Have you heard of a simultaneous close, but aren’t sure what it involves?  You’ll find that it’s a surprisingly simple procedure and a great way to buy property with using your own money.

There are many ways to close a deal in real estate investing.  As a foreclosure investor you’ve probably heard of the famed, simultaneous closing, when purchasing a property from the homeowner.  It’s a great way to make a profit on your time and effort without using your own money to purchase a property.

A simultaneous close is when you buy the property from the homeowner and then immediately turn around and sell that property to an investor.  You very often are only on the title of the property for a few minutes at a time.  Plus, you can often arrange the deal so that you end up buying that house with your investor’s money!

How the Simultaneous Close is Initiated
You initiate a simultaneous close on a property sale by asking your investor to wire their money into the title company that you are using for escrow.  You have already given the title company prepares the two closing documents; one is where you buy the house for $70,000 and the other is where you sell the house to your investor for say $90,000.  That means you get a profit of $20,000 after both closings are complete.

When the title company prepares both of these documents at once, they’ll notice that your buyer has already wired their money into the company’s escrow account.  The title company will see that when you sell this property to your buyer you’ll be getting $90,000 and that the buyer has already transferred his or her money into the title company. 

So, rather than asking you to wire your own money into the title company so they can initiate the first sale (from the homeowner to you) they’ll just use $70,000 of the $90,000 that’s been transferred into the title company by your buyer.  Then, they’ll turn around and complete the second sale (from you to the buyer) and leave you with $20,000 profit without even using your own money!

Basically you’ve just ‘flipped’ a house, which in proper terminology is referred to as ‘Wholesaling’ a house and all without using your own money!  As you can imagine there is a little more to the process of making a simultaneous close, but this is the gist of the procedure.  It’s an excellent way to get involved in real estate investment and get profits with very little starting cash.

It’s easy to start feeling bad when you work with a homeowner in foreclosure.  Many think foreclosure deals just take advantage of the homeowner, but you can help the homeowner about to go into bankruptcy get some of their equity back.
When you work with a homeowner in foreclosure it’s common to feel a need to help the homeowner out of their tough situation.  You may even feel a little as if you are taking advantage of the homeowner by profiting off of this foreclosure deal, but you are helping the homeowner.  By stopping the foreclosure you can keep the homeowner from having to file a bankruptcy.  Many of these homeowners have spoken with lawyers who are telling them that the only way out of a foreclosure is to file for bankruptcy.  No one wants a bankruptcy on their records for 7 years. 

Giving the Homeowner a Little of their Equity Back
You can also give the homeowners a little bit of cash in closing the deal.  Many times the homeowners you end up working with are not at high points in their lives.  You can usually work a short sale or some other type of property purchase in a way that allows you to give the homeowners some of their equity back. 

Buying Something for Cash
You can even help the homeowners with a deposit or some other fees if they need it to get into an apartment.  You may be able to purchase the appliances in the house from the homeowner and give them enough cash for the security deposit on an apartment.  Buy the appliances or some furniture in the household and write up a ‘bill of sale’.  This then qualifies as a purchase of personal property.  Actually do the purchase and keep the furniture or appliances, don’t let the homeowners walk away with it!  Then you can make this a business deduction on your taxes. 

Giving them a Side Contract
Another way to help the homeowners is through setting up a small side contract to clean the house before they leave.  Just set up a contract allowing that if they clean the windows, scrub the carpets, remove all trash, etc. before they leave you’ll give them an agreed upon amount of cash, say $2,000.  It doesn’t sound like much, but in the worst of circumstances when the homeowner has absolutely no equity to take from the mortgage it is at least enough for them to put down the security deposit on an apartment. 

Small Problems with the Banks
More and more these days, banks are requiring the foreclosure investors to sign an affidavit saying they have not done any deals of this type with the homeowner.  Basically the bank just wants to make sure the homeowner isn’t profiting from the default of their mortgage. 

You may not want to bother with setting up side deals and contracts in order to get the homeowner a little starting over cash.  If this is so, just buy the mortgage through a note purchase.  Then you’ll become the bank and you can give the homeowner as much cash back as you want.

You’ll also be helping the bank by letting them get this default property off of their books and freeing up the cash reserves that the banks are required by law to keep on hand to cover foreclosed mortgages.  You’ll be making money for yourself and your investors will be making money.  Foreclosure investing is a win-win situation all the way around the table.

A Seller Carry-Back Mortgage isn’t as scary as it sounds.  It’s a very simple way for you to buy a mortgage note from the individual mortgage note owner.

