!  Do you have a plan for every day, week, month, and year?  What about five year and ten year plans?  At Sanford Systems, we work the plans, work them again, and then compare results against what we want.

Some of you already do what I have explained.  If you are in trouble for the future, then do THE PLAN.  Some of you cannot.  I can, I have, and I teach others how to do it.  One-on-one coaching is expensive but attending a seminar isn’t.  I’m sure there is someone in your area who hires real estate speakers.  The next time you hear about the continuing education class on something that makes you no money – you might speak up to say, “Hey, get someone here who can help me make more money!  I need to make up for lost time!”

An oil and gas lease lottery millionaire by age 16, Walter S. Sanford was in massive debt by the time he was 22.  Taking his winnings, he invested in over 400 units and found that high leverage real estate can be detrimental to your financial health. 

Obtaining his real estate brokerage license during the 80s, Walter went on to become what some believe to be one of the top agents in North America.  He built his career on systems that are in demand by virtually ever major franchise and top producing agent in the world.  1995 was Walter’s best year, in the midst of a real estate depression in Southern California, where he personally closed 316 transactions. 

Walter Sanford now coaches some of the top agents and travels internationally to deliver his seminars based upon systems with velocity increased by technology.  He is the author of 10 ground-breaking books and software that assist top real estate producers in not only beating the competition but also providing lasting estates for their future.  Systems are his passion.

Walter has been buying or selling real estate for the past 35 years.  It took a long time for Walter to find balance, but today, he runs a successful coaching and training business.  He enjoys life in “small town America” with his wonderful wife and two darling daughters.

Many speakers and trainers have never been involved in real estate brokerage aspects and none have ever been involved to Walter’s extent.  If you would like to know more about Walter, please visit www.waltersanford.com.  You’ll find more information about how to hire Walter as a speaker or coach and how to obtain his ground-breaking products for your library.  Walter can also be reached at 800.792.5837 or walter@waltersanford.com.

Sometimes, I get an email that makes me sad.  How does this happen?  Is it bad training?  It is an improper focus on buyers?  Is the person in the wrong business?  The only solution is to give them a simple plan and see if they do it.  If done everyday and they have any people-pleasing abilities, they will be a success.  If it is not done, we know the real answer.  Here’s how it started:

Question:

Hi, Walter.  I have never emailed a coach before although I receive at least twenty to thirty emails a week from coaches and lead generating opportunity websites, but to be honest with you, they never grabbed my attention. 

Every week, I get an online newsletter and it always has one or several good articles to read.  This week, your article (What the Top 1% Do) caught my attention (great title by the way).  I honestly didn’t know how the top 1% thought or what they do so thank you for enlightening me. 

I am trying to learn everything I can in order to make a living at real estate.  I’ve only been a REALTOR® for a little bit over 2 years.  To be honest with you, I am struggling although I’m working 8 to 12 hours every single day of the week.  I try to use my time wisely but my phone isn’t ringing very much.  We don’t have floor time in our office.  There is a lead generating system in my office, but every call I get seems to be a buyer only wanting to pay $18,000 for a property that has been foreclosed on.  Plus they require financing and have bad credit so that’s not going to happen in today’s market!

I’m not trying to cry a sob story to you.  My husband works part-time at Target, which is the only job he could get and he just started 4 months ago.  We have no health insurance and together we are not making enough money to pay our house payment.  I don’t have the money to pay a coach right now, but I need some help.  I would be happy to pay for a great coach, if I was able to make some money at this!  It’s not about not wanting to pay; it’s about being able to pay.  I would gladly pay you a percentage of my sales, if I could get the closings I need. 

I am working very hard; for instance, I recently put in 16 offers within a week for an out-of-town investor.  14 of the 16 offers I submitted for him were multiple offers in which the bank rejected every one and the other 2 that did get accepted — the investor withdrew the offer as he wanted the banks to be financially responsible for some of the repairs and the banks refused.  

I have over 115 buyers that I am sending listings to and it seems like hardly any of them are buying or at least putting in offers.  Orlando is screaming right now with foreclosures, and we are 3rd in the nation when it comes to the number of foreclosures on the market.  If buyers are looking for a good deal, it doesn’t get any better than this right now!

