Short Sale Scams Are Out There- Beware

I have helped short sale clients who once had millions and closed transactions for folks that never had much and perhaps should not have bought property to begin with. Distress affects us all. Few things are as difficult as financial stress. Illness or a crisis with our children certainly could be worse, but facing foreclosure truly sucks. It can bring out desperation, and it can also bring the scam artists to the front door.

On a number of occasions, one of our agents has listed a property for a short sale and brought an offer to the client. Most of the time the seller is ecstatic. There is light at the end of the tunnel. On a few sad occasions, the seller has gotten into the web of some pretty brazen scam artists who promise them things that cannot possibly be delivered. Instead of realizing that if it sounds to be too good to be true that it isn’t, the seller went along with the scammer’s plan. It follows a pattern:

• The short sale gets listed
• One of these bad people harvests the short sale listings and solicits them for their “better option.”
• The seller client, desperate and stressed, agrees to fire their agent, ignore perfectly good offers, and agrees to sell to the scammer for significantly below market value.
• In exchange for the sale, the scam buyer promises the seller tens of thousands of dollars that would otherwise go to their lender to defray the shortfall.
• The end game is, as an example, to sell a $400,000 property for $100,000 to the scammer. They have no skin in the game if the bank isn’t deceived; if the bank is fooled into the lowball deal, the scammer re-sells the property for $350,000 and pays the seller $40,000. Maybe. I don’t know how one would ensure their performance. That would be like running to the cops and complaining that the dope dealer shorted you a few ounces of crank.

In the above example, the lender is defrauded; a consumer is complicit with bank fraud; a valid listing contract with a reputable broker is broken. Worse, the consumer has no recourse if they aren’t paid off.

This has occurred with clients of modest means with an uninhabitable property they abandoned years before, and clients who had high net worth portfolios who fell on difficult times. The modus operandi is the same. The scammer approaches the owner of a listed property, promises them a big payday when they would ordinarily have little or no proceeds, and gets their cooperation in bank fraud. This plays right into the Achilles heel of lenders who do a poor job of valuing the distressed property. That valuation problem is for another day’s discussion.

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2017 State of Short Sales, Westchester & Surrounding Counties

We’ve seen three trends since the “recovery” went into full swing the past 18-24 months, and short sales are still part of the landscape in Westchester and the surrounding area counties (Putnam, Fairfield CT, Dutchess, Rockland, and Orange).

1. Some people who think they are upside down aren’t. We recently put a property under contract that was dealing with a reverse mortgage. The seller bought decades ago, some updating was needed, and she was afraid she had no equity. The home was worth almost 50% more than she thought it was. Transaction gap, the phenomenon where it has been so long since a sale or purchase that the consumer isn’t current on the 2017 market, is a thing. Happily, in this case, all appears to be well.
2. Lenders still aren’t efficient. It shouldn’t take 6 months or more (sometimes much, much more) to promulgate a short sale closing, but we are still looking at 4-5 months being almost lightning quick in this silo of the industry. Sometimes it is unavoidable, as loans get sold and the hour glass starts at zero. Often, however, the bank simply stinks- I can think of two properties within a mile of my home that have been in short sale purgatory for more than 5 years. That is appalling. It is bad for the borrower, the lender has a non-performing asset, and the local market suffers. I don’t see this changing. Moreover, some banks
3. Moving incentives are still available on a limited basis. Sellers typically realize no proceeds from the closing of a short sale because of the math. The bank absorbs the loss, so there is no equity to distribute at the closing. However, some government programs such as HAFA are still in effect with a $3,000 credit toward moving, and the lenders themselves still have an occasional incentive. Taking a page from the “everything is negotiable” book, one of our agents does well at negotiating a moving allowance on behalf of the seller client when no program is offered. That is good advocacy.

The percentage of distress sales is considerably lower (thank God) than it was 5-7 years ago when the market was still hoping to recover, but short sales are still a factor. I remain bullish that they are a superior way of dispensing with non-performing mortgages for both lenders and borrowers; I wish lenders would devote better resources toward that end.

