There has been a lot of talk on the Internet the past few days about so-called Short Sale Guru’s and some of the scams they may or may not perpetuate. We have strong feelings about scammers at Short Sale Artisan, and that is: Steer Clear at All Costs!

Like any industry, there are always a few bad apples that can perpetuate the image that the entire industry is corrupt or full of selfish, greedy individuals looking to take advantage of other people. Real estate in particular has always been a trap for that. It’s hard to visit real estate sites anywhere on the Web without seeing promises of “Getting Rich in 30 Days” or “Make $10,000 In 5 Days without Having to Do Anything!”.

Let’s be clear – there is a lot of money to be made in real estate, and real estate can be an incredibly lucrative industry. But don’t think for a second that it’s easy or painless. Being successful in real estate, like any other industry, requires work, perseverance, and constant self improvement.

The old adage rings true: If it sounds too good to be true, it probably is.

Psychology behind being “suckered”

In a lot of ways, people get suckered for these get rich quick schemes the same way they do with diet pills. Many individuals, particularly those who are in a difficult position in life, will spend their last few dollars trying to buy some course or program that they think will just pile in money for them. It just doesn’t work like that, just like a pill won’t melt away the Bacon Double Cheeseburger you ate last night.

Even MSN posted a great article on so-called real estate riches, doing some hefty analysis into the real estate investment psychology.

“It’s the jackpot mentality,” says psychologist Patricia Farrell, author of “How to Be Your Own Therapist.” Just like the schmoe who buys a winning lottery ticket — every once in a while, someone, somewhere really does use these edgy real estate investment techniques to make millions.

“It’s not the principles that are flawed,” says Bour. “It’s the simplicity and ease that are overstated.”

Most of the information that is taught by the so-called gurus is available free on Internet forums like Bigger Pockets or REI Club and can be gained for free, by talking with other investors in user forums who have or are in the process of actually doing the type of real estate investment you’d like to do (be it short sales, commercial properties, investment properties, rental houses, or fix & flip). It requires you to search out information and be proactive about it -but if you aren’t willing to at least put in that level of effort, don’t expect to gain anything more just because you shelled out $2500 on a spiffy real estate course.

Evaluating a real estate investment product

That’s not to say all products are bad. You just need to be very careful with how you invest your money. Many courses are education, and education is invaluable. Next to a $100,000 college degree, a $2500 course can sure seem quite reasonable. But, like the college degree, its what you do with that information that determines if your up front investment was worth while.

Research the company and the owners of the company

This is such an obvious step, but spend the time to research what you are investing into. Find out how long the company has been in business, and where they operate out of. Find out who the owners of the company are, and if they have true experience in the industry. The great thing about the Internet nowadays is that it’s quite easy to find out if people are scamming, because people are very quick to post about bad experiences they have, and it’s hard to hide from bad press.

There are also many websites dedicated to reviewing real estate guru’s and their courses. They are worth checking out as well. Here are two to get you started:

Reed’s Guru Rating

Real Estate Course Reviews

Also, you should look also on Facebook and Twitter and see what people are talking about.Remember that these mediums are easily manipulated and affiliates and company shills can easily post “pretending” to be customers of the company. It happens all the time.

Make sure as well that the owners of the company / the Guru – has experience in what they are doing. They should be able to back this up with documentation and proof, and not self-created proof, like we have recently seen with this Karen Hanover scam that is percolating around the Internet. (Can you believe it? Some gurus will go so far as to self-invent designations for themselves that don’t really exist!)

Talk to people who have been through the course

Under no circumstance should you ever sign up for a class or course without talking to someone who has already been through it. Learn from others. You can get a feel then also for the content of the class and the value it provided.

Use common sense

Our rule of thumb: anyone who promises something crazy, is probably crazy. Also – don’t be a marketing puppet. You know marketing when you see it. Don’t fall for it! Use common sense, and look at the features of a package – not just the marketing hype.

Over the past few months,  we have found it amazing that some people can fall for such obvious marketing ploys. YouTube videos, extensive affiliate networks, and more; just go to reinforce the marketing perspective.

