Group Q & A 426080

Lou Brown:

Hello everyone and welcome back to another installment of our Street Smart Group Q and A.  You’ve sent in the questions over the last couple of weeks and I’ve got the answers for you.  I’m very excited about it.

Hey, if you’re not buying property in today’s market, you’re really missing an opportunity.  We’ve seen some great deals come across our desk in the last couple of weeks.  Imagine this, 24,000, 27,000, $30,000 deals.  We bought a couple of subject-tos as well.

So, pay attention.  In fact, today we have a group going to an auction that runs today, tomorrow, Saturday, and Sunday.  So, there’s a lot of things going on in the market place.  We’ve also got plans to bid there at the action.  We’ve already picked out the properties, inspected the properties, and we’re ready with checks in hand to, hopefully, buy at these auctions.

Years ago, when I got started in this business and was in my acquisition phase, I did a lot of buying at auctions.  Then they got different.  They went different on us.  Regular buyers started showing up, and bidding the prices way up, and it just became…not the way to buy.

In today’s market however, the numbers are so huge.  The availability of property is so large, that the banks are saying, “Listen, we’ll do anything to move these properties.”

Here’s an interesting note.  Most of the properties that are available, which in fact, there’s hundreds of them, that are going to be auctioned off over the next few days, here in Atlanta.  Most of these are already listed properties.  That means that they have already been with realtors for one, two, three, five months.

Now the banks are saying, “Listen, we don’t want to wait any longer.  We want to be able to get whatever we can get for these properties.  Go ahead and blow them out, and see what you can do with them.”  If they don’t sell for the banks reserves, then, of course, they’ll go back to the realtors.

I suspect, and you pay attention to these things, you always want to be a back-up bidder on these kind of deals.  Often, when it doesn’t close with the initial bidder, then the back-up bidder is the one who gets the ringy-dingy, ringy-dingy, and gets the call.  So, when you go to these auctions, if its not going for the number you like, just be sure and put up a back-up bid anyway, because many times these things, simply, don’t close.

This gives you an opportunity to pick up a property with your leisure, because they come back to you with hat in hand.  By the way, they don’t have any of your money.  They’ve got the money of that initial bidder, who was the, lets call them the big bidder, or the winning bidder, but when those folks don’t close, in most auctions, they, actually, lose their deposit money.

In the example of the auction that starts tonight, these folks are going to be paying $2,500 as a earnest money.  In fact, the earnest money is 5% of the purchase price.  So, they’re allowing a $2,500 check with the balance that has to be paid within three days.  I say, “The balance of the 5% which has to be paid within three days.”  Then the entire amount of your bid has to paid within 30 days.

So yes, these are all cash deals.  No, they are not offering any financing.  So, you have to be hooked up with someone who’s going to be providing the funds…for you to be able to move forward quickly on these things.

That’s good news, isn’t it?  All right, now we’ve got a getting started question from Caudry.  Caudry from California.  Who says, “Hi Lou, could you please shed some more light as to the various ways to create a buyers list in readiness for disposing properties we buy for either lease option or tenant-to-buy programs.”

All right.

“Thanks Caudry from California.”

Well you’re, absolutely, right, Caudry.  That, that is one of the things that I’ve been teaching very strongly now for the last couple of years.  Particularly, in the markets we’ve been in.  It’s a very important step in your overall process.  So, that you don’t have property that sits forever while you try to find a buyer for it.  I believe strongly in building this buyers list.

Now, as an owner of our web sites, and as a licensee of our web sites, I should say.  You have both our buying web sites and our selling web sites.  On your selling web site, when you direct traffic there, that gives them opportunity for people to find out what your program is all about.  What you can do for them.  So, with that in mind, people see that you have an opportunity for them to put little to nothing down.

Then on the web site itself they, actually, register.  They fill out an application…and its more like a questionnaire than it is an application.  They fill out their details.  They press submit and all the details come to you by e-mail.  Also, auto-load into your back end data base.  This is a siftable and sortable data base.

So, that when you have a deal come in, that looks like a possibility, you go ahead and sift your data base to find the potential buyer and boom, there you have it.  You have a real solid buyer and an opportunity to be able to do something with them.  It’s a great way to match buyer to seller and you just make the money in between.

Obviously, if you already have a buyer, then you have comfort in going ahead and putting the property under contract.  You really don’t have any challenges with that.  So, to answer your question, one way is to definitely have your web sites in place.  Everyone on the call, who doesn’t have the web sites, absolutely needs them.  So, that’s step one.  Have a place for your customer to go.

Now, the other thing I’m going to recommend is on all of your marketing, you also have set up our voice whiz system with the voice script.  We’ve already pre-recorded all of the scripts, which describe your program in detail.  Tell all the details that allows you to number one, capture their telephone number when they call in.  Have them filter themselves, find out all about your program.  So, you don’t have to waste time on the phone chatting about your program, when everything is all there in pre-recorded format.

