3 Options Realty, LLC

Qualifying Tenant Prospects

3 Options Realty — Fri, 03 Feb 2012 14:25:00 GMT

By convention, when qualifying tenant prospects, most landlords will consider credit history, residential history, and income. Some will even look at criminal history. The question is—how should the landlord weight the results of these inquiries?

Commonly, the credit history becomes the 800 pound gorilla in the room. But I question the wisdom in this thinking. Rather, I would propose that if there must be an 800 pound gorilla, it ought to be the residential history. While the credit history does offer good clues about tenant money management discipline, property managers, all too often, fall into the trap of referencing only the credit score, perhaps thinking that it is meaningful and relevant. I suppose the score could be consulted for its reference value. But in my case, I merely glance at the credit score. I don’t use it in my factoring at all. I do consult the remainder of the report, as I am interested in determining if bills are getting paid, if there has been a foreclosure (eviction), recent bankruptcy, judgment, etc. And then I want to ascertain what caused these circumstances, and whether there is evidence that their behavior has improved since the event occurrence. But I think the residential history speaks more directly to the purposes of a landlord.

There are two aspects of the residential history that interest me—the duration of pass leases, and the comments of the previous landlord. My supposition is that, regardless of credit standing, if the tenant prospect has handled these things well for a long time, and assuming the income is stable and sufficient, I just about don’t need the credit report at all, and whether a best or worst case scenario it only amounts to 20% of my assessment anyway. I would even consider relaxing my usual standards for the Rent/Income ratio if the prospect had a stellar residential history.

In order to keep these qualifying criteria in perspective, I employ a qualification matrix. This helps keep me from overly weighting one unsavory criterion to the unnecessary detriment of the prospect. I would highly recommend such a model for any landlord wanting to objectively judge a prospect.

Choosing a Property Management Company and Its Maintenance Services Policy, Part III

3 Options Realty — Mon, 30 Jan 2012 13:25:00 GMT

How can an investor know if the professional property manager they are employing is getting them the best bang for the buck with maintenance services? In this the last of a 3 part Blog, we will discuss the difference between the use of corporate and non-corporate service companies.

Have you ever heard commercials on the radio where a heating and air conditioning company is offering to install one air conditioning system for regular price, and install a second one for free? How can they do that? Wouldn’t it be a really bad business decision if they could not make a profit on such an arrangement? After all, they are not running a charity! Could it be that tremendous profits reside in the retail price—installed? Instead of charging you $6,000 for the unit, couldn’t they have just charged you $3,000. The answer is, probably yes.

In many cases, the corporate installer has no choice but to charge outlandish fees for their services in order to offset a tremendous business overhead. On the other hand, the small mom-and-pop operation can minimize its overhead while still providing competent service, and can, contrary to popular belief, even afford to warrant their work. While it is risky to call just any old mom-and-pop in the yellow pages, in the case of a professional property management company, such smaller dealers have earned a reputation with it, and will likely honor warranty work to maintain that valuable relationship.

So take a close look at your management statements. Observe who the property manager has been hiring to do work. If the names are well known corporate names, you might want to have a conversation with your property manager. It may well be that they have worked a special arrangement with the company—one that is truly in your best interests. But if not, and if you are really paying full market rates, you might question the benefit you are driving from the maintenance aspect of your relationship with that property manager. It may be time to make some demands on that company or look for another.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Choosing a Property Management Company and Its Maintenance Services Policy, Part II

3 Options Realty — Mon, 16 Jan 2012 15:25:00 GMT

In shopping for a professional, property management company, a candidate tells you that it sub-contracts for all maintenance services. Is this a good thing? How can you know? We will answer these questions in this second part of a 3 part BLOG.

It could be a good thing, if the contractors it hires do good work and do it for a reasonable fee. It could be a bad thing if the property management company and the vendor have a cozy, but veiled side deal, by which the property management company earns a little money each time it refers the contractor. By most standards, such side-agreements are considered unethical, and if not fully disclosed, illegal in most states. But that does not stop ingenious minds from finding creative ways to sidestep the law. How can you know?

If the rate you pay seems to be market rate, then you may have one of those surreptitious deals going on behind the scenes. In a fully legitimate arrangement, you should enjoy a benefit due to the economies of scale offered by your property manager. It is for this reason that most vendors will discount their services—because by doing so, the vendor secures and maintains a favorable relationship with the property manager. If the property manager is truly looking out for the best interests of the property owner, it will pass this benefit along to the owner. If not, it might suggest that the vendor go ahead and charge full market rates and kick-back the difference to the property manager. Sometimes this process is accomplished by having the kicked-back funds routed to a wholly owned subsidiary of the property management company, so that it can claim, at least technically, that the funds are not coming back to it.

This is nothing but smoke and mirrors though, and the result is pretty much the same as if the fees were coming straight back to the property management company itself. Ask some probing questions about the relationship between your property manager and the vendors it will choose to do the maintenance work on your property. You have a right to know, and an economic interest in the answers. There is one more vital point to discuss about this, and due to space constraints, I will talk about it in my next BLOG.

Daniel R. Wilhelm
Managing Broker
3 Options Realty, LLC.
www.3optionsrealty.com
dan@3optionsrealty.com
678-397-1282

Choosing a Property Management Company and Its Maintenance Services Policy

3 Options Realty — Wed, 11 Jan 2012 15:44:00 GMT

Do you own real estate that you would like to have professionally managed? Your selection of a property manager could be the difference between whether your investment succeeds or fails. There are many tests in the process of choosing a property management company, one of which is its maintenance services policy.

There are basically two policy types with a variety of hybrids in between. A common policy is having an in-house maintenance operation. The stated intent of such policy is to control costs by having a salaried maintenance staff. On the surface this makes sense, but when you look at it closer, maybe not. In such a program there is an inherent need to make the operation profitable. Even though the original intent may have been to provide a good economic solution for the property owner, that virtuous intent can become quickly overshadowed by an insatiable pursuit of profitability. In such cases, maintenance work often finds a way to self-generate.

For example, I acquired an investor a few years ago who owned a duplex. He was jumping ship with a professional property manager because in over a year of service, he had never received a single rent proceeds check. Maintenance services consumed 100% of his rent payments every month. He was frustrated, and rightfully so. This landlord was helping pay the wages for that management company’s in-house maintenance staff.

One hybrid of this policy is to have an in-house maintenance staff handle some or most of the handyman-type work, while independently contracting for specialized services. While this approaches a better solution, the same potential fault resides in the policy. We will explore another service option in my next BLOG.

Dnniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Buying Foreclosed Property – Contentious Banks

3 Options Realty — Wed, 28 Dec 2011 15:00:00 GMT

Let’s say you are a home buyer, and you want to close the sale with your choice of closing attorney — not an unreasonable expectation. But the bank refuses to accommodate you. What can you do? The easiest answer is—don’t buy the property. But if you have your heart set on that particular home, for whatever reason, that may not be an option.

In an earlier BLOG we examined the problem with using the title-holding bank’s choice of closing attorney. The problem has to do with the bank’s disincentive to assure good, marketable title. So as a buyer you simply have to protect yourself. Assuming your negotiating efforts have failed to change the bank’s mind about demanding the use of their attorney, I recommend a 2 part solution:

First, do not be satisfied with the title examination being done by the bank’s attorney. Hire your own attorney to do a full title examination. You will get no resistance from the bank’s attorney on this point, although they won’t like it much if you come back and ask them to fix something that your attorney discovered, that they were hoping to glaze over.

You will definitely get some resistance on the second part of my solution though, when you tell the bank’s attorney that you do not want to buy owner’s title insurance with them—that you will purchase it elsewhere. Attorneys make a ton of money selling this insurance, so they will not be pleased. I would recommend buying your title insurance through the same attorney that did the full title exam. This solution will cost you a little more, but the benefit is well worth the cost, and if you are savvy, you can negotiate this cost into the purchase price.

If you want a less costly solution, there is another option that will be likely met with resistance as well, but it also may be feasible. Require the bank’s attorney to do a full title exam. You could even buy title insurance with them in such case. But only do this under one resolute condition. The attorney must do a full title exam, even if you have to pay a little extra for that. In reality, you will probably be charged for a full exam regardless, because most buyers would not know the difference. If the attorney does a full exam, she has a professional obligation to do a good job. If she does not do a good job, and that is still possible, at least she will be putting her license to practice law at risk with the state board.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Buying Foreclosed Property – Beware the Flawed Title!

3 Options Realty — Fri, 23 Dec 2011 16:04:00 GMT

There are some really great deals out there in the foreclosure market, but buyers need to ask whether owning a property with an unmarketable title is what they really want, because that’s what buying a foreclosure could very well translate into.

In recent years it has proven, virtually universally, that sellers (banks) demand that buyers close with the same attorney that the sellers had used in the foreclosing process. This is a really bad idea for the buyer. The problem is that the foreclosing attorney usually does only a limited title search, which is the norm for big banks. As implied by the name, limited searches invariably yield limited results. The bank does a limited search because it wants to avoid the cost of a full title exam, and it doesn’t really care if the title is marketable or not, as long as it can transfer title. After transfer, the bad title then becomes the buyer’s problem. The Bank doesn’t really want to know, because if it knew the title were flawed, it would be unethical to sell the property until after the bank had cleared up the problem. But whatever the bank's motivation, one thing is for certain. When buyers sign at the closing table, they assume any and all problems that may have existed prior to, as well as those created during the foreclosing process. This is true even if title insurance is purchased by the buyer.

Why doesn’t title insurance protect the buyer? Well, in the long run, it may protect either all or part of their equity, but what it does not do is magically make the title clean. That is to say, a process still has to happen, and it may be a lengthy one. If the insurance company decides to litigate, it could take years before a resolution is reached. Meanwhile, the buyers are stuck with a property that cannot be sold, unless they find an unsuspecting buyer, and have no scruples about selling a property with a blemished title without disclosure.

So, what can buyers do to protect themselves? The first step is to demand that an attorney of their choice, someone other than the foreclosing attorney, do the closing, and that a full title exam be performed. There was once a time when dispassionate resistance from banking institutions made attempting this a losing battle for buyers, but not as much so today. Recently, FANNIE MAE and FREDIE MAC have relaxed on this demand. FHA has always been flexible on this count. Since these three sources probably represent better than 90% of the loans in the marketplace today, you should put this demand in your offer to purchase, and remain firm in the negotiations.

But what about those banks that are holding and servicing the notes. They are still pretty aggressive about demanding that buyers use the bank’s closing attorney. They will tell you it is either their way or the highway. If you really want the house, the highway is not an option. In my next BLOG I will suggest a solution for the problem of dealing with these contentious banks.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

First and Last Month’s Rent

3 Options Realty — Wed, 07 Dec 2011 13:31:00 GMT

Do you collect a first and last month’s rent upon move-in? Do you also collect a separate amount as a security or damage deposit? Do you know how to properly treat these funds in accordance with state law?

In some states collecting last month’s rent on move-in is treated the same as a security deposit. Essentially, rent collected in advance is not considered rent until it is due and payable. Be careful that you observe that law. Penalties for noncompliance can be severe. The safest thing to do is to simply collect a sufficient amount of security deposit to mitigate risk, and not generate some complex scheme.

One fallacy in collecting the last month’s rent is that you never know for certain when that last month will be. Let’s say you have a 1 year lease and your tenant has paid you in advance for the last month’s rent. Six months into the lease, she stops paying rent because she lost her job. She tells you she hopes to have a new job soon. You inform her she must move or pay rent. When can you apply the last month’s rent? Technically, it is not disbursable until it becomes due and payable, which is her last month occupying the premises. What if she remains in the property for more than a month from your demand to move? If you disbursed funds, you may be deemed in error and even in breach of agreement.

Here’s another problem this policy creates: Can you process for eviction after delivering demand to pay or move, even though you have the last month’s rent on deposit? How will a judge interpret that? There would be no question at all about it if the money was held as a security deposit, but as last month’s rent, the answer is not so clear. I would not want to test that defense.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

All Residential Leases are not Equal

3 Options Realty — Tue, 29 Nov 2011 17:45:00 GMT

In most states, a residential lease does not have to be in writing, if it is for a year or less term. Nevertheless, it is a very good idea to have it in writing for any term length. But if you do have it in writing, are the terms and conditions sufficient to protect you under state law? In other words, how do you know if you have a “good” lease?

First of all, the perspective matters. What’s good for a tenant is not necessarily, and, almost without exception, cannot be good for the landlord, and vice versa. You can be sure that if a landlord hired an attorney to draft a lease for her, it would look significantly different than one drafted for a tenant client. For this reason, without any doubt, the best lease for you will be the one crafted specifically for you by an attorney familiar with your state’s statutes.

Unfortunately, the cost of legal counsel causes most private landlords to look for other solutions. Many elect to use the generic leases commonly sold at retail office supply stores. Even though such leases have been usually drafted by an attorney, they are designed to avoid conflict with the laws of multiple states, and often times all fifty states. Because of this, these leases must be nonspecific. Bottom line—they are not designed to comply with state statutes, but rather to simply avoid conflicting with them. This is because the landlord-tenant laws of each state can and do vary immensely. So it’s not too difficult to understand why this kind of lease is better than no lease at all, but really not by much.

