UNDERSTAND THE STORY. IT IS THE KEY TO DEVELOPING A WIN-WIN TRANSACTION Real estate transactions are not just about properties. They are also about people and life situations. We will call this the story. Every transaction has a story. A clear understanding of the story, with all the characters involved and dynamics of the present situation is the key to crafting a win-win transaction. This is especially true in the realm of pre-foreclosure transactions. A successful pre-foreclosure transaction is always about extricating a homeowner out of the tight situation they themselves got into. Not only that. In addition, the homeowner needs to feel that he is also a winner despite having to sell the house in distress. In other words, the homeowner needs to perceive that he is better off because of your help. If not, the homeowner will feel taken advantage off. If this happens, things will not work out no matter how good you are at executing the short sales with the bank. One of the main challenges of working in pre-foreclosures is that homeowners, to one degree or another, are stressed and defensive. They find themselves in the unfortunate situation of having to lose their house. Unless there is any equity, which is unlikely, their only options are to either sell or get foreclosed. Most homeowners in pre-foreclosure know this. Many have difficulty facing and accepting this fact. As a result they are unhappy about the situation. The objective of the pre-foreclosure investor is to buy properties prior to foreclosure. To accomplish this, the investor needs to present a proposal that makes sense to the homeowner. To develop this, it is important to have a clear picture of the whole story. The best way to obtain this is by asking questions and listening. Effective listening involves sensory acuity and gut feelings combined with good knowledge of the foreclosure process. Listening effectively allows the investor to comprehend the story. With this, the investor will get a feel of the characters and determine if they are people he can work with. The investor must visualize the situation to determine whether it can be resolved. With this information, which is the story, it is a lot easier to develop a win-win proposal and strategy to buy the property in a way that satisfies the homeowner. Understand the Characters This is the most important part of the story. Problems do not appear by themselves. People create them. The aim is to determine if the homeowners or anyone associated with the property are people you can work with. The best way to figure out the characters is to ask open ended questions, develop a rapport and let them talk. Ask yourself these questions: Are they telling the truth? Will they trust you? Are they worth of your trust? Are they realistic? How are they reacting to stress? Are they in a problem solving mode? Will they try to go around you? Do they want to be helped? Will they get you into a problem? Will you be able to satisfy them? Visualize the Situation You want to understand the dynamics involved in order to determine if you can resolve them. What is it that led the homeowner into default? Who else is involved? Is there bankruptcy, divorce, law suits, liens, child support, judgments, probate, etc? Are there resentments? Is there enough time? Is foreclosure the only solution? Is this solvable? Develop a Win-Win Proposal and Strategy This comes out of understanding the story and asking more questions. One of the best ways to develop a proposal that makes sense to the homeowner is to start by asking what it is that they want. A great question for this is what is your ideal outcome? If the answer is an impossibility, help them work themselves down to a realistic expectation that they themselves figure out. A good proposal is always based on satisfying a homeowners realistic expectations. Anything above that amounts to selling the the sky and the stars. If the homeowners realistic expectations are met, then they will have won. Get another deal if the homeowners expectations are unrealistic. A Good Real Live Example A lady called me from San Francisco. She has two rental houses in Portland. One of them is in foreclosure, over-mortgaged and in heavy disrepair. The other has equity and is very nice. Situation : She moved to San Francisco. She mentioned that because of bad business decisions and her mothers medical bills, she had over-mortgaged one of the houses. The renters did not pay for a long time, trashed the house and made unprofessional repairs. The property has two mortgages in default, City of Portland liens and a private lien from a friend. Characters : The characters are the homeowner and the private lien holder. The homeowner is a single female in her early forties. She is a professional, wants to save her credit, avoid bankruptcy, foreclosure, and prevent any collections from either her friend or the second mortgage. She is quick to act and proactive in resolving the situation. Her realistic expectation is that someone bails the property out of foreclosure by buying it in a short sale. If the short sale is not good enough, she is willing to carry a promissory note for a deficiency balance. In addition to this she does not want leave her friend out in the cold. Character Analysis : Through all of my interactions with her since the first day, my gut feeling is that the homeowner is someone I can work with. She has expectations that I can most likely satisfy. The friend is also realistic. He is willing to be flexible as long as he does not end up worse off. Situation Analysis : A typical rental house foreclosure situation. The characters involved are proactively working towards a realistic solution. I believe that this is a solvable problem. Win-Win Proposal and Strategy : With the understanding of the story this is easy. My proposal and strategy is this: 1) Discount the second mortgage as much as possible. 2) If needed, have the owner pay or sign a promissory note for the smallest possible deficiency the second mortgage will allow. 3) Re-collateralize the friends lien by securing it with the equity of the nice house. 4) For me: Obtain the property at the best possible price that still allows all of the above to happen. Most likely this transaction will close this week. As you can see, real estate transactions are not just about properties. They are also about people and situations. This is especially true in pre-foreclosure investing. Because of this, it is paramount that the pre-foreclosure investor understands the story behind each transaction. It is the key to success. ###### Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales (C) 2006 Advanced Real Estate Concepts, LLC., Portland OR. 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