Then, third it also gives them your web address.  So, they can go and read about your program and also register for your program.  So, this is part of the technology side of what I want you setting up.  The other thing that our voice whiz program allows you to do is…direct when the customer listens to the scripts, they can press zero at any time.  When they’ve pressed zero, it can come to your cell phone, your office line, your home line, or the program we’ve set up with PATLive where you can have unlimited calls for an annual fee.

So, that really sets you up for being able to capture every lead that comes in.  That’s important, because if those folks calls in and they don’t get a response.  They hang up the phone and you’ve lost that opportunity.  The way we look at it, is whenever the phone rings, there could be $30,000 on the other end of that phone in various forms.  Either, the long term value of that customer, or even cash that they have to put down on a property.  So, we’re very serious about calls that come in and interviewing those customers.

That’s another step in the process.  Once the customers called in and it looks like they do have some down payment money to work with, because they are going to fill that out on your questionnaire on your web site.  You’re going to call them back and you’re going to re-confirm the details.  You’re also going to use our telephone prospect questionnaire to ask more questions.

“Hi, my name is Lou, with whom am I speaking to?”  “Kathy.”  “Kathy, great.  What’s your last name?”  “Jones.”  “And Kathy, what’s your telephone number in case we get disconnected.  Fantastic.  All right, Kathy, tell me where do you work?  How long have you been there?  How much do you earn?  You’re spouse, where does he work?  How long has he been there?  How much does he earn?”  And so on.

Try to gather as much information as you possibly can.  Now, all of you who are listening to this and don’t know what I’m talking about.  This questionnaire is part of your selling and holding system.  When you have a tenant who calls in, and you have the opportunity to talk to them about your property, whether you have one or not, you can go ahead and interview them.  So, I am now looking up the prospect telephone questionnaire, which is page 28, in section two, of your volume two guidebook entitled, Selling and Holding Property.

So, that’s, lets see here.  That has all the details there that is on the questionnaire for you to be able to ask the right questions of the people.  Get all the details.  Who they are.  Excuse me, that’s, actually, page 31, of volume two.  It’s telephone prospect questionnaire when  you are selling property.  Good, all right.  Now, that gives a background to the items that you have to have in place in order to do a buyers list.

Now, we want to talk about creating the buyers list.  Where do the leads come from?  How can you get the leads?  If you’re active in the market place, you can run an ad that says something like, “Your credit is approved.  No bank qualifying.  Take over payments.  Three to choose from.  Your telephone number.”  That is your selling telephone number that is, and, “Your web site.”

That gives an opportunity for the people to go ahead and check out your program…before they talk with you directly.  This can create a lot of synergy and a lot of response.  One of the things we also do, is we have signs at our building.  You say, “Well, I don’t have a building yet.”  Well, who does?

Many times there’s folks that have buildings on busy streets that really are not retail operations.  So, you can make a deal with them.  That if you’re able to get leads by putting signs in front of their building, both on the right of way, which means bandit signs, on their right of way, which is based on your agreement, and even banners or even lighted signs that have details about your business.  That’s another way that you can generate leads.

Another, is to take one of these step vans.  Have it lettered on one side of the van, it talks about your house buying program.  On the other side of the van, it talks about your house selling program.  That’s another way to drive traffic and generate leads.

You want to put out flyers wherever you can that say, “Your credit is approved.  No bank qualifying.  Take over payments.  Several houses to choose from.”  Just put those fliers up.  Even at convenience stores with tear off numbers and even web addresses.  With those little tear off fringe looking telephone numbers coming off of the edge of the flyer.

You just have those…I was just at a convenience store the other day.  On the side of the telephone booth, outside the convenience store, they had posted this.  So, this gives you an opportunity, no matter where you go, no matter what you do, that you can go ahead and post that in grocery stores.  Community billboards, as I said, convenience stores.  Restaurants, any place that you can get some exposure.  That’s another way that you can generate leads.

Another way is to talk with realtors and mortgage brokers.  These folks have leads from people that cannot qualify under traditional terms.  Their score is not good enough.  They don’t have enough down payment.  They don’t have enough time on the job.  Whatever it might be, they can’t qualify.  Yet…these realtors and mortgage brokers have these leads.

So, what we do is give them an opportunity to earn some additional money by forwarding those leads to us.  Let us talk with those people, get them into our program, get them on our list.  Now that provides yet another lead generation source.  Both as I said a realtors and mortgage brokers.

So, what are you going to do there?  You’re going to go to the yellow pages.  You’re going to look for the ones that are in the area that you’re focusing on.  Those become the ones that you target.  You make outbound calls to those realtors and mortgage brokers, and you tell them about your program.