In many states, Realtors® use a standard form drafted by a committee at the state association of Realtors®. Usually, several attorneys sit on the committee, so Realtors® can be comfortable that the lease is legally competent. This lease is much better than the store bought variety, because it specifically observes state statutes and regulations. Unfortunately, because the committee designing this lease has no allegiance to either party, it crafts the document in such a way that it is fair to both landlords and tenants. The problem with such a lease is that in an effort to be fair, it ironically leaves both sides vulnerable. Surely, a skilled property manager can supplement the lease to benefit their client by adding a few choice special stipulations. But there is a limit to what can be done to undo the “given” by special stipulation. In any case, it is difficult duty to write such special stipulations without shining the light on the issues to such an extent that these acts would pass the scrutiny of an astute tenant prospect, thereby inviting question and debate, which is the last thing a landlord wants at lease signing.

Perhaps the most efficient alternative is to hire a professional property manager to represent you in the deal. But also make sure that this property manager has suffered the expense of producing an attorney reviewed, proprietary lease. Not a lease designed by a committee, which is fair to all parties, but rather one that is written specifically to protect your interests and rights under the law.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Using the Credit Score in Tenant Qualification

3 Options Realty — Mon, 21 Nov 2011 19:59:00 GMT

Let’s say you have just received an application from a prospect for your residential rental property. An important consideration for you is going to be her credit history. But what weight should this history have compared to other qualifying criteria, and how important should the credit score itself be compared to other criteria?

As a professional property manager, I put little stock in the credit score itself, but the history used to derive that score is very useful. Credit scores may be useful for creditors that have to justify their decision-making to other higher ranking bureaucrats or perhaps investors. But in the property management business, this is rarely the case. Some professionals, perhaps those less confident in their own judgment or decision-making ability, might ask a property owner to weigh in on the decision, but I rarely do this. Indeed, I think my credit-history interpreting skill is one of the reasons the property owner has hired me in the first place. And truthfully, those that lean too heavily on this sole criterion may be truly seeking only an alibi—someone or something to blame should things later fall apart. While it’s nice to be able to divert accountability, this does nothing to remedy the problem, which was a decision made on a bad premise.

I am certainly interested in the prospect’s overall credit picture, which is what the credit score depicts, but I am really more interested in why and how she got the score. In fact, the score itself is not even considered in my appraisal of the prospect. For example, if our prospect lost her job and had to let her home mortgage go into foreclosure, her score will be ruined for years. But I am more interested in the money management discipline she demonstrated before and after that tumultuous event. That will tell me more about the character of person than the score.

In my qualification decision table, I put the most weight on rental history. I want to know how long she lived in the same place, and how well she treated the property during her stay. Did she pay her rent on time? Were there any bad checks presented? These are the kinds of questions I want answers to, and these are things that do not show up in a credit report, because rent is not considered a debt by the credit reporting bureaus—another reason to be wary of the score, which is generally designed to help creditors evaluate loan risk, not rent.

I am also interested in the tenant's employment or source of income. Does she have a job? How long has she been employed by the same employer. What does her debt/income ratio look like? How stressful will it be for her to make the rent payments? These are the kinds of questions I want to ask about her payment potential.

I will definitely look at the credit history, but for me, rental history and source of revenue are far more important considerations that indicate the probability that a prospect will become a good tenant.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Lease-Purchase, Buyer Beware!

3 Options Realty — Sat, 05 Nov 2011 16:26:00 GMT

Are you considering purchasing a home on the basis of a lease-purchase, or otherwise known as a lease to own? If so, be very careful, it may be one of the biggest financial mistakes of your lifetime.

The concept is simple enough. You contract to buy a home with a closing date some number of years out, and in the meantime you occupy the premises and pay rent until that closing date. Usually a large sum is deposited with the seller as consideration for the right to purchase. It is also not uncommon for some part of the monthly rent to be applied as a rent credit, which will cumulatively apply as a credit to the down payment on closing day. So each month that passes, the buyer contributes increasing capital, earning greater and greater equity in the property.

It is partly because of this accumulating equity that caveat emptor could not be more applicable in a lease-purchase. Many people attempt such transactions without legal counsel, or even without the assistance of a knowledgeable real estate professional. This could lead to a big mistake. There are many pitfalls in such arrangements—often times not even known to the seller. So it’s not necessarily that the seller is intending to rip off the buyer. They just sometimes become unsuspecting victims of their own life’s trials and tribulations.

Probably the most common pitfall is the possibility of sudden, seller financial instability. If for whatever reason, after entering into the lease-purchase agreement, the seller stops making mortgage payments, the house will eventually be foreclosed by the lender. The lender will not observe your purchase agreement because it is subordinate to their lien. By law, they must assume the lease provisions, but that won’t help for very long. They will surely not take responsibility for either the substantial consideration deposit you made, or the cumulative rent credits earned. You will have recourse against the seller for these sums, but if his financial means are so depleted that he has decided to let the house go, there is probably nothing for you to go after. So good luck with that!

The best way to avoid this particular pitfall is to arrange for an escrow agent to supervise disbursement of your monthly rent payments. You can hire an attorney to do this, or even some real estate brokers will handle this for you. What they will do is receive your rent payments and then make disbursements from those proceeds directly to the seller’s lender, and possibly even remit property taxes as well. You will also want to have the lease-purchase agreement recorded to establish a lien on the property. This way, the owner must satisfy your purchase agreement, and would be prohibited from transferring title out from under you.

A couple of other unfortunate outcomes would be that at the end of the leasing term, you cannot get financing to purchase the property, or the appraisal comes in substantially higher or lower than the agreed sales price. If you cannot facilitate the purchase, for any reason, you will probably lose all of your accumulated equity. Because there is such an unpredictable downside risk in this procedure, be sure to design a purchase contract that affords you some protection in the event of these possibilities. Let the buyer beware!

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Whose Name is on the Lease?

3 Options Realty — Thu, 03 Nov 2011 14:14:00 GMT

If you are a landlord employing the services of a professional property manager, do you know whose name is on the lease? You should, because it could cost you in court!

Many professional property managers have opted to put the owner’s name on the lease, as “landlord” rather than the management company’s name. They do this to avoid service-of-process in the event of a lawsuit. They want the tenant’s attorney to go after the owner, not themselves. In reality, in most instances if there is going to be a lawsuit, anyone and everyone associated with the case will be served. So this is really not an effective strategy.