Buying mortgage notes isn’t all that hard as you’ve probably heard from some other property investors.  There are two basic ways to get into your first mortgage note.  One is to approach a bank and the other is to approach a homeowner about their own homeowner mortgage. 

Purchasing the homeowner mortgage note involves dealing with people who have owned their house free and clear and went to sell it but had some trouble getting anyone interested.  After a while the homeowner is approached by one interested buyer who came along with less than perfect credit.

How a Homeowner Mortgage Gets Started
The interested buyer couldn’t go get a bank loan, but he did have about $20,000 in cash saved up.  He offered to give the money as a down payment and offered to pay the homeowner the remaining price of the property, say $100,000 over the next ten years at 10% interest! 

That is a great deal and a great investment.  Most sellers take their profits and stick it in the bank, which even with the highest current interest usually only gets them about 3 or 4%.  By letting the buyer pay you directly at the higher interest rate for a mortgage, you’d be making more money!

So, the buyer moved in with his family and spent a couple years in the home making regular payments.  In two years, his mortgage to the homeowner mortgage owner is down to $87,000.   Suddenly, the mortgage owner realizes that he needs money now; in fact he needs about $70,000 to make another great investment.  This is where you come in with the Seller Carry-Back Mortgage plan. 

Buying the Homeowner Mortgage
You can approach that mortgage note owner by offering to give him a cash lump sum for the right to collect the remainder of the mortgage note.  The mortgage note owner says great and agrees to sell.  You pay him $70,000 for the rights to his mortgage note that he first created with the home buyer. 

The mortgage owner takes his $70,000 and goes out to invest in that next hot deal and you, the real estate investor gets to collect the rest of the mortgage.  The mortgage note owner is no longer involved with the property and never seen from again. 

The buyer still keeps the same rates on his mortgage to you and continues to make the same payments towards his own house.  At the end of the remaining eight years on the mortgage the buyer owns his house outright and you have made a $17,000 profit on your investment of only $70,000.

You are working with a homeowner and the bank on a short sale for a defaulted mortgage.  Suddenly, the homeowner wants to know why you need all of their information.

When you’ve been in the mortgage note industry for a little while you’ll learn a few things that you weren’t expecting.  One of those things involves getting the homeowners you are working with to give you’re their information!

Getting information from the homeowner going into foreclosure can sometimes be worse than working with the bank.  Most homeowners just aren’t familiar with the steps involved in a mortgage sale, even though they themselves have a mortgage.   On the other hand, as the property investor you’ll be asking them for a lot of information, some of it quite personal in order to put together a packet for the bank and the hardship letter.  As a result the homeowner can become as stubborn as a mule when it comes to giving up information.

Here are some of the more common pitfalls of working with a homeowner with an information problem:

• They have no idea where they’ve placed all of their important documents
• They haven’t filed tax returns and so can’t give them to you for your own package to the bank.
• They just don’t understand why they need to give you all of the information if they are in default.

Try not to lose your patience with the homeowner.  They aren’t familiar with these processes, which is part of the reason you are there in the first place. 

The homeowner just needs to be made aware of the fact that the bank will make a major write off on this mortgage in the short sale or the mortgage note sale on the property.  That means you’ll need lots of information to back up your proposal and to convince the bank to take this deal. 

Explain to the homeowner, that the hardship letter that you put together for the bank is one way of providing the evidence you need to convince them to take a short sale.  It shows in dental that the homeowner hasn’t been earning enough income to be able to pay their mortgage.  Thus, you’ll need the homeowner’s tax returns as further evidence to back up the letter.  Be sure to explain this in detail to the homeowner so they really understand the reasons behind your need for lots of their personal information.

The banks really do care about the homeowners that are in genuine hardship.  So the hardship letters that you are putting together are very important.  The bank will be able to look at the letter and the evidence provided to confirm that your homeowners just couldn’t make payments because of medical bills, loss of job, loss of income or other reasons.  If it looks like the homeowners didn’t make their mortgage payments because they just didn’t feel like it, the bank will not agree to a short sale.

If you take the time to answer all of the homeowner’s questions and thoroughly explain your need for their personal information, you’ll find it’s much easier to work with the homeowner in default.

There is more than one way to invest in the real estate market.  Now you can tap into a little known section of the industry using short sales to purchase properties with little or no equity and still make a profit!

You know that it’s possible to buy a house that has little or no equity in it for less than is owed on the mortgage!  Yes, it’s possible.  Let’s say that you, as a property investor come across this homeowner who is behind in their mortgage with the bank.  On the current real estate market the defaulted property is worth $100,000, but the homeowner is actually in debt for $115,000.  It is possible for you to get that homeowner’s house for just $70,000.