“Listen, I bet you’ve been working with people who have not been able to qualify for a loan.  I wanted to let you know that we have a program, where we provide a home and the funding for people like that.  Not only that, we pay you for that lead.  If we’re able to work with those folks, we pay you $1,000 for that lead.  How does that sound?”  Boom, boom, boom.  “So, this is, remember this is, a lead you wouldn’t have done anything else with and by the way, tell your friends about us too.”

So, in this answer, I’ve covered a broad spectrum of ways that you can generate leads.  Always…when you have a property that you’re buying, and you’ve got your “We buy houses” signs out.  You also have your, “We sell houses” out.  You put those any place you can, to try to generate traffic back to your telephone number, and also your web site for them to register for the program.  Be on your buyers list.

That’s a fantastic question Caudry.  One that I think is on many people’s minds…as they find out more about how the Street Smart system works.  This is a big part of how the Street Smart system works is creating your buyers list.  Great question.

All right, we’ve got a question here on funding from Dorothy Belcher.  “Hey Lou, how do you know that you are smelling the money?  I’ve thought I’ve smelled the money a couple of times, but then nadda.  Also, how do you get people to agree to being the bank?  Help.”

Okay, well Dorothy, the first thing you want to do is always, when you are interviewing the people for a purchase of a home, using our seller questionnaire.  You remember that the money is in the box.  So, that square box that has all the details of the existing financing.  That’s how I am able to smell the money.

First, when I’m interviewing them and I find out that they’ve got an existing loan.  That’s a good sign.  That means…that’s money that I may not have to source, or raise to purchase this property.  Why?  There’s already financing on that property, and if it makes sense, I can take over that existing financing.

The second thing I’m attracted to, and smelling the money, is the interest rate.  The people tell me how much they owe on the loan.  Then, they tell me the interest rate.  If that interest rate is between five and seven percent, sometimes a little bit higher than seven percent, I’m still interested.  I’m still excited about the possibilities with that deal.

The third thing I’m looking for is the payment itself.  Is that a payment that sounds like, I’m going to be able to make a spread above that payment?  So, for example, if the payment is $1,000 a month.  I know that in the area they just called me about, I can get $1,300 a month…that smells like money to me.  That smells like we can make a spread.  Not only that, with our rent-to-own program, and our owner financing program, we can get that initial down payment as well.  It’s very exciting when we get that opportunity.

The fourth thing that I’m interested in when I’m looking at that big picture, is there a second mortgage?  Now, if there’s a second mortgage that means bad news and good news.  The bad news is that a lot of the equity has been used up, because of that loan.  The good news is I may be able to discount that second mortgage down to maybe 500 or $1,000, and completely get rid of it.  That gives us an opportunity now to capture that existing, additional money, and have the opportunity to make that work.

The other way that I smell the money too, is to look at the location of the property.  If it’s within my target area, then that is also exciting to me.  I already know that I’m marketing for leads there for potential buyers, and I know that it fits within my criteria of being close to the office.  Then, therefore, it’s easier to manage.  So, now keep that in mind as you’re looking at it.

Of course, the other thing that allows me to smell the money is let’s say that there is a mortgage on there, but it’s a very low mortgage or no mortgage.  Well, the way I smell the money there, is to say, “The seller is the bank.”  That’s tying in with your second question there, how do you get people to agree to being the bank?

The answer is that we talk with them.  I had someone in my office yesterday who has a commercial property.  Very shortly after we started talking about the property, I asked, “Would you consider helping us with the financing?”  I told him point blank that, “I do not go to banks.  I don’t qualify for loans.”  I’ve found that it works really well to be able to work with owners, and have them carry back financing…to allow me to be able to buy their property.

He says, “Well, I wasn’t going down that road.”  He said, “Yes.”  After a while of talking, he said, “Yes, I will consider doing owner financing.”  So, you want to build rapport with people.  You want them to feel comfortable that you are a good lead.  I want you to remember that people who are selling their property don’t know what they’ll accept, until you actually make an offer.  When you make an offer that makes sense to them, then they can proceed on that.  It makes sense to them to go ahead and take advantage of the offer you’re offering.  Your offer is going to be owner financing.

So, the seller is the bank in two ways, either on existing financing that they already have on the property, where we can take it over.  Or owner financing, where they’re going to carry back financing.  Or the third one is a combination of the two.  Taking over existing financing and getting them to carry back financing.  If there is equity over and above the existing financing they have on the property.

Hope that helped, Dorothy.  I know that a lot of people have those questions, when you’re really just looking at these leads and you’re trying to figure out, “What in the world can I do with this?  It, simply, doesn’t make sense.  It, simply, doesn’t make sense that I could make any money with this deal.”  Well, now you can.

We got a buying notes question from Blake Matusick, “Hi Lou, when negotiating a second mortgage and I wish to buy the note, rather than buy the release.  It is the same money.  Do I receive an assignment of the note and mortgage, instead of a release of the mortgage?  What determines whether or not the lending bank will allow the purchase of the note mortgage, or just a pay-off with a release?”