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Notes from the Short Sale Trenches

Athletes speak of a “good tired” and a “bad tired” after a game, good after a win and bad after a loss. Tonight I am the good kind of tired. 13 months ago I met with a very nice lady in White Plains who called me after a Realtor she was interviewing proposed that since she was a short sale, she should deposit an amount equal to the commission in escrow with the broker to ensure their fee payment. That didn’t strike her as terribly kosher, she got on the Internet to research short sales in Westchester County, and she found me.

 

I got the listing; Ms. Escrowed Commission didn’t. The condo market was slow at that time, and we went the first 6 months with only one aborted offer. However, I earned her trust in the process and got an extention. We determined that in order to secure a buyer, we should clean up the overgrown outside patio. I put on jeans one afternoon and trimmed, raked and perspired the area to an appealing level. It worked. This past June we got our buyer, and in perhaps some of the best work I have ever seen from our team, the approval came through on August 2nd.

 

You read that right. It took us under 60 days to get the short sale approved (with two lenders!), but we didn’t close for another 4 months. When the buyer was unable to close at the end of August for what was then an unknown reason, we got a rare 30-day extension from the two lenders-yes, two lenders. When the second deadline approached, the buyer was again not ready. For the first time in my career, we got a second extension from both lenders. As the 3rd deadline approached, we discovered the buyer’s problem: They didn’t tell us this, but to raise their downpayment they were refinancing another property. This was a very unsettling revelation. Had we known that their mortgage hinged on such a dubious condition (a financed down payment), we might never have engaged them.

 

As you might imagine, the stress on my client, an Ivy League graduate, a cancer survivor and a single mother, was mammoth. As you might not have imagined, we actually had to negotiate a THIRD extension with both lenders, and were told that no further extensions would be granted. On the Tuesday before Thanksgiving, their refinance closed. Today, we closed our tranaction one day before our final deadline. My client, a hardworking soul, hugged me after the closing was buttoned up and returned to her job to finish her day.

 

Sometimes, you can do a great job and have it squandered because the people on the other side of the table aren’t on point themselves. Among the crosses we had to bear were a frustratingly uncommunicative attorney on the other side, and a weak and not terribly forthcoming buyer. I truly believe the agent on the other side was not at fault and frankly aghast at events on their side. My seller and her attorney, two consummate professionals and people of high character, did voice their feelings-professionally and calmly- at the closing table and left complete.

 

There are very few easy deals, and that is especially the case on this deal. Tonight, I will sleep soundly. And so will my client.

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Short Sales are Not to Blame for Market Decline

A client forwarded me the link on Inman News to this broker in Nevada who blames short sale agents and sellers for the mess.

 Prices keep falling because the short-sale agents are listing at 5 to 10 percent below comps in order to try to get an offer, and often are accepting offers at even less. The banks come back at a higher price, and then the buyer walks. The downward momentum has been coming from the short sales, not from the REO listings.

All real estate is local, and perhaps there are many under-priced short sales in Nevada, but isn’t Nevada also one of the highest foreclosure states in the USA? It most certainly is. As a matter of fact, it is the NUMBER ONE ranked state for foreclosures, with 1 out of 97 households with filings, a staggering number when you consider that 2nd-ranked Arizona is at 1 out of 205.

I commented as follows:

I can only speak for my local market and not the author’s marketplace, but if the claim is true, then all those bank owned REO listings that have undercut the market have taken their queue from short sales.

I find that hard to believe.

Since lenders render a decision based on market activity, I wonder what sort of agent would ever responsibly list a short sale at such a fantasy price as 10-15 % below comparable sales.

What may be closer to the truth is that the author sees short sales selling 10-15% below unrealistic asking prices, which sit and rot while losing the war of attrition with buyers who won’t bite, while short sales are listed and sold at a number in line with actual sales.

“Market value” is what buyers are willing to pay, not what some sellers wish they could get.

Short sales reflect the market. They do not set it.