At Short Sale Artisan, we take great care not to patronize our clients. We believe every client of ours is a self-driven individual who is looking for tools to make their lives easier. That’s what we promise to deliver. We don’t promise free money, or easy-street, or that you won’t have to work again for the rest of your life in 84 minutes. Anything that promises to do the work for you and give you a 100% chance of success is a red flag, period.

Finally, don’t fall for time-pressure tactics. You will always here that you need to sign up today. You don’t. Your decision to take a course should be based on your desire to take one. Not a pitchperson planting that in your brain. A successful, well designed real estate course will be around tomorrow, next week, and next month. This is especially true on webinars where you will be pressured with “limited time bonuses” and other goodies.

What is the return and guarantee policy

You’d better be sure that if you aren’t satisfied with the course, you have a way to get your money back! Make sure you research this ahead of time!

Price to Benefit Ratio

It’s easy for Gurus to convince you that their courses or software products are worth the steep up front fees, because they can make the easy claim that “All you need to complete is one deal and you will make back many times your investment”. That’s true, but if they are so confident in the ability to deliver that one deal – they should let you pay after you’ve made your first deal.

Our opinion: look at what you are getting. It makes no sense to pay $2500 for a “setup fee” for a piece of software, in our opinion. What software out there costs that much money, unless it is an enterprise level piece of software for a company with dozens or hundreds of employees? We feel that these exorbitant setup fees (charged by companies like Freedom$oft) is almost extortion. These companies aren’t making their money by providing a good product at a fair price. They are making their money by suckering a few people into signing up for empty promises. In our opinion, this is not only scammy, it’s also highly unethical. These types of deals lead people to feel like they have “sunk cost”, that is; they have invested in the system and do not want to cancel, even though they get no benefit from it.

Industry damage

Another unfortunate byproducts of scammers is that they make the industry look bad and shady, when it truly is not.

We’ve all read about the Freddie Mac report on investor fraud. These types of things are strongly perpetuated by the “bad apples” in the investment training and education categories. Overall, views of investors range from “meh” to “unethical”, even though the majority of investors are stand-up people making a living with a true career path, like any other entrepreneur. That’s why it is so important we self regulate and weed out these guru scams and investors who behave inappropriately.

Some scams, exposed!

Just in the past two weeks, a big one has been the Karen Hanover commercial real estate investing.

This one involved creating fake designations and placing falsehoods on an resume.

The “associations”  Karen Hanover  touts as being a member of CCREA NAIA (and the self storage one SSEI?) are all her own creation.  In February she had the balls to create a press release to tout how the CCREA had awarded her real estate course its #1 ranking! I love tenacity and perseverance, but fraud is disgusting and seeing how there are so many dubious characters in this business, it just bugs me.

Anyway I sent an email to Sperry Van Ness’s Human Resources department and got back the enclosed email. According to SVN she has never worked there and their attorneys are looking into it. ))) I have not called Marcus & Millichap.

This is pretty scary stuff. It’s so easy on the Internet to look professional and real, and that is why so many people fall for scammers. It’s not enough to be presented designations – you need to follow up with them!

Now, that’s not to say that Karen Hanover doesn’t have valuable information to help you out in your real estate investing career – we are only suggesting that you need to tread lightly when contemplating courses such as hers. It certainly doesn’t leave a great first impression when you hear about how things like her designations are fabricated.

So what should I do?

We are not against real estate courses or investments at all. We just think everyone needs to step back, take a breath, and not be blinded by the promises that are made by the marketing wizards that run these companies. Evaluate the course for what it really is.

We personally feel that the best courses are ones that aren’t “in your face” marketing, but are more subtle and have some more composure. These courses stand on their own, and don’t need ridiculous promises to drive hype up to people who are vulnerable to the small glimmer of financial freedom with zero effort.

You don’t see real education institutions (like colleges) pulling these types of marketing tactics, so you should be turned off when you see high pressure sales tactics.

We’d love to hear your stories in the comments about companies that scammed you! Exposing them, as we mentioned above, is one of the most important things we can do to clean up the industry. There is a lot of real, legit money to be made investing in real estate, especially short sales with the market today. Remember, even a good course does you no good if you just attend and don’t do anything afterwards. Action is necessary!