But the problem for the land owner is not about who might be served, because this is a rare instance in the first place, and as already mentioned, it doesn’t really matter, because ultimately both manager and owner will be served regardless of the name on the lease. A more likely scenario would be a case in which the tenant is being evicted, and in the process, elects to answer the dispossessory warrant. In such event, the case will be heard by a judge, usually a magistrate. In most Georgia courts, the judge will not allow the property manager to act as plaintiff if the property management company is not named as landlord in the lease. This is true, even if the property management company filed the warrant, on behalf of the land owner, and in the property management company’s name per agreement. Most judges would consider this to be practicing law without a license, and would disregard the management agreement terms.

When the land owner’s name is expressed as landlord on the lease, the court will only allow the land owner, or an attorney for the land owner, to address the court. If the land owner resides out of state, as many do, the land owner would either suffer the cost of a trip to town, or the expense of a lawyer. And if the management company attempts to represent the land owner, hoping that the judge won’t catch it, there is a good chance the court will dismiss the case, causing the land owner to have to start at square one with a new dispossessory warrant.

The bottom line is that if the lease is written between the management company and the tenant, then the court cannot deny the property manager the right to defend its position as principal on the lease, saving the owner both expense and inconvenience. So if you are a land owner, it is important that you know whose name is on the lease, especially if the property is professionally managed.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Protect Yourself from Diminished Value

3 Options Realty — Fri, 07 Oct 2011 16:02:00 GMT

Suppose you are going to court to evict a nonpaying tenant. This should be a no brainer. But in this case, the tenant has countersued, claiming the house needs repairs. Watch out!

We had a recent case like this. This was an older house and did need some things done to it. But the condition of the house was acceptable to the tenant upon move-in, as was so indicated on the inventory. Four months after move-in, the tenant stopped paying rent. He did not have a job, and had no money. We sent him the demand for possession and he wrote a letter back suggesting that we apply his security deposit to the rent, which we will never do. Also, in his letter he listed some dozen maintenance issues. Most of them were either false or gross exaggerations. Clearly, he was trying to mitigate the fact that he was in breach of contract for nonpayment of rent. This overused tactic seldom works, and most judges see through it. Nevertheless, in good faith, we attempted to address some of the legitimate issues. He made it difficult for the vendor to access the property, so we got very little accomplished before the court date.

In court everything looked like it was going our way, the line of questioning that judge took seemed right along the lines I would have expected. In the tenant’s counter-suite he moved for consideration for the value of stolen personal property. The judge denied that motion because there was no evidence submitted and the judge did not think the landlord was liable for the tenant’s stolen property anyway. Everything seemed in place for a judgment for the plaintiff. Surprisingly, while we did get the writ of possession, we did not get a money judgment for the back rent. The judge determined the condition of the property to have diminished the value of the rent. How he decided how much that amount should be is beyond my understanding.

I think I could have argued this defense if I had perceived the direction that the judge was taking. But I did not. It was not until after he gave his judgment that I realized what he was thinking. He gave no indication whatsoever in his questioning, and the tenant did not move for this defense.

So what’s the lesson learned? As a landlord, if a counter-suite is made concerning maintenance and repairs, do not assume that the judge is with you on it, make your case for why there is no case for a claim of diminished value, even if this is not asserted as an affirmative defense by the tenant. If the judge does not think your argument is relevant, he will stop you before you get too long winded. But the lesson I learned is to never leave a question of diminished value on the table ever again.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Residential Rental Agreement and the Law

3 Options Realty — Tue, 20 Sep 2011 20:36:00 GMT

Do you know if your rental agreement is a restatement of the law or does it supplement the law? It probably does a little of both, and you really ought to know the difference.

For example, in Georgia, many leases include a merger clause. The lease probably does not need the clause as it is clear from statutory law that oral agreements are unenforceable without credible witness. But it still pays to have such a clause, because it helps set expectations for the tenant. In most cases, the tenant is probably unfamiliar with the law, but if the law is restated in the lease, then they may not feel compelled to go to court to discover that their defense is worthless. They can see in the mutual agreement that they have no case. So restating the law can be a good idea, if you want to avoid dealing with lawsuits.

Do you have a waiver clause? You do need this clause as it is not given in the statutes. This clause protects you when you act in such a way to appear to be waiving a requirement in the lease due to performance. For example, you do not charge a late fee two months in a row, and then decide to start enforcing the letter of the contract. Without the waiver clause, the tenant might assert an argument that you waived your right to demand it, based upon your demonstrated behavior. They would have a defendable argument.

Another very important clause is the severability clause. This clause protects you such that when one part of the lease is ruled out of compliance with law, the remainder of the lease remains enforceable. Without this clause, it could be ruled that the entire lease is unenforceable.

Know your lease and know the law. It might serve you well someday.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Notification Requirements for Rent Tendered by Insufficient Funds

3 Options Realty — Wed, 27 Jul 2011 13:37:00 GMT

What is the notification waiting period for the landlord to begin dispossessory of a tenant that paid rent with a check that bounced? There are two separate laws that Georgia practitioners must apply to such a case.

In Georgia Code § 13-6-15, “Damages for writing bad check”, the payee must notify, in writing, the maker of a check drafted on insufficient funds in order to claim damages. Such notification must be done in writing, and the maker will then have 10 days from the date of notification to make the check good, before the payee can file charges, whether civil or criminal. It is a good idea to send such notifications by certified mail so that you have an official date stamp of delivery.

In Georgia Code § 44-7-50, “Demand for Possession…”, the payee has technically not paid rent. But it is debatable as to whether the landlord should proceed directly to a dispossessory warrant. Because Georgia Code § 13-6-15 specifies a 10 day waiting period for the maker to make the check “good”, it could be interpreted by the courts that the landlord may not take other legal action until the check disposition matter is resolved. It may be worth the risk though. If the landlord proceeds to dispossess the tenant, and the tenant does not raise the 10 day defense, it probably would never be brought up in court, and the plaintiff would prevail.

The worst that would happen is that if the tenant answered the dispossessory warrant and raised this defense, the landlord would stand to lose approximately 20 days in removal of the tenant, but only if the court took this position. In any case, the wise landlord will check with legal counsel before making any decision on this matter. The information provided here is simply the opinion of a professional property manager, and not an attorney at law.

Daniel R. Wilhelm, Managing Broker, 3 Options Realty, LLC., www.3optionsrealty.com, dan@3optionsrealty.com, 678-397-1282

Residential Property Management, Fish or Cut Bait?