 

I know of no empirical data that suggests that the problem started with short sales. Banks only approve short sales based on market sales. Not asking prices. A short sale could very well be listed 10-15% below the competition. But the competing listings are probably overpriced, because guess what? They aren’t selling! To price a home to sell, you have to look at the sales, not the asking prices. Some of these unsold homes are on their 4th brokerage and are still chasing the market (and not running very fast either).

I do agree that banks often counter at higher prices, and that is because the historical comparables are from the last 6 months, and when the market is falling, historical look-backs are at a time when prices are higher. Short sales reflect falling prices. They don’t cause it. You can’t sell a house for “below” market value, because guess what? If it were underpriced, the buying public would bid it up. Where do we see that most often? Yup, you guessed it- bank owned foreclosures. Not short sales.

Market value is only what people are willing to pay. NOT what sellers or their brokers wish they could get.

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Please Take Off Your Clothes

I just finished my first day of CDPE (Certified Distressed Property Expert) class, and am reflecting on one of the more profound insights given by the instructor, Mark Boyland. Mark, who is an excellent presenter, compared the difficult issues we have to sort out with distressed homeowners with the rather matter of fact way a doctor handles another rather touchy thing:

“Please take off your clothes. ”

At my last physical, the doctor hardly looked up from his clipboard when he said that. But he was pretty comfortable about the request- so comfortable, that it seemed as mundane as asking his secretary if anyone called while he was out.

Now, when a guy is that blasé about your prostate test, there is a lesson to be learned.

We have to ask clients questions that are probing and invasive in any other context but real estate:

• How much do you owe on your house?
• Are you current on your mortgage?
• Why did you fall behind on your payments?
• Etc. etc.

These aren’t comfortable questions to ask. And the answers might be very difficult to examine for a seller who is facing foreclosure or imminent default. But we have to ask.  As I have blogged before, privacy does not reside in a vacuum. The more we know about a client’s situation, the better we can serve them.

A physician can’t give a physical to a person in a parka. We can’t help a distressed home seller whose equity position and status with their mortgage company is a mystery. We have obligations of disclosure to others in the market place, but more importantly the answers to the uncomfortable questions affect our pricing strategy, marketing, negotiation methodology, and literally dozens of other critical issues that arise in the obstacle-laden, serpentine maze of loss mitigation.

We are between borrowers under financial stress and a large monolithic financial institution. Information is crucial. Patients need to tell their doctor where it hurts or they can’t be helped. It is the same in real estate. It isn’t fun to ask these personal financial questions, and while some of us are more comfortable than others about it, we have to ask. The more honest and forthcoming the client is in their answers, the higher the likelihood that they can be helped.

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How Much of a Loss Will The Bank Accept in a Short Sale?

How much of a loss will the lender accept in a short sale? I am asked this from time to time by consumers and agents alike. We always disclose when a property is being sold subject to lender approval, and I understand the rationale for asking about the numbers, especially with the high dollar value of New York area properties, but the question is actually a non sequitur. Here’s why:

Which home has a better chance of having the short sale being approved:

• A $600,000 home with a $650,000 mortgage
• A $600,000 home with a $850,000 mortgage

Many people assume that the house with the $50,000 shortfall is the one that will be easier to have the short sale approved. That assumption is incorrect. The fact of the matter is that the amount that the lender loses in a short sale is immaterial to the approval. Once hardship is established, short sale approval is based on the banks’s valuation of the home, chiefly through an appraisal or Broker Price Opinion (BPO). The lender could be losing $25,000 or $250,000- it doesn’t matter. It all hinges on that appraisal or BPO.

Why? Because you can’t expect to get more than the market will bring. And if the lender has to seize the home, they will do a BPO on the home and price it accordingly with no regard for the loan amount they foreclosed on. The lender is simply trying to minimize their loss. For that reason, the buyer’s terms are less important in many cases. A regular seller might give a significant premium to a cash buyer for example. A lender in a short sale probably won’t give that term much deference at all.

Therefore, the big question in a short sale is not how much the bank is losing or what they are owed, but if the offer on the table reflects comparable sales activity. That is the great yardstick by which approvals are measured.