Also I am reading a book How to Sell Anything to Anybody by Joe Girard.  It’s a very good book.  I can’t get out and walk the neighborhoods as I have very bad arthritis in my knees (bone on bone), and I am only trying to mail letters to the homes where they are in pre-foreclosure (short sale) or behind in their payments so they might want to sell their house more than other prospects.  I only have 1 listing, but I have just received another prospect that I just sent a CMA to tonight.  I am not a pushy person.  Actually I’m so shy, I haven’t been able to get the nerve to go knock on someone’s door.  I can tell you that I am ready to come out of my shell now and do what I have to do to make it!

With all of the studying I have done, I know that “listers are lasters” and I know I have to get more listings.  I just don’t quite know the technique or what to say.  I don’t know what ever made me think I could sell houses, but I have a passion for it and I love doing it.  I have had quite a few closings and that just energizes me to do more.  I want and desire to be in that top 1% which right now seems unattainable, but I have the heart. 

Maybe if you could straighten out my head, I could start making a living in real estate instead of just working.  I could really use your help, but I have no idea what will bring me business now so I can survive.  Hopefully, I can make my bills next month (even the past due bills).  I am not a deadbeat, but I am afraid we are going to get behind in our payments and lose our house.

As you can see, I don’t have any communication problems on the computer, and I type faster than I talk so I hate to waste your valuable time.  It may be a challenge, but do you think you could turn me around and help me become a success story?  I promise you — you won’t regret it.  I will be your best poster child!  Thank you so much for taking the time to read this.  Bless you and keep writing those great articles.  It gives me hope and inspiration and that’s what we all need right now!    

Answer:

I will use few words, because there is no argument or negotiation with this plan.  This is going to sound really harsh so prepare yourself — if you don’t call me and sign up for my coaching plan in 90 days then either you are not good at sales or you just did not do it.  At the end of the 90 days, you should have more listings and buyers than anyone in your office.  I know this because I’ve done this – time and time again!  My coaching clients have done this when they were trying to build their business, too.  Don’t miss a day and cancel any days off or vacations for the next 90 days. 

Step One:

• Every day, six days a week you research every expired in a 40-minute driving time radius.  Find their phone number and address.  Call each of these expireds in the morning and say, “Hi, this is (insert your name).  I noticed your property came off the market.  I would like to apply for the job of achieving your goals; however, I first would need to have you tell me your goals.”
• Leave messages if they are not home or available on their cell.
• Send them all a letter filled with value.
• Go knock on every expired door in the 40-minute radius.
• Call one more time before you go home (to the people you could not reach).
• Spend Saturday calling one more time.
• Fill your database with time-sensitive leads.

Step Two:

• When you go knocking, hit the FSBOs in the area at the same time.

Step Three:

• Block all day on the last day and first day of the month because there are more expireds during these times. 

Step Four:

• Read all the articles on my website, the newsletter archives, and blog posts.

There is no luck involved here.  It’s strictly 4-6 hours of focused dedication and hard work.  I hope to hear from you in 90 days! 

An oil and gas lease lottery millionaire by age 16, Walter S. Sanford was in massive debt by the time he was 22.  Taking his winnings, he invested in over 400 units and found that high leverage real estate can be detrimental to your financial health. 

Obtaining his real estate brokerage license during the 80s, Walter went on to become what some believe to be one of the top agents in North America.  He built his career on systems that are in demand by virtually ever major franchise and top producing agent in the world.  1995 was Walter’s best year, in the midst of a real estate depression in Southern California, where he personally closed 316 transactions. 

Walter Sanford now coaches some of the top agents and travels internationally to deliver his seminars based upon systems with velocity increased by technology.  He is the author of 10 ground-breaking books and software that assist top real estate producers in not only beating the competition but also providing lasting estates for their future.  Systems are his passion.

Walter has been buying or selling real estate for the past 35 years.  It took a long time for Walter to find balance, but today, he runs a successful coaching and training business.  He enjoys life in “small town America” with his wonderful wife and two darling daughters.

Many speakers and trainers have never been involved in real estate brokerage aspects and none have ever been involved to Walter’s extent.  If you would like to know more about Walter, please visit www.waltersanford.com.  You’ll find more information about how to hire Walter as a speaker or coach and how to obtain his ground-breaking products for your library.  Walter can also be reached at 800.792.5837 or walter@waltersanford.com.