3 Options Realty — Sun, 10 Jul 2011 12:23:00 GMT

Residential property management is not for the uncommitted. This is not a part-time gig! You must either be all-in or just don’t involved. It will invariably end badly for the uncommitted.

Recently, more and more licensees are dabbling with leasing and some are even stepping out on a limb and offering property management services. Caution is in order here! Although there is tremendous liability at stake, this is not a reason to not do it—just a reason to properly prepare for the job. Entering this field of work unprepared could cost licensees their licenses. It can also result in debilitating lawsuits. So how can one prepare for the job? That’s the question.

The process and protocols of working with a tenant or property owner in leasing and marketing is similar to selling. There are differences though. One big one is investing in sufficient industry specific marketing resources to do a good job. This requires substantial financial and time commitments. It also demands a level of professional competency equal to the job. So this may not be right for the casual player. But the bigger step is in the management of the property.

Property management demands a certain temperament, which, if lacking, could cause emotional displeasure at best, and result in professional catastrophe at worst. The job is definitely not right for everyone. Indeed, it would be ill advised to wait and discover this after having acquired several property owners that are depending on their agent’s professional competency to protect their investments. A good place to start researching might be to take a few locally established, property managers to lunch and pick their brains. Ask the hard questions and be honest with yourself when you hear the answers.

After passing this first test, before even beginning work for property owners, seek formal training from the local chapter of the National Association of Residential Property Managers, www.NARPM.org or from a local board of REALTORS^©, if they sponsor such training. These foundational classes will lay the framework for the business. They might also offer that key perspective needed to decide if this is the right business in the first place.

There are two common ways of starting up a property management business—the slow way and the fast way. The slow way is to simply hang out your shingle and begin gently growing, learning as you go with a gradual learning curve. The fast way is to acquire inventory by purchasing an existing company. The slow way is probably the wiser plan of action, but the fast way would be okay if the acquisition of the inventory came equipped with experienced staff. It would be a bad idea, for example, to acquire 180 units from a sole practitioner, and expect to replace that practitioner without any other help. In most cases, the bookkeeping alone would be enough to drown the enterprise. In any case, don’t fear doing it, just be prepared and be careful.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Minimizing the Cost of Evictions

3 Options Realty — Tue, 05 Jul 2011 14:45:00 GMT

What do you do to improve your position once you have filed a dispossessory warrant? Many landlords simply buy time waiting for the court date, or the appointment with the sheriff for the set-out. This can be an unnecessarily expensive course of action. There is another possibility.

Often times, landlords make the mistake of assuming that tenants understand the consequences of their own actions. But few really understand the eviction process. Some errantly believe that once it starts, it has to finish in court—and that if they don’t win, then inevitably in a horrifying set-out. Others believe that it is a big bluff, or they are simply delusional and don’t think it could ever happen to them—these are the scary ones! Some think they are actually buying good time by answering the warrant, despite their meritless defenses. Such deep thinkers may have a point there, unfortunately.

The only advantage to owners in going to court is that they might get a money judgment. But even this may not be an effective strategy. If that is the sole reason for waiting to go before the judge, and the money judgment fails to bring them any money (way too often the case), what’s the point of it? Too often times, judgments are uncollectable for a whole host of reasons. We might justify our actions and claim some success when they at least get summarily removed from the premises. But is that what we waited for?

In most cases, time is not on the side of the landlord during eviction processing. If for no other reason, there is the lost opportunity cost of collecting no rent while waiting. But the main reason a quick settlement is attractive, is that the longer the eviction process lags on, the more disgruntled and maybe even outright angry the tenant becomes. Generally that anger is misplaced, but regardless its virtue, the hostility that percolates up out of the pool of strife can result in horrific damages inflicted on the property at the hand of a vindictive tenant.

About 9 out of 10 times, these cases are settled in mediation just prior to going before the judge. So it might be possible, and certainly preferable, to settle this long before the court date. If such were the case, the tenant would be anxious for a lesser amount of time, and therefore also less likely to arrive at the malicious notion of destroying the property out of revenge.

My remedy begins with enclosing a well thought out, and very simply written memorandum with the demand letter—one that explains tenant options during the eviction process. This is not posed from the point of view of a legal defense. In fact, it really is not guidance at all. It merely describes the horrible consequences that are inevitable if settlement is not reached, and admonishes them to meet as soon as possible to talk about better options. It is a frank discussion, which paints a pretty gloomy outcome if an early settlement is not reached. This memorandum is then followed up with a phone call or email (or both). Reaching out in this way can be extremely effective. The idea is to conduct a less formal mediation now rather than weeks down the road.

The next time you have an eviction staring you in the face, try taking a few minutes and talking to your tenant. Find out what’s happening in their lives and see what can be done to salvage the relationship. It may be the some of the most profitable minutes you ever spent.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Home Repairs Under the Landlord Tenant Law

3 Options Realty — Wed, 29 Jun 2011 16:44:00 GMT

Should the landlord charge the tenant for the first $50 or so of a repair invoice? Many landlords think this is a great idea. If they are ever challenged on this, they may regret the day they even thought of it.

While Georgia Statute is not expressly clear on this point, the spirit of the code is. The real issue becomes a matter of scale, particularly as it applies to tort liability. The reason this is confusing is because while there is ample case law supporting a “tenant pay’s policy” in commercial leases, the law expressly states that the landlord must keep the premises in repair, and further that, as regards dwelling places, the landlord may not waive, assign, transfer, or otherwise avoid any of the rights, duties, or remedies in this applicable code section. Obviously, the court envisions a different standard between the commercial and the residential landlord-tenant relationship, and this is the operative argument.

It is improbable that a decision by a landlord, that chose the strategy of having the tenant pay for the first few dollars of a repair, would ever amount to a lawsuit. It is feasible, however, if the act resulted in a serious injury to the occupants. Let me give an example. Let’s say the smoke detector failed an operational test, so the tenant replaced the battery, only to discover that it’s still not working. In this case, the tenant is on a very strict budget and could not afford to replace the detector, which would surely exceed his $50.00 deductable. So he decides to just wait until he can afford the repair. In the meantime a house fire destroys the home and causes death or severe bodily injury to an occupant. That would not be a case a landlord would want to defend in front of a jury.

But even despite the law, a landlord should consider that such a policy is not beneficial over the long run. I think landlords convey the wrong attitude to the tenant when implementing such a policy. It creates an image that to the tenant that the landlord is “cheap” or just doesn’t care about the property. If the owner doesn’t care, why should the tenant? Conversely, as a landlord, I would want to be the one to decide what needs repair and what priority to assign to the job.

