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There is no doubt the market is shifting and with it, so will the types of conversations we have with sellers. With an uncertain economy and the return of foreclosures, more distressed sellers will be popping up.
Here are the five key questions to ask when speaking with a seller behind on their mortgage looking to you for help:
Can you tell me more about what you have going on?
These customers want to tell their stories. Questions are the best way to start to establish rapport, and this open-ended question will get them talking.
You’ll get details about the circumstances that led to the default as well as information to help you determine whether this is a situation you want to take on or refer to someone else.
How far behind are you?
This is a critical question as foreclosure timelines vary widely. If the customer just missed their first payment, this is a much less urgent predicament than if they have already been in foreclosure for a year, and a foreclosure sale date is set for next week.
You can probably help in either case, but you have to know where you stand, and whether you need to refer them to an attorney right away to help delay their foreclosure.
How much are the debts against the home?
Now you need to determine whether there is equity in the home. In addition to the mortgage, some customers may also have a second mortgage, HELOC, or judgment liens, and they will all need to get paid, as do closing costs (which I always estimate at 7 percent to 8 percent of the purchase price).
Be aware that most homeowners will not know the actual payoff amount on their mortgage if they are behind. They will often underestimate this number greatly, simply referring to their last memory of their principal balance.
However, balances on unpaid mortgages grow very quickly with nonpayment, especially once lender legal fees are involved, and they won’t be thinking about this. If they sound unsure — have them pull a payoff statement.
What do you think the home would sell for?
They usually have a figure in mind, and you likely have a rough idea of the home’s value by now, but now you need to narrow it down. Ask condition and improvement questions.
You will obviously refine their listing price when you actually visit the home, but you do need to have an idea whether this will be an equity sale, a short sale or could possibly swing either way. All three options present a different marketing and pricing scenario.
What is your ideal solution?
If it’s not totally clear by now, are they really ready to move on, or are they still hoping to stay? If they are still hoping to save the home, they likely have workout options available with their lender (who they are likely ignoring right now).
If so, encourage conversation with their lender. Most sales involving sellers in default end up being complicated, and you will most definitely invest additional time and effort into this sale.
The last thing you want to do is to spend the next three months working a short sale, just to have a seller decide they’d rather modify their loan instead and stay, so qualify accordingly!
Now set the appointment, and go take the listing. Make sure to research the information they gave you. Look over their title records online, and if they are in foreclosure, you may be able to track their case online as well.
Sellers who are behind are generally overwhelmed and anxious, and they may not give you accurate info, so verify everything you can before heading over to the house to meet with them.
It can be an incredibly fulfilling experience to help a client resolve a distressed situation, but it’s definitely not for everyone. If you are not interested in working on these types of transactions, this would be a great time to align yourself with someone who does.
Minna Reid is a broker associate with Killebrew & Company Realty Inc., serving Jacksonville, Florida, as well as broker/owner of Reid Real Estate Group, serving Connecticut. Connect with her on Facebook and LinkedIn.