The estimated industry financial impact of short sale fraud is $310 million annually with the risk of ‘unnecessary losses’ occurring in one in every 53 short sale transactions. The average amount of unnecessary loss is $41,000 per short sale transaction.

It’s an interesting statistic, and we wanted to know more about how CoreLogic arrived at this number.

The definition CoreLogic uses to define Short Sale Fraud is:

“where parties involved in the process manipulate the short sale transaction and/or subsequent
transaction for a profit.”

They have interesting logic in the article that essentially correlates duration after a close with a resale to likelihood of fraud. In other words, even with disclosure of intent to resell, selling a day later for $30,000 profit is much different than selling 30 days later for the same profit, because in those 30 days things could have changed, like improvements on the home or even a shift in property values.

We are still in the same boat we have always been on – advocating for disclosure, disclosure, and more disclosure – you want to keep your head above water legally and protecting yourself means keeping everyone informed as much as possible as to what is going on with your transaction.

They then make a comment that I fully agree with: Lenders need to do their own due diligence as well to make sure that the deal is a fair one for them. In other words, the lender should know if the market would have held a sales price of 30,000 more than the agreed short sale price.

Rather than arguing over what is fraud and what isn’t, lenders should focus on their primary objective—eliminating unnecessary loss.

And:

“By definition, short sales constitute a financial loss to lenders but will continue to be a necessary part of the mortgage industry as it seeks stabilization. The primary objective for lenders is to eliminate unnecessary loss,” stated Tim Grace, senior vice president of Fraud Analytics, CoreLogic. “The best way to mitigate fraud risk and unnecessary loss is through a collaborative effort where lenders collectively share pre-closing and post-closing information. Lenders in the CoreLogic Mortgage Fraud Consortium will benefit greatly from sharing knowledge of concurrent transactions pending on short sale properties in real time.”

They have a great graphic that shows time and resale value after a short sale transaction as well:

Other Findings:

CoreLogic 2010 Short Sale Research Study Highlights

• The number of short sales in the market has more than tripled since 2008 with the estimated annual volume at 400,000.  Multiple variables indicate short sales will continue to be a frequent and important part of the mortgage industry.
• Over half (55.8 percent) of all short sales occur in just four states (California, Florida, Texas, and Arizona).
• Approximately four percent of short sales have a subsequent resale within 18 months.
• Investor driven short sales are not inherently bad. Investors provide the industry with necessary liquidity.
• Short sale transactions may be deemed risky to the lender when either: 1) the second sale amount is vastly higher than the short sale amount, and/or 2) the two sale transactions are executed within a very short window of time.
• Short sale fraud exists. While the exact definition of what constitutes fraud continues to evolve, CoreLogic analysis indicates lenders are consistently incurring more loss than necessary. Approximately one in every 53 (1.9 percent) short sale transactions was part of an egregious flip and therefore deemed risky.
• It is estimated that lenders are incurring unnecessary losses of $300 million in short sale transactions annually.
• Group, consortium analysis and reporting are necessary to fully leverage multiple-lender data and mitigate risk.

All in all, a very good (and short!) read that talks about what is happening and reminds us of many things:

1. Disclose your transactions
2. Investors are necessary in today’s market
3. Short sales are still in a peak and are expected to remain for some time into the future

What are your thoughts? Share them in the comments!

Is a Short Sale RIGHT for the Borrower?

Everyone Wins

Why would a lender accept a short sale?

Lender’s Options upon Borrower’s Loan Default

How is the Borrower’s FICO score affected?

1. Trustee’s Sale – A lender may not pursue a deficiency judgment against the borrower should the lender opt to foreclose by a trustee’s sale foreclosure.
   
2. Seller Carryback – If the purchase money loan for any type of real property is financed by the seller and secured by that same property, the lender/seller may not obtain a deficiency judgment against the defaulting borrower/buyer.
   
3. Purchase Money – If the loan is obtained to purchase a residential 1-4 unit dwelling all or part of which is owner occupied and the loan is secured by that property, the lender may not obtain a deficiency judgment against the defaulting borrower. This loan is entitled to “purchase money” protection.  Note, however, that should the buyer refinance the home, the new loan is no longer “purchase money.”   Thus, the buyer would lose the protection against a deficiency judgment in the event of a default if the lender elects to use a judicial foreclosure process.
   