 

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Buying a Short Sale: Market Value, Not a Steal

As short sales have become more common and are even showing up in new markets in Westchester, I find myself educating my colleagues on what can and cannot be done in order to have a successful closing. Lately, we’ve received offers that are unrealistically low; essentially, what the buyers do not understand is that the lender is going to evaluate their offer based on comparable market activity, not their speculative attempts to get a bargain. 

I don’t blame buyers for wanting to get a good deal. I want the same thing for my own buyers- who doesn’t? But the lender in a short sale is not nearby, so they hire a professional to determine the value. Typically an appraisal or a broker price opinion are done and sent to the bank. If the BPO or appraisal match or are close to the offer, and approval is likely. If the offer is considerably lower than the bank findings, the lender will ask for more money. 

This is where agents need to educate the buying public. It is irresponsible to tie a house under contract for  an unrealistic low amount.  No seller can risk several months waiting for the bank to issue an inevitable denial when the home could have been active on the market and attracted a better offer. “Short sale” is not code for a steal. Buyers should ask their agent for comparable activity and formulate their offer based on realistic events. 

The market in Westchester County is relatively strong compared to much of the rest of the USA. Local activity is relevant to the short sale approval, not the considerably more depressed values in other areas of the nation. Buyers should base their offers on comparable sales (which we have in abundance in New York) and not speculation. I would encourage any buyer to read my prior post on short sales and what you need to know before buying one. 

Previous articles on Short Sales from my Active Rain Blog.

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Will I Have to Pay Taxes After a Short Sale?

The concern of some homeowners looking to do a short sale that a 1099 issued from the bank will expose them to a new problem, namely a huge income tax bill on the forgiven debt, is understandable. With home values in Westchester in 2010 at a median of $630,000, a six figure 1099 is entirely possible. In the past, a bank could issue a 1099 for forgiven debt, rendering it akin to income for tax purposes.

However, even if the bank does issue a 1099, the likelihood that you’ll have a tax problem is virtually nonexistant for owner occupants thanks to a law passed in 2007, the Mortgage Forgiveness Debt Relief Act. From the IRS website:

The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness.

Most definitions of “principle residence” mean that you have resided there for at least 2 of the prior 5 years. That means that if you move out due to a job transfer or or other reason, you are not out of luck. Obviously, as a licensed real estate broker I do not give tax advice. You have to consult a tax professional like a CPA. However, make sure you discuss this law when you speak. It runs through 2012, and may well be extended.

 

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Recent Media Appearances

I have been prominent in two separate stories in the media this past week regarding default properties and their effect on the market and the borrower. This past Sunday I was in the New York Times, and on Tuesday I was in a nice piece on AOL Daily Finance.

The Times piece centered on strategic defaults, where borrowers who could otherwise afford a mortgage stop paying on purpose. Many people who do this do so for cash flow reasons; if you paid $350,000 for a house in the peak and the same house is for sale at foreclosure down the street for $180,000, some people just buy the cheaper one and let the old house go, cutting their payment. However, the credit consequences can be dire. The debate on the ethics of the practice is heated.

The AOL Daily Finance article is part of a series on how the housing crisis has affected different places. Mount Vernon, a city in Southern Westchester County which has been rife with short sales and foreclosures, was discussed in the article. Values are down in the neighborhood I am quoted on about 50%. What is not mentioned is that many of the foreclosures were actually renovated by the prior owner before they ran into financial problems, which punctuates the crisis, for me, in a very sad way. You hate to witness broken dreams.

Which is why we work so hard on getting our short sales closed and done for our clients. Preventing foreclosures is what we are all about.

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How Do You Price a Short Sale?

After two similar discussions the past week, it would be wise to address how a short sale should be priced. After all, if the offer submitted to the lender is subject to approval and therefore not a certainty, all the more that the asking price is also a hypothesis.

It is. But, as educated guesses go, a good short sale broker’s list price is pretty educated. It takes into account comparable sales, competing listings, and, sometimes, the gut sense of a seasoned professional. You have to skate a nuanced line in some cases between what will get the phone to ring and what the lender will sign off on.