Speaking for myself, I would really like to know every little thing that goes on in one of my properties. A small problem may seem insignificant to the tenant, but if left unattended may become a greater problem and therefore more expensive to repair than had it been attended to when it first appeared.

You may also have a situation where a combination of small problems, each one in and of itself not significant, but in the aggregate could be significant. If the tenant thinks that every problem they report is going to cost them money, they will surely have a biased opinion about how important it is. Considering that they only plan to live there a short time, they have no vested interest in sustainment of the property’s physical condition. They would likely rather let things pile up, passing on to you the responsibility of repairing them after they move out.

Daniel R. Wilhelm
Managing Broker
3 Options Realty, LLC.
www.3optionsrealty.com
dan@3optionsrealty.com
678-397-1282

Valuing Real Estate, Sell or Hold in a Down Market?

3 Options Realty — Tue, 21 Jun 2011 17:51:00 GMT

If you have an impending need or strong desire to buy up, it may make good economic sense to sell, even in this down-market. The good news is that there has not been a better time to buy real estate—probably since the bottom of the Great Depression. The bad news is there has also not been a worse time to sell over the same timeframe. But if you are emotionally able to take the hit on selling and have the financial worth to purchase a larger home, this may be the opportunity of a lifetime.

While it is true that your home has most likely lost equity since the summer of 2008, this is also true of the property you would purchase. Both properties will have been devalued. So if you believe the market is going to rebound, once it does, the relative equity increase in the more expensive home is going to exceed that of the lesser expensive one. For example: If we assume an equal growth ratio applies then the net difference, even if the ratio is identical, will put you in much better shape in relative equity. This will happen because the ratio applied against the greater value will yield a relatively greater value because the beginning principle is larger.

Another thought would be to go ahead and buy up, but rather than take the hit on selling right now, lease the property. This way you do not suffer the loss of equity (except on paper), while you maintain your potential to grow equity in both assets. If you are fortunate enough to have the first property free of financing your options are vast. But even if not, the fact that your renter is compensating you for the financing costs can be quite beneficial. If you maintain a loan on both houses, you still get the tax right-off on both. Plus you now qualify for depreciation expense on the rental, currently calculated at a schedule of 27.5 years. So let’s say the depreciable basis of the property is $200,000. You could get an annual right-off of $7,272. If your tax rate is 40%, you would have an additional $2,909 in cash per year to work with.

You should discuss these ideas with your financial planner or CPA, as these tax rules are subject to change, and there are other considerations such as capital gains treatment and depreciation recapture. Nevertheless, it is a discussion you should have if this scenario fits your situation. Whatever the case, do not allow this slowdown in the real estate market cause you sit on your hands when there are fabulous opportunities out there. If you educate yourself on the facts, you minimize the investment risks.

Daniel R. Wilhelm
Managing Broker
3 Options Realty, LLC.
www.3optionsrealty.com
dan@3optionsrealty.com
678-397-1282

Buyer Beware, Buying Foreclosed Properties

3 Options Realty — Thu, 16 Jun 2011 14:12:00 GMT

Buying foreclosed homes requires uncommon patience and relentless resolve. While the outcome could prove amazingly prosperous for you, the process itself can be a highly stressful and emotionally draining experience.

While there are exceptions, and these are very rare, banks generally do not play fair. They act like the spoiled child that owns the ball and will not share unless they get their way. They appear not to respect you as a buyer. They don’t even recognize you as the solution to a problem they most probably created themselves in the first place through their own poor lending practices. It seems as though they begrudge you. Maybe it’s because they think you are getting too good a deal, and they just can’t stand it. Maybe it has to do with the selling decision being boardroom driven, and therefore lacking any semblance of humane sentiment. Or maybe it is a legitimate problem having to do with the legal processing implications, which by their very nature are protracted. (After all, that’s how lawyers get paid!). But it’s probably a combination of each of these, with a large dosage of intractable bureaucracy thrown in for poor measure. But whatever their motivation, the end result will inevitably be that they will put you through agonizing waiting periods and literally force you to surrender your traditional buyer rights in the contracting stage. In fact, you probably will never even have a truly binding agreement until the day of closing. In other words, consummation of the deal is at risk from contract to closing.

So if you are planning to personally occupy the property, be careful not to set strict logistical expectations that are tied the closing date. If you are getting a purchase money loan, get a generous rate lock-in period, because many buyers lose their rate lock-ins far too often simply because the foreclosing bank just couldn’t get to the closing table on time. Sometimes this delay kills the deal because the borrower was on the qualifying fence, and the new rate now disqualifies them. Very unfortunate, but don’t expect the bank to care or understand, the institution lacks this capacity. And even if you do ultimately close, in this instance, you stand to pay more for the loan, but don’t even think about renegotiating. They simply won’t hear of it.

Your agent will probably prepare the offer on a standard form that has been designed to be fair to both buyer and seller. But beware, the bank, in its infinite arrogance, will trump the agreement demanding that a special addendum prepared by their attorneys supplement the contract stipulating that its provisions supersede those in the contract. Such addenda often include demanding stipulations such as: only their chosen attorney can be used for the closing, that they hold the earnest money, that the buyer qualify with their specified lender, that you have no rights to an inspection contingency, and other unreasonable assertions.

Finally, if you cannot succeed in negotiating to use your preferred closing attorney, at least have a title search done by your own attorney. You might even have your attorney sell you the title insurance policy. The bank’s attorney will not like this very much, so if you want it, you will have to negotiate tough on this one. Keep in mind that the bank’s chosen attorney has probably already done (and been paid for) the title search when they foreclosed on the property, so they should not charge you anyway, but they will still probably kick up a fit over it. The thing to be wary of here is that if a title flaw was created or even just overlooked by the bank’s attorney, and they later discover their own error when working on your file, they may choose to look the other way to avoid the embarrassment from your discovery of their shoddy work. This happens more often than you can probably imagine. So even if it comes down to having to pay both the bank’s attorney and your own attorney for the same work… just do it. It may prove to be the best money you could spend.

In any case, if you want to buy a foreclosure, be prepared for a disappointing and even disheartening experience. Whether it is Fannie Mae or Freddie Mac, or one of the mega banks, they will do their best to make this as difficult and uncomfortable for you as possible. I’m not suggesting that you avoid buying foreclosures, just be mentally and emotionally prepared for it. That’s half the battle.