4. 3 Month Time Limit – An action for a deficiency judgment must be brought within 3 months from the time of judicially-ordered sale.
   
5. Fair Value Limitations – A deficiency judgment is limited by the difference between the amount of the indebtedness and the fair market value of the property, unless the actual sale price exceeds that value.
   

I am current on my mortgage; will my lender consider a Short Sale?

There are two loans; can a Short Sale still be accomplished?

The property is in rough shape and needs work; can I still do a Short Sale?

What are the tax effects of a short sale?

If a borrower does do a Short Sale, how much will they have to pay to sell their home?

The agreement to sell is subject to approval by existing lender(s) of a Short Sale at no cost to Seller.  Seller shall not be required to deposit funds to close escrow.

You hear a lot of talk nowadays about all different types of investment techniques. One that is really perking up recently is something called, “Virtual Wholesaling”.

In a nutshell, the idea behind virtual wholesaling is using computers and online information systems to do real estate investing. Short sales in particular are a great companion to virtual real estate investing, and virtual wholesaling / real estate investing allows an investor to expand their reach from a local market to nationwide.

A lot of Virtual Investing proponents will also press to automate as  much of their work flow as possible; again leveraging the power of technology to help you find leads, qualify leads, manage a transaction, close the transaction, and cash out at the end.  Another part of the appeal of virtual wholesaling is that it can be run from anywhere, it is an “internet business” almost like any other “internet business”.

Virtual investors will use some of the following tools:

• Websites to promote traffic and build awareness of the services they offer
• Connections with Realtors who will bring deals to the investor directly
• Social networks like Twitter and Facebook to network and connect with people
• Sub-out “ground pounding” work like dog birding and off-line marketing
• Assign out work for a profit split

Being successful in virtual investing requires dedication, especially when getting started – getting yourself setup the right way is  a critical component. Once you have a system in place, though, it can be a very efficient way of investing in real estate.

As important as networking is in traditional real estate investment, it becomes even more crucial with virtual wholesaling. From the real estate agents you work with, to your title company, your attorneys, your buyers, rehabbers, and fix-and-flippers, to your transactional lenders and negotiation companies (if any), having resources available to quickly handle your workflow and work in your pipeline is critically important.

Like anything else, education and keeping up with the ever-changing technology world is also important. You need to know how to find deals, how to outsource work on them, and how to manage the process, more than anything else. At the end of the day, virtual wholesaling is about a finely-tuned process.

Do you have experiencing in virtual wholesaling, or specifically in short sales? Post in the comments below!

Interesting little article today from MyFoxPhoenix talking about how lawmakers in Arizona are proposing to send real estate agents to school for short sale training to improve efficiencies in the system.

Published : Tuesday, 16 Feb 2010, 2:37 AM MST

PHOENIX — One in four homeowners are under water in their mortgages, meaning they owe more on their loan than their home is worth.

In a short sale, you sell your home for less than you owe and the bank usually forgives the difference. But, the process can take a long time, which turns some sellers and buyers off.

Now there’s a move to speed up short sales. Lawmakers are considering a bill that would send realtors back to school to learn all aspects of short sales.

Today, more than 13,000 homeowners are trying to short sale their single-family homes.

Realtor Brent Kastanowski says he knows one family that has been living in a home without paying for a full year while waiting for a short sale to go through.

State treasurer Dean Martin says we’ve never seen the volume of short sales like we’re seeing today. Martin has created a Short Sale Task Force that is recommending realtors take 15 hours of short sale classes so they know the process.

“The financial institutions are so overwhelmed with short sale requests, that if you don’t have every I dotted and every T crossed, it gets set aside until they can get back to it,” says Martin.

Martin says our economy won’t recover until the excess inventory of homes on the market goes down. Short sales are a way to avoid foreclosure, he says.

In April, the federal government plans to come out with guidelines on how to streamline the short sale process.

I think this is quite positive for real estate agents. Education is critical, and knowing how to process short sales as efficiently as possible can save time and effort. What are your thoughts on this initiative?