Well, that is a really advanced question.  It’s a good one for everybody on this call.  What Blake is talking about is much as to what I was referring to before.  If there’s a second mortgage on the property, you could buy that second mortgage rather than paying it off.

So, let’s say that there’s a $30,000 mortgage and the bank has agreed to $1,000.  Rather than paying that loan off, for $1,000 it would be much better to ask for an assignment of the $30,000 loan for $1,000.  It’s no different than the banks do right now.  When they take a bunch of defaulted loans and bundle them together, they sell them off to the next bank down the line.  They get a big fat check.  Then the bank down the line gets an assignment of the mortgage.

So, they don’t get the property, because the property has not been sold and is not owned by the bank.  They only get an assignment of the existing lien on the property…which is the mortgage.  Now, the bank takes that lien now and they try to collect on it.

So, they call up the borrower and they say, “Let’s make a deal.  We can take your arrearage and put it on the back end of the loan.  We can forgive payments.  We can change the interest rate.  We can do all kinds of things now, because now we own that mortgage.”  What the borrower doesn’t know is they bought the mortgage at a huge discount.  You can do the same thing.

The key is, and what Blake is really asking is, “How do we do that?”  It really depends on if the lender is in a position to do that.  If this loan is part of a pool or a package, then it makes it much more difficult for the lender to cooperate on just selling you that one mortgage.  Why?  It’s in a pool.  Whatever happens in that pool, affects all of the mortgage backed securities, and the pay-offs of those mortgage backed securities, and so on, and so on.

So, it’s first important to determine who you’re dealing with.  Now, I know that when I’m dealing with a Wiltshire, or I’m dealing with a Litton mortgage, or I’m dealing with an Aquin, or I’m dealing with Wiltshire, I think I said.  Those are all companies who buy mortgages at discounts.  So, if I can offer to buy that mortgage from them at a discount, I can get an assignment.

If it on the other hand, is one of the big lenders, such as Countrywide, it’s very unlikely that I’m going to be able to get an assignment of mortgage from a Countrywide.  So, you really have to think about who your lender is.

I’ll give you another example.  American General, American General is one that you can buy the mortgage rather than getting the pay-off.  So, it really depends, again, who the lender is as to what they will do.  About the only thing you can do is ask, and ask in a way that does not affect your deal.

So, the way that I would approach it first, is to negotiate the discount.  Get the agreement to the discount.  Then send in your offer in writing.  Your offer in writing says, “For the transfer and assignment of the mortgage for $1,000.”  Rather than, “The satisfaction and release of the mortgage.”  It’s a transfer, an assignment of the mortgage for $1,000.  Two different concepts.  I think I covered both questions there Blake.

All right.  The next one is a subject-to question from Kathy Henderson.  Who says, “When you take over a house subject-to, and place the property in trust, do you get insurance in the trusts name?  Or your personal name?  Or does the insurance still carry the previous owners name…since his name is still on the mortgage?  Thanks, Lou.  Please schedule another Millionaire Jump Start in Atlanta before the end of the year.”

Well, good news Kathy, we do have another one before the end of the year.  We have one in November, in fact.

To answer your question, we always cancel the existing policy on the property.  For several reasons, one is the existing policy on the property is, probably, a homeowners coverage.  Since our intent is to put a customer in there, who is a renter, then we’re going to really need a different kind of insurance.  That’s called landlord-tenant insurance.

So, therefore, we cancel the homeowner’s coverage, and then we put the landlord-tenant coverage in its place.  We have now the name of the trust on this new insurance and you say, “Well, wait a minute here.  Isn’t that going to trigger the ___26:08 clause?”  The answer is, “No.”  We’re also, we also have paperwork that was signed by the seller appointing us as the manager of the property.  So, therefore, the address and the mailing address and all that sort of thing is going to change.

The other things that’s going to change is the name on the policy.  It’s now the name of the trust.  Why?  The deed has been transferred into trust now.  Of course, the insurance should match the deed.  So, that you truly have correct coverage.  Hopefully, that cleared it up for you Kathy.  Insurance can become quite daunting and confusing.  It really shouldn’t be.  In fact, we have check lists for that in our system.

Since their name is still on the mortgage has nothing to do with it, as long as the property itself is insured, and keep this in mind, the lender needs to be named on that policy.  The lender needs to be named as the loss payee.  When the lender sees that it’s named on the policy, it is happy.

Okay, now we’ve got another one here that says, “Lou, my biggest challenge, in talking to sellers, is convincing them that it won’t hurt them for us to take over their loan indefinitely.  How do you speak about their ability to get another loan in the future…when this loan is still showing up on their credit?  Do they tell the bank they are renting the property?  How does it affect their debt to income level in the application for the new loan?”

Kathy, that’s a great question and one that comes up often.  Here’s what you do.  First of all, you want to set the sellers expectations.  So, what we do is just say, “Listen, we have a program where we begin working with people to get them qualified.  We have a buyers list.  On that buyers list is people, all kinds of walks of life, and all kinds of credit.”