This seems impossible, but a little known practice called, “Short Sales” in defaulted note buying allows you to purchase property that is over financed and has little or no equity in it!   This is basically when you work with the bank to renegotiate the selling price of the house and the bank writes off the remainder of the mortgage. 

Getting Started with the Short Sale
When you work with this homeowner, you will become the homeowner’s advocate or intermediary with the bank.  So the first thing you’ll need to do is get an “Authorization to Release Information”, and fax it to the bank so that you can negotiate with the bank.  This basically means that the homeowner is giving the bank permission to speak with you concerning their mortgage.

When you contact the bank you’ll want to explain to the bank the reasons why they should be willing to let go of the house for less than it is valued and for less than is owed on the mortgage.  This involves putting together a little package with information that the bank may request from you and extra information that you include on the condition of the house.

For example; the house may need a new roof.  There could be all kinds of deferred maintenance and it needs all kinds of repairs.  You could even point out that the housing market is declining in the area or point out that there are loads of other houses on the same street that haven’t sold.  Basically, you present your case to the bank explaining the reasons that they should let the property go cheap.  Be sure to include digital photos of the damage to the property or the decline.

Using the Short Sales technique it is possible for you to work with the bank to reduce the selling price of that defaulted property.  You are able to purchase it from the homeowner for a reduced price and the homeowner can get out from under this mortgage without it being on their credit. 

All you need to do is approach the banks professionally, put together a good case for reducing the price (such as needed repairs to the property) and for good measure include some digital photos of damage or neglect on and around the property.

The homeowner can’t have a clean get away after a short sale on their defaulted property sale.  They’ll have to face the possibility of a judgment for the remainder of the mortgage or having to deal with the IRS!

When you are negotiating a short sale or note purchase through the bank on a defaulted property it’s easy to overlook the possibility of a mortgage judgment being filed against the homeowner after the sale.  It can be common practice for a bank to file a judgment against homeowners fro the remainder of a mortgage after a property has been sold for less than its mortgage.

A typical short sale involves negotiating with the bank to let you buy a property at a lower price than what is left owed on the mortgage to the homeowners.  This allows you to pick up a property cheap, the bank to unload a mortgage that the homeowners just can’t make payments on and the homeowners to get out from under a mortgage that’s downing downhill fast.

What Happens after the Short Sale?
Sometimes you’ll find that the homeowners don’t get away from this deal as Scott-free, as they were led to believe.  The bank may say okay, we’ll let you buy this mortgage or this property for say $60,000 when the homeowners still owe $100,000, but we’re also going to court later on to get a judgment against the homeowner. 

This judgment against the homeowner basically says that the now former homeowner still owes the bank $40,000, which was the amount of the write-off the bank took on the sale of that property to you.  That judgment will remain attached to the homeowner for 2 years and can really mess up their ability to get into a new home.  It can also attach to another house that the homeowner buys after selling you the property.  So the homeowner automatically gets a $40,000 debt tacked onto their other mortgage.

The bank can also decide not get a deficiency judgment against the homeowner for the write-off on that defaulted property.  While you are negotiating with the bank for that property you can also negotiate with them to not get that mortgage judgment against the homeowner.  When the bank doesn’t get a judgment, it is required to send out a 1099 form to the homeowner.  This 1099 form shows the $40,000 write-off by the bank as income for the homeowner for that year. 

What to Do about the 1099 Form?
As you can imagine, most homeowners will be terrified by this possibility.  Either they get a deficiency judgment against them for the remainder of the mortgage or the IRS views that $40,000 write-off as income.  Be sure to tell the homeowner, that when they get this 1099 Form they need to see their CPA or someone who is certified to do their taxes. 

The CPA will be able to tell them how to work with the IRS, so that this 1099 isn’t shown as income.  The homeowner may qualify for an ‘exclusion’ from the 1099 for selling their own home if they have lived in that home for the past 2 out of 5 years. 

In addition, there is a Form 982 that the homeowners may be able to fill out that shows they are ‘insolvent’ and have no funds from this sale. If they qualify through this form the IRS may not require them to pay taxes on that $40,000 write-off. 

Don’t blame the banks for this little predicament that can pop up and ruin the homeowner’s deal.  They are required by law to get a judgment against the homeowner or to send out a 1099 form to the homeowner.  Just make sure that you lee the homeowner know in advance that if they take the short sale or note purchase deal they will face one of these two possibilities.