Understanding the motivations of a distressed home owner is key to the lead conversion process. Reasoning will allow you to decide how to communicate but more importantly will give you ammunition when dealing with owner objections. You want to list their property right? Give them the reason! Part of the sales process is getting the potential client to consider things they have not considered for themselves. You accomplish this by communicating the advantages and benefits.
Motivation – the reason or reasons one has for acting or behaving in a particular way.
Remember your approach will be different based on the 7D Theory category. Convincing an heir to sell their property because they have a lot of equity will be a more comfortable conversation. You will just need to communicate your marketing value proposition and how you can bring multiple high priced offers. A distressed home owner that is losing their house will require a much different approach. You have to be able to get them to understand they are in danger without scaring them.
These are some of the motivations you can use when you are completing your exterior inspection reports for DEBT. These are the reasons our letters say there are serious consequences to just walking away.
Deficiency Judgement (Zombie Debt)
A deficiency judgment is a ruling made by a court against a home owner in default. The foreclosure sale to pay back the loan usually does not cover the original mortgage balance. Chiefly because interest and attorney fees pad the balance. The owner will be liable to pay back the difference between what the mortgage and what the house sold for in foreclosure. Banks have one year (after foreclosure) to file the deficiency judgment against the home owner. They can require the homeowner to pay this balance after foreclosure. It is called “Zombie Debt” because this judgement doesn’t die and follows you around until you kill it! It will attack you when the home owner will least expect it.
Note: The deficiency on a VA Loan stay with the home owner and can prevent them from using this benefit until the balance is paid back.
Few home owners realize there are tax consequences if your home goes into foreclosure. Any time mortgage debt is forgiven; it is considered a taxable event. The IRS states that any borrowed money that is not paid back is considered as income and is taxable. The loan amount is considered as income because there is no longer an obligation to repay the lender . Once the property is sold in foreclosure, the tax consequences come start. The bank reports the forgiven amount by issuing the seller a Form 1099-C, Cancellation of Debt. This amount is considered as income and must be reported on the homeowner’s income tax form leading to capital gains and income tax applicable. Short sales can release owners from this obligation and depending how they file will pay no tax on the deficiency.
Credit Problems & Employment
Home owners who aren’t paying their mortgage are taking a credit hit on a monthly basis. This is a good reason to mention why time is of the essence. Moreover, why the distressed home owner should not wait to sell. After foreclosure, home owners credit scores can drop on average 250 – 280 points. Poor credit can make the ability to make future purchases difficult or prevent the purchase altogether. Bad credit that acts like a tax because the distressed homeowner will ultimately pay higher interest rates. Credit issues can also prevent employment (especially military that need security clearances or employment that directly handles money). The home owner is also going to have to rent after foreclosure. Poor credit history can make this difficult because you are required to sometimes pay higher rents and/or deposits.
If a distressed home owner leaves the property it makes their liability for lawsuits as well as financial penalties increase. Most owners don’t know that if someone is on the premises and gets hurt they can be sued. This may seem unlikely, however children that play in and around vacant houses is common and very dangerous. Other owners attempt to make a little money off of an abandoned property by renting it out. Rent or Equity Skimming is the practice of “failing to apply the rents towards the mortgages encumbering the property, causing a mortgage delinquency and eventual foreclosure.” HOA’s in some states can obtain a court order that requires the tenants to pay any rents directly to the home owners association.
In some states, code enforcement agencies will secure pools in abandoned property by building a wood and metal grate over the top so children don’t fall in. Guess who pays for that? The home owner. When code enforcement sites a home owner for a violation they schedule a hearing to discuss. Home owners that vacate property rarely attend. Most counties in Florida and Georgia can impose a $50- $500 a day fine for code enforcement violations if not corrected. Guess who pays for that? In Pinellas County Florida, a warrant can be issued for your arrest for contempt of court for not showing up to a code enforcement proceeding.
Bankruptcy relieves the homeowner from “Pre-petition” debt. However, “Post-petition” debt is all debt that you incur after your bankruptcy case is filed. These debts will not be a part of your bankruptcy case and cannot be discharged. You are still liable on this debt and must pay for it. So imagine if you walked away from your house and it sat there for a year or two after you filed. The debt from your mortgage is gone. Recurring liability, such as code enforcement, HOA, association attorney, interest and fees would all be charged to the home owner after bankruptcy. These debtors are more likely to pursue the judgement against you in these cases because you cannot file bankruptcy again for 10 years.
Continued maintenance and update of a property can be expensive. Some home owners do not want the hassle or expense of putting on a new roof, replace the siding, or buy a new air conditioning unit. Especially if you know that you are losing the home and won’t recoup any of your investment. When you figure the life of most residential infrastructure is about 15 years, it could make sense to get out before it’s time to spend the big bucks.
It is hard to determine how long it will take the bank to foreclose. Some home owners choose to stop paying the mortgage and live in the property for as long as possible. But don’t wait too late. Once a judgment is filed against the home owner there is not much more you can do to settle the debt. However, if a short sale has been started (especially when you have a fully executed contract) judges are a lot more lenient to provide extra time so the short sale can conclude. If the judge determines the home owner is not taking any steps to settle debt they will foreclose faster.
You have to be careful when discussing this category. Per Florida & Georgia Statues you can’t give legal advice or provide counsel as a certified public accountant. You can never direct a client to stop paying their mortgage! A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt, despite having the financial ability to make the payments. Some owners choose to do this if the house is upside down and they know they will not recover the loses anytime soon. Strategically this is a solution to getting out of the investment because our program will allow them to settle the debt and walk away scott-free.
The best reason is that all our services are 100% FREE!