“Often, when people move into our property it takes a while for their credit to be cleaned up.  I can’t really guarantee you how long that’s going to be, and what we do, is once they move into the property, then they begin working on their credit.  When it gets to the level that they can afford the new loan, that’s when they pay-off this existing loan.  Everything works out beautifully.”

“The other thing I cannot guarantee you, Mr. and Mrs. Jones, is if this customer will stay with us.  What might happen is they might move out.  We have to take another buyer, move them in, and begin working with them.  So, it just really is indiscernible, quite honestly, how long it will take.  We’ve had them take as short as a month.”  Which is absolutely true.  “Or we’ve had it take years, depending on the turnover of the property.”

“Now, I can understand your concern about being able to qualify for a new home.  Please understand that the lenders have certain guidelines, they have to follow, in order to approve you for the new property.  One of the things they are going to do is they’re going to pull a credit report.  Right on that credit report is going to be the details of our loan.  The loan that you still have, in your name, that’s against this property.”

“I understand they’re going to question that.  Then, all you do is give them my name and telephone number.  What I’ll do is fax, to your mortgage broker, a copy of the deed.  It will show, clearly, that that property has been sold and you no longer own the property.”

“Now, these mortgage brokers and lenders are so used to dealing with people’s credit reports on a daily basis.  They’re so used to the fact that 90, probably 90, plus percent, of all credit reports have mistakes on them.  Errors of some kind.  They’re very used to that.  So, when they see that mortgage on your credit report.  Then you provide them, or I provide them with a copy of the deed, then they just, absolutely, ignore it and that’s the last that they ask about that particular issue.”

As far as debt to income ratio and all that, that’ll have an, absolutely, no affect, because it is not even going to be calculated or counted in their overall loan.  That’s a great question Kathy.

All right, Miguel Garcia has a question.  “Lou, I have a lead who has been in pre-foreclosure, then bankruptcy, then out, and is now back in foreclosure.  His home is scheduled for sale at the county court house on July 17th.  I collected the information from the lead today, and decided that a short sale is likely the best and most profitable solution for this client.  I have not done any short sales yet.  So, I am wondering if enough time is available to stop, or slow down the sale of the house, to pursue a short sale.”

“Here are the numbers that I received from the seller and my research.  The after repair value is $160,000.  The first mortgage balance is $93,000.  It’s an adjustable rate at 11%.  The second mortgage balance is $22,000, with an adjustable rate of 8%.  Both loans are or were with First Franklin.”

Yes, First Franklin has gone out of business.  They were a sub-prime lender, primarily.  So, those loans have moved on.

“I haven’t heard of this bank before,” he says.

I certainly have.

“Once again, from what the property owner told me, the property needs approximately 10,000 to 12,000 in repairs.  Leak in roof, probably, even replacement, paint, carpet, etc.  The house is three bedrooms, two bath home with approximately 1,100 square feet on the east side of Orlando.”

“I don’t think I would want to take over the loans…due to the bad interest rates and the accumulation of back payment, which the seller estimated at $17,000.  So, it appears that only a short sale or a deed-in -lieu of foreclosure would work.  Please let me know what you think in regards to whether it’s worth pursuing this property due to the short time until sale.”

“Also, the property owner is out of the home, and is in New Orleans now.  Is, obviously, motivated to sell.  If there is time to pursue a short sale, what documents should I send to the owner to move this forward?  Your assistance is greatly appreciated,” Miguel.

Okay Miguel, lets just review.  You already tell me that the after repair value is $160,000.  There’s already a $93,000 first mortgage on there.  It’s an adjustable rate at 11%.

I would first, go back to the lender on that one.  I would just pursue the possibility of re-instatement.  I would say that everything that caused all, kick out of the bankruptcy and now the foreclosure, those things have been resolved.  Now, payments can be resumed.  The only problem is with this huge arrearage, there’s no $17,000.

Now, listen to me carefully, “Can you forgive this arrearage and let us go ahead and begin making payments right away?”  You’re going to find that banks today maybe willing to do so.  So, I want you to definitely get in touch with this lender.  You may have to go through the foreclosing attorney, but tell them that things are looking different.  Things are looking good.  An opportunity to re-instate, who do you need to talk to.

On the second mortgage balance, I would look to do a complete short sale mortgage.  About 22,000 I think you could pay that off for $1,000 with not much trouble.  Just eliminate that thing altogether.  You already told me about the repairs that need to be done.  Which can be used as leverage against the second mortgage lender and also that you have a buyer for the property.

Of course, I advise you on a short sale that you approach the bank as a financial advisor working with Mr. Jones.  In the situation, that you have found a buyer for the property.  Unfortunately, the buyer cannot pay the first mortgage, the arrearage on that.  Then we take the 22,000 down to 1,000.  We take the first mortgage on the 93,000, hopefully, they will waive completely that arrearage.  If not, then you can ask them to put that on the back of the loan.  If not, then you do some payment…and the rest over time.  Of course, if not, then just a reduced payment to re-instate the loan.