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

License Law and the Property Manager

3 Options Realty — Tue, 31 May 2011 18:44:00 GMT

Thoroughly explore Georgia license law and state regulation as they apply to residential property management. Case study applications and class discussions will broaden each student’s understanding of the law and regulation. Discuss and dispel the myths of law giving you the confidence to operate comfortably within your management system. Receive a free copy of both O.C.G.A. 43-40 and Regulation 520, each volume abridged to only that part dealing with residential leasing and management—Reference guides that every consummate professional property manager ought to have by their side.

When: June 10, 2011, From 9:30 am to 12:30 pm

Where: Georgia Institute of Real Estate, 5784 Lake Forrest Dr, Atlanta, GA 30328

3 hours continuing education credit

Registration: $39.00 for active NARPM members and Atlanta Board of Realtors members. $49.00 for non-NARPM members.

Contact: 1-800-633-3583

Instructor: Dan Wilhelm, BA, MA, RMP, ABR, ABRM, CRB, GREEN, EcoBroker, MPM Candidate

Investors Buying Homes Built Prior to 1978

3 Options Realty — Tue, 31 May 2011 14:41:00 GMT

If you are planning to buy a home built prior to 1978, you ought to have a lead-based paint test done on the property, if the owner cannot produce documentation that it has already been done. In either case, if lead has been detected, either have it remediated at the seller’s expense and certified clean, or don’t buy it.

In a 2011 regulation, the United States Environmental Protection Agency (EPA) admonishes property managers and landlords of homes built prior to 1978 to take special care when renovating. It backs this up with a maximum penalty of a whopping $37,500 fine per incident for violations of lead-based paint regulations. And this is no idle threat. They are deadly serious about this. Violations include such things as failing to follow precise steps for containment during the renovation, failure to employ contractors that have been certified by EPA to supervise the work, and improper or incomplete documentation and disclosures.

Please don’t make the grievous mistake of thinking that you can avoid the ramifications of this burdensome regulation by defining your work as a simple repair, as opposed to a renovation, which seems to connote major work. You may be surprised to know that according to EPA standards, if your repair work requires disturbing of more than 6 square feet on the interior or 20 square feet on the exterior, you must follow some onerous procedures to contain and dispose of dust, debris, and paint chips emanating from the work site. This could double, triple, or more the cost of the repair.

Be careful when contracting out the job. Many contractors are unaware of these new requirements, but that does not make them exempt from the law. And if you hire a contractor that is not certified or if you do not ensure that a certified renovator supervises the job, you are personally liable for not only the EPA penalties but even more daunting than that, for damages awarded in a potential lawsuit from victims of this newly defined negligence.

In addition to this recent change for renovations, please also remember to precisely follow lead-based paint disclosure procedures. If the property was built prior to 1978, then you are obligated to inform the tenant if you have any knowledge of lead-based paint on the premises, and if any testing has been done to determine this. You also must give them a copy of the EPA lead-based paint guide “Protect Your Family from Lead in Your Home”. Noncompliance with this regulation subjects the property manager and landlord to the $37,500 per incidence penalty.

One thing that all property managers and landlords need to understand is that documentation is king. Even if you made all necessary disclosures and precisely conformed to worksite processes, if your documentation is missing or incorrectly filled out, you are subject to citation upon an audit. If you’re doing the right thing and fully complying with the law, be sure to document that fact and then securely retain the records.

Daniel R. Wilhelm, Managing Broker, 3 Options Realty, LLC. www.3optionsrealty.com, dan@3optionsrealty.com, 678-397-1282

Questions to Ask When Hiring a Property Professional Manager

3 Options Realty — Fri, 27 May 2011 13:37:00 GMT

Here are 5 basic questions that prospective landlords ought to ask when choosing a professional property manager:

1. How do you handle the maintenance responsibilities?

2. Who will I be dealing with for questions about my property?

3. How much do you charge for a tenant application fee?

4. Do you retain any part of the tenant’s security deposit as an administrative fee?

5. Is there a service guarantee?

When you ask these questions, be sure to follow up on them. Turn each thought into a discussion. Don’t accept a quick, stock answer. Dig deeply to see what’s really going on. If your sixth sense causes you doubt the veracity of the responder, either check references or find another property manager. Here are some examples of what I’m talking about:

In question number 1, regarding maintenance, you might want to ask if this part of the business is a profit center for the management company. Is it an in-house arrangement? Is there any sort of profit sharing relationship between management and vendors? If so, how does this affect the prices you will be charged for maintenance? You might also want to know if they have a web based maintenance management system. Date stamping service requests is a critically important function if there is ever a legal dispute over maintenance.

In question number 2, regarding the person that will be the property manager, you want to know if you are going to be handed over to a staff person. If you are, you should meet this person or persons before you sign the management agreement. After all, that’s who you’re going to be dealing with. If the personalities clash, the experience could prove be an emotionally exhausting one. You might also want to investigate staff turnover rate. That could be enlightening information about the stability of the company itself.

In question number 3, regarding application fees, you need to determine if the fee amount is fair market. Why should you care if it’s not money you will receive anyway? Simply stated, if the fee is too high, it will discourage otherwise good candidates from applying. This will likely have the effect of increasing marketing time, or said another way, vacancy time. Vacancy time translates directly to your pocketbook and is the nemesis of all investors. Property management companies that charge too much for an application fee are either uniformed about the market or are short sighted profit mongers, that care more about their bottom line than your profitability.

In question 4, regarding security deposit administrative fees, you might like to know if this fee is being disclosed to the tenant, and at what point that disclosure happens in the application process. It should happen before an application is submitted, but many companies downplay it to avoid confrontation over a valid objection. They would rather stealthily reveal it at the lease signing, after the tenant has made both an emotional and monetary commitment. Again you might wonder why you should care since this is not your money either. You should be concerned because it creates an environment of distrust. This attitude will spill over into other aspects of the management process. This is not a great way to get started on a new and important business relationship.

In question 5, regarding the service guarantee, not much need be said about this. It should be obvious the value in such an agreement. If there is a guarantee, is it realistic and practically enforceable? Is it even believable?

The dialogue you engage in through asking these policy questions may be more revealing about the character of the property manager and company values than telling about the policies themselves. If company policies are intentionally designed to scam tenants, and it is so obvious, shouldn’t you be concerned about how you would be treated by that same devious mentality? What management policies are going to become clearer to you, once you are under way with this property manager? The deeper you become invested in the relationship, the more difficult and costly it becomes to sever the agreement?

Daniel R. Wilhelm

Managing Broker

3 Options Realty, LLC.

www.3optionsrealty.com

dan@3optionsrealty.com

678-397-1282

Abandoned Rental Property, What Now?