We always start with, it used to be adding it to the end of the loan, but now I know from my coaching students, who I’ve been coaching through a number of these short sales, that I’ve, actually, gotten lenders now to completely waive the arrearage.  That’s some really cool stuff.  So, that’s now our first step in the process.  Then the next step then, is to put it on the back end of the loan and so on.

The third thing that I want you to do with this loan, on the first mortgage it was an adjustable rate.  I want you to tell the bank that that, absolutely, has to be a fixed rate loan.  You want to take the interest rate down to 6% from this 11%.  See just what can be done.  You’d be surprised how quickly they will move.  Often, if they think things are looking good, the last thing they want is the foreclosure.  The last thing they want is the property.  So, they will often hold off or stay the foreclosure action, and, particularly, if they see a contract.

Now, it may be that later, when you’re getting the cooperation, that they will go ahead and cooperate with you.  Now, what you didn’t say is who is foreclosing?  Whether it is the first mortgage, or the second mortgage is foreclosing.  I’m going to presume it’s the first mortgage that’s foreclosing.  That is another piece of information you can use as leverage against the second mortgage lender…to take your $1,000 pay-off on the second mortgage.  The first mortgage is the one we want to try and re-instate.

Now, let’s say that they’re not willing to do a re-instatement of the loan.  Absolutely, positively, they are fed up with this guy.  They’re not going to deal with him anymore.  Then, you’re going to have to go the short sale route.  That’s going to be pretty tough, quite frankly, because your after repair value is already 160,000.  They’re already down to 93.

What you might be able to do is get them to waive all the arrearage, and accept some kind of discount on the pay-off.  It may not be as large as you’re looking for, because of the after repair value on this home.  I would use as leverage, all the repairs that need to be done.  Now too, finally, I’ve created a number of questions and answers here with this particular one, but I think it’s valuable to everybody on the call to really work through a lot of these deal structuring deals.

Which is one of the things we go heavily into at Millionaire Deal Maker.  Which is coming up again in October.  Millionaire Deal Maker is a phenomenal event where we take deals.  Break them down.  Tear them apart.  Make all kinds of different structures on what can be done with the deal.  Phenomenal class, every one of you needs to take it.

That’s one of our four day events, which are our in-depth trainings.  This is on buying.  You want to call 1(800)578-8580 to find out the details on that.  It is, absolutely, must-have training, and its not duplicated by anyone, anywhere.  It is the place where you really make your profit is in the buying side.  In the deal structuring.  As everyone on the call just saw, Miguel was going down one road with this, and I took him down a completely different road.  I happen to see a better opportunity in this deal.

Now, to finish the question.  He was asking what paperwork to use.  What you do, is you go to my short sale profits kit that has all the paperwork for short sale in there.  You will follow all the steps in there.  You’ll submit that package to your second mortgage lender.  While trying to do a work-out with the first mortgage lender.

The other thing you’ll want to do, since it looks like this will end up being a subject-to, if you’re able to get the first   mortgage to play with you.  Then, you will be buying the property subject-to the existing loan.  So, you’ll need all the paperwork in the land trust book starting with page 148, which is the subject-to existing financing program.

Of course, the way that we avoid the lender calling the loan due…is to place the property in trust for estate planning purposes.  That’s a phenomenal piece of the puzzle…when you can buy properties by taking over the existing financing.  So, we’ve got that for you and that’s page 148 of volume four, which is land trusts.

Now, we’ve got another question from Mike Barone.  “Hi Lou, what is a trust TIN number, and when and where do we obtain one?  Thanks Lou, you’re the best.”

Well, thank you Mike.  I appreciate your saying that.  The way that you’re going to obtain one, is by going to the IRS and asking for one.  Now, in your volume four, land trusts, there’s some details there that tell you, exactly, how to do it.  Forms to do it with.  Every detail.  In fact, it is in section three of your trust workbook, IRS form SS-4, application for employer identification number.  Page 139.

That is what you use to get that.  Now, today, you can also…I want you to first get that and get familiar with filling it out.  There is a new version that the IRS has when you go to their web site and apply for it.  I want you to not be trying to wing it, while you’re filling it out online.  I want you to go through the process of answering those questions, as I’ve done for you in the book, in giving you a filled in version.  Then you can go online, and fill it out, and get an instant number from the IRS.

Now, that’s how you obtain one.  I haven’t answered your other question, which is what is a trust TIN number?  Well, it depends…how you are going to use your trust.  For example, let’s say that today, we were creating a personal property trust.  This personal property trust would be for the purposes of opening a bank account.

Of course, from a privacy and asset protection standpoint, it would be a very good idea if you do not use your social security number at the bank.  So, what we do is use your social security number with the IRS to obtain a number to do business with.  Therefore, your trust is going to obtain a number, and that’s the number we will give to the bank to open the trust bank account.  That is where you’ll be able to get all the details.  Right there.  That’s what you’re going to use in order to obtain the number.

So, if your plan is to open a trust bank account.  Then you would need a TIN number for that, which means tax payer identification number.  Of course, you as an individual have an identification number, and in most cases, it’s your social security number.

Businesses have another identification number.  That’s the business; in some cases it’s called an EIN.  Or Employer identification number, or TIN which is taxpayer identification number.  Either way, it’s another number for that entity.  Great question Mike.

Okay Janice from Connecticut has a question.  “Hi Lou, hope you’re having a great week.  I am working on my first subject-to deal.”

Yes.

“I have a handful of trust questions, with regard to land and personal property trusts.  One, do you set up an EIN number for each trust?  If you have 50 properties that could be a hundred plus tax ID’s.”

The answer Janice is, absolutely, not.  I would not have you do that.  You only, in your land trust, really need one.  You can use that number over, and over, again in your land trusts…when you want to direct the lender to report the interest on a loan.  You want them to report it to that particular tax payer identification number.

You could have that number used for multiple different trusts and multiple different lenders.  That way, you’re not going to have a problem with having way too many ID numbers.  In fact, what I recommend is that you have two numbers.  One for your bank account trust.  One for all of your real estate trusts.  Okay.

Question two, “What do you use as the address of the land and personal property trust?  The trustee’s address?  If they are not local, can you use your LLC, UPS box address?”

Absolutely, Janice.  The way that you, legitimately, are going to use your other address.  Let’s start with this and say, “We’re never going to use your home address.  You’re always going to get a business address.”  I recommend that, that be like your UPS store address.

That number becomes the number of the management company.  Since you are managing the trusts, for a variety of trustees…then you have the right to receive the mail, open the mail, pay the bills with the rent received, and so on.

So, therefore, we’re going to use that address, which is really the manager’s address, which is the one who manages the properties for the various trusts.  So, to further answer your question, no you do not use the trustee’s address, since you’re going to be doing all the chores.

Three, “Do you have to register any of the trusts to do business with the state?”

Well Janice, that’s really subject to state law.  However, I have seen where it is a statement in law that you can register it.  I have seen that it is even in some states, required to be registered.  Then, I’ve seen, absolutely, no penalty if you don’t register them.

So, I’m not highly motivated to do things that don’t have a penalty attached to it.  So, therefore, I would say, “It’s unlikely that you would have to register the trust to do business with the state.”  You’ll have to check that locally.

Four, “Do you recommend using an attorney as trustee, for the land trust?  How about the personal property trusts?  I am looking forward to attending MAS in August.  Have some deals on the table now.  I love your

Q and A’s.  As always thank you.”  Janice Lebrock.  [PH47:11]

Well, I’m glad that you have some stuff to do now.  I’m glad that you’re coming to MAS in August.  What Janice is referring to is that we have a Maximum Asset Shield training that’s coming up in August.  This is where we go soup to nuts through the trusts.

In fact, you bring your own deed to class, and right there in class, you learn how to move the property from your name into the trusts name.  We, actually, fill the paperwork out right there, and not only that, you walk out with it all done.  Ready to record.

We don’t stop there.  You also learn how to do personal property trusts.  In fact, you learn about trust bank accounts, and I even give you the paperwork on a relationship that we’ve created with Bank of America, so you can even open your own trust bank account.

Then the third thing you are going to learn is living trusts.  We’re, actually, going to do that in class too.  Complete with your power of attorney and everything else.  Then, the fourth, you are going to learn is all the entities, LLC’s, corporations, limited partnership, and how they all fit with this beautiful trust program.

So, you’re going to learn all the entities.  Not just theory, actual practice, and completed paperwork, to be able to use when  you go home.  Not only that, as a bonus to the event, which is worth the entire price of the event.  We’re going to give you special software that’s already automated.  So, all you have to do is fill out one page, and boom it automatically fills out all of your paperwork instantly.  You just merely press print and everything prints out.

Isn’t that beautiful?  That’s your bonus for attending, and becoming designated as a certified trust specialist, there at the event.  So, thank you for the plug Janice, that’s very much appreciated.

To answer your question, “Do I recommend using an attorney as trustee?”

The answer is you can.  In fact, there is some benefit to it, because the trustee does provide attorney-client privilege.  Therefore, anyone asking the attorney for any details about the trust…the attorney can refuse to answer based on attorney-client privilege.

So, there are some additional benefits to using an attorney.  The real question becomes cost and expense.  We do have a trust whiz that you’ll meet at the event, Janice.  That you might choose to use, who is an attorney.  Who can do that for you at a very low cost.  So, that’s just a consideration if you want to go that way.