3 Options Realty — Fri, 13 May 2011 17:25:00 GMT

No rent comes in this month, so you phone the tenant only to find that the line has been disconnected. The email you had on file bounces. So you physically visit the property. When you arrive, it appears abandoned from the street, so you go up a knock on the door. Nobody comes to the door so you peak in through a window. What you see is that there is no furniture in there—only what looks like some junk stacked over in the corner and a soiled and tattered area-rug dominating the floor space. You try the door and it is unlocked. What’s your next step?

Here’s where you want to be very careful. In Georgia you can repossess real property only two ways: Upon termination of the lease, or by order of a court of competent jurisdiction. Order of the court leaves little for interpretation, but what does it mean to say upon termination of the lease? Can one safely assume that because someone has what appears to be junk in the house, that they have abandoned the property, thereby terminating the lease? After all, one man’s junk is another man’s treasure, right? The reality is that if you make an incorrect assumption in this instance, it could cost you big time. There is case precedence where a disgruntled tenant (that actually did abandon the property) came back months later and claimed wrongful repossession and the resultant loss of valuable personal property, and the court found for the plaintiff because the landlord carelessly repossessed the property.

The first part of the solution is to have a clear definition of “termination of lease.” To me this is demonstrated one of two ways: Either the tenant surrenders the house keys to the landlord, or has given written notice that they have moved out. The best written notice is an authentication by the tenant on a move-out inventory. But if the tenant unexpectedly pops by the office and surrenders the keys, ask him to take a moment and give you something in writing saying that the property has been vacated, and that they are surrendering possession effective a particular date.

Failing one of these two rules, a wise landlord will take the necessary precaution and get a writ of possession before doing anything with the property other than securing it to prevent vandalism. Bring a couple of witnesses with you if you find it necessary to enter the property to check utility services and ensure that the property is in a safe condition. For example, in wintertime you may want to ensure that the heater is on and the thermostat turned up to protect the property from freezing. But do not remove any personal property, and make sure your witnesses can confirm this. Following this plan may cost the landlord a few days of lost opportunity rents, but that is far better than dealing with a potential lawsuit by some savvy tenant.

Daniel R. Wilhelm, Managing Broker, 3 Options Realty, LLC. www.3optionsrealty.com, dan@3optionsrealty.com, 678-397-1282

Short-Sale, Not a Solo Venture

3 Options Realty — Thu, 12 May 2011 17:17:00 GMT

A short- sale is a desperation effort to salvage as much of one’s financial life as possible when on the brink of disaster. But it is not a tool to be used by the ill-prepared or weak of heart. Statistics indicate that only about 20% of all short-sale applications are actually approved—most of them wind up in foreclosure before the short-sale is ever approved. This is because the short-sale process is in a proverbial foot race with the foreclosure process. Consequently, the earlier you begin the short-sale process the more likely it will be first across the finish line. It is also possible, to improve on this probability by having the right counsel. Nothing beats a seasoned short-sale negotiator!

How do you find a skilled short-sale negotiator? You first find a real estate broker that knows the game and has connections with the right people to get the job done. Key in the process is getting an offer on the property. Hopefully one that is good enough that the bank will at least talk about it. So that’s the first step. Get the property listed with a knowledgeable broker. Then, once you have weighed all other options, and have concluded that a short-sale is the best course of action for you, write a letter to your bank and ask for a short-sale package. This package will explain the rules of the game. While most short-sale requirements are very similar, there is no universal standard, so one bank may be slightly different from another.

In your initial letter to the bank, include a copy of your listing agreement indicating the listing price, so the bank can see that you are serious. This should open your file, and it will ultimately serve to expedite the short-sale approval process once an offer is received. Once you receive the short-sale package, you will be ready for a trip to your selected closing attorney (the same attorney that will negotiate your loan with the bank). This is one of the most important steps in the process. Not all closing attorneys are created equal, and certainly not all of them have experience in short-sale processing. Lean on your agent for this referral.

Do not stop making payments on your loan until you have spoken with the attorney. You need legal advice before making this critical but unfortunately necessary move. Once your agent obtains an offer, together you will negotiate for the best deal you can strike. Bring the mutually agreed offer to the closing attorney. The attorney will pretty much take it from there. The attorney will work with your bank to get the best deal possible for you, and the attorney will also be qualified to explain to you what the consequences of the “deal” will look like and feel like for you later down the road.

The importance of counsel cannot be overstated. For example, many short-sale sellers wind up with burdensome default judgments that hang over for years after the closing is done. Often times the attorney can have this waived in the negotiating process. Hopefully, you will never have to suffer a short-sale, but if you do, be sure and ask for help from competent sources. Whatever you do, don’t attempt to go it alone!

Daniel R. Wilhelm, Managing Broker, 3 Options Realty, LLC., www.3optionsrealty.com, dan@3optionsrealty.com, 678-397-1282

You Want to Sell Short? Really!?!

3 Options Realty — Mon, 09 May 2011 17:13:00 GMT

Nathan phoned me yesterday. He said he wanted me to help him sell his home in a short-sale. The first question I asked was if he was behind on mortgage payments. He said no, he was current. My next question was: “Then why do you want to sell short?”

He told me that his hours at work had been cut back, so he did not think he could keep paying the mortgage. He was pretty certain that the house would not sell for enough to cover his debt. So he would rather “let the house go”, and rent something more affordable… get his financial feet back underneath him. I can understand his thinking, but a further conversation revealed that there was so much Nathan was unaware of about the impact this plan would actually have on his financial life. And he also did not know that he had another option.

When we discussed how we could lease the property and how he could earn a positive cash flow, he was immediately sold. So just what was it that he would have given up had he gone with the short-sale?

1. His credit rating would have been destroyed for at least 3 years. (Currently, HUD allows home-loan borrowers to qualify after 3 years from the closing on a short-sale.)

2. He would have lost the tax benefits of holding investment real estate in his portfolio.

3. He would have forsaken the likelihood of property value appreciation in the out-years.

4. He would have lost the positive effect of loan amortization which would increase his equity in the property.

5. He may be strapped with a default judgment that would hang over his head for many years.

6. If the short-sale was ultimately disapproved (about an 80% probability), the property would have been foreclosed on. (His credit rating would suffer equally under foreclosure as in a short sale, but the negative affect would have just lasted longer.)

Essential to the above solution is for a homeowner to get help before letting the house payments go into arrears. Once the homeowner starts getting buried beneath the debt, it is very difficult to get out from underneath. Sometimes, selling short is unavoidable though, and that will be the subject my next blog.

Daniel R. Wilhelm, Managing Broker, 3 Options Realty, LLC., www.3optionsrealty.com, dan@3optionsrealty.com, 678-397-1282