Now let’s see.  We have here a question from Daniel and Debbie Miller.  “We have our work for equity property and the roof needs replaced.  If the lease optionee signs the contract to do the work, on the work for equity program, signs the rental agreement, and the lease option agreement.  Then, it is my understanding that if the lease optionee has friends and or family fall off the roof, they are responsible.  We are not liable.  Is that correct?  If not, please advise us to the proper procedures needed to protect ourselves.”

Well Daniel and Debbie, the answer is that the way my work for equity program has been set up, is that they are contracting with you to do the work.  Therefore, they have to use whatever means are available to get that work done.  Now, that means, that if they were to get hurt, it should be under their own insurance, and their own workers compensation.  If they are contractors.

You didn’t mention this particular document, but, I think, what you meant to say is the independent contractor’s services agreement.  In the independent contractor’s services agreement, it says that they have to provide their own insurance, and they have to handle themselves accordingly.  So, remember that the way we tie ourselves together under the work for equity program.

Let me just pause for a second, those of you who are on the call and don’t know how this works.  It’s an, absolutely, utterly beautiful way to get your properties moved quickly, and give credit to your person moving in for work that they do to improve your property.  The beauty is that they are fixing up your property while they are paying you rent.

Rather than you fixing up your property while you are receiving no rent.  They are fixing up your property and paying you rent to do it.  I like that, and I also like the fact that the money, rather than you spending it, actually, stays in your pocket.  They receive a credit towards the purchase of the home…which costs you, absolutely, nothing out of your pocket.

So, this is a great cash flow controller, as well, when you’re able to use it.  What happens is that we offer the properties on rent-to-own or owner financing, and then give the new buyers, or the lease optionee’s credit towards the purchase of the home for work that they do.  We put that all together.  It’s all detailed carefully in a program, called work for equity.  It’s our work for equity kit.  That, actually, outlines details, and gives every document you need to use in order to use this and create this effectively.  It works, absolutely, beautifully and I highly recommend that all of you partake in that.  It’s a fantastic way to do it.

So, the proper procedures for protecting yourself is disclosure, disclosure, disclosure, disclosure.  You’ll notice in our work for equity kit, that I’ve got those disclosures that you need to put in both your rental agreement, your option agreement, as well as your independent contractors services agreement.  Then, of course, they sign a promissory note for the amount of credit that you’re going to provide to them.  So, it’s just loaded with protections in there too.  Great questions.

We got one from Blake Matusick who says, “I’ve been approached to purchase a property subject-to that is in bankruptcy.  What pitfalls should I be aware of?  The property has a great first mortgage at 5%.  Do I have to wait for it to come out of bankruptcy?  While in bankruptcy, I understand there are no monthly statements sent.  So, does the court question another buyer coming in?  Lots of questions need your wisdom.”

Well Blake and Kathy, absolutely, you can buy a property that is in bankruptcy.  I should say, “Properties not in bankruptcy, it’s actually the borrower that’s in bankruptcy.”  The bankruptcy court will, typically, cooperate with any liquidation of assets.  So, you’re going to be working with the bankruptcy trustee.  What you’re going to do is complete all of the paperwork with the person who’s in bankruptcy first.

Then you’re going to go to the lender, and say that, “You’re a financial advisor working with the Jones’ to solve their problem and have this property released from bankruptcy, so that payments can be resumed.”  Then the bank gets all excited, because this is about to happen.

The first thing you ask for is to waive these arrearages.  If that doesn’t work…then you have them put those on the back end of the loan.  You say, “Well, we can get a release of this property as soon as we come up with an agreement.”  So, then what I would do is work towards a forbearance agreement with the lender, so that you can re-instate the loan.

Then you take the forbearance agreement to the bankruptcy trustee and get their agreement to it.  Then that gives the opportunity for the seller of the property to sign all of the paperwork.  So, that you can then take title to the property in trust.

Of course, I understand that what we’re doing is subject-to and all that sort of thing.  The bankruptcy court doesn’t really care about that.  What they care is that the asset is being handled.  Your seller will have the details about who the bankruptcy trustee is.  The lender will, typically, be more than happy to work with it.

Now, one caveat here, is that the lender, often, does not want to talk to you when the properties in bankruptcy.  So, the authorization to release information will be an aspect to this.  Just explain to them that you’re working towards them not having a loss…if we can work together.  That usually gets their attention.

You say, “Well then, let’s just talk off the record if we can.  I just want to make sure that we get this handled and that we do this right.”

To your question about, “Any other pitfalls?”

There’s not a lot of pitfalls.  There is difficulty, sometimes, in getting in touch with the bankruptcy trustee.  Often, that can be done through your client’s attorney, if your client has a bankruptcy attorney.  They can, usually, coordinate that aspect of it.  You, typically, won’t even ever talk to the bankruptcy trustee.  Just so you’re aware that that is one of the ways that, one of the challenges is sometimes, its difficult to get all the connections in there.