I have blogged before on the stress that a short sale can put on a home seller. They are typically in default, getting collection calls and letters from the bank, facing the steps up to a foreclosure, and often overwhelmed with distress. When one is under stress, it is natural to instinctively move to eliminate the source of the stress, so often sellers want to lower the price to get moving, and dramatically so. The problem is that if you lower the price to be the lowest asking price the neighborhood has seen in 5 years, you can foster too much skepticism from the lender and  the offers you get might not be enough for the bank accept.

For example, if comparable sales put your homes estimated value at $400,000, it is irresponsible to whack the price to $320,000 just to get an offer and be done with it. You have to balance between what the buying public will respond to and what the lender will accept. And few homes sell in 10 or 20 days. It takes some time. Not all short sales tale a long time to find a buyer,  but some can, and too many reductions too soon can sabotage your efforts.

The best (and really only) approach is to price the home aggressively based on comparable sales, and then review and reduce every 30 days unless market activity indicates something faster. But it is market activity, and not nerves or stress, that should source the price strategy.

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Can an Owner Reject an Offer in a Short Sale?

Contrary to what some may think, an owner is not obligated to submit every offer to the lender for approval in order to do a short sale. As a matter of fact, there are offers that an owner should never submit to the lender. That is the owner’s right, as they still hold title and ownership of the property, and the bank’s decision in a short payoff is simply the amount they’ll take to release the lien and settle the debt.

In Westchester and the surrounding areas of New York, offers are not submitted to the lender for approval, contracts of sale are. And those contracts are between buyer and seller, not the bank. The contracts are conditioned upon bank approval, but they are binding contracts none the less. And it can take every bit of 3-6 months for the lender to render a decision, all while the foreclosure wheel turns. If the owner goes to contract with an offer that is less than a realistic expectation of value, they can be six months closer to foreclosure when the bank issues their denial of the short sale.

Sellers are therefore looking for realistic offers, not for their own pockets, but to ensure the bank accepts the short payoff. If an offer can be judged favorably by 3 recent (i.e., 6 months or less) closed and 3 active comparables, the offer bodes well. Buyers who submit speculatively low offers, unsupported by 3 sold and 3 active,  are doing something ill advised; if their amount is not close to what comparable sales for similar properties are getting on the market, they could waste months waiting for the inevitable “no.” And that “no” could cost the owners their house.

We have a enough offers in multiple bid situations meeting resistance to the banks; lowball offers invite peril to the seller and frustration to the buyer. And it is ultimately the sellers decision as to whom they’ll go to contract with. A short sale sellers surrenders proceeds. But no owner surrenders their rights. While the bank makes the final decision on amount, it is the owner, on advice and market data from their agent, who determine what to submit to the bank for that decision.

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Peekskill Short Sale: Lessons to Learn

We recently closed on the short sale in Peekskill, NY and it was rather unique. For one, the seller, a licensed professional, had to come up with some money at the closing due to being lighter in the hardship department. We warned the client of this possibility, but the way the bank went about it is indicative of why we have the problems we have in this economy. In addition to that, the buyer almost couldn’t close because of a discrepancy on the taxes.

The seller had relocated out of state and was renting the home. He moved to an area of the country with a lower salary scale, and was now teaching in his field rather than in practice. He therefore could not write a check for 6 figures to make the lender whole. There was some acrimony with the lender as to the value of the home; as  is often the case, the lender broker price opinion was done by an out of area licensee with no clue on the local market, and their “value” came in at a  price point where we once were, and could not get anyone to even come look. Bad BPOs are a problem that could easily be solved by using local brokers and appraisers. Why lenders do not grasp this is beyond me.

Meanwhile, the buyer’s purchase appraisal came in too low! Their bank was reticent to loan that much on the home, and there was another problem with a re assessment raising our published tax figure. Evidently, both my and the buyer agent’s verification of taxes came prior to the bill going up. Their appraiser caught the discrepancy. This temporarily put the kabosh on the buyer’s mortgage.

As with many short sales, it was our job to go to the mat with the lender to get the deal done, which we did. The seller had to write a small percentage of the shortfall at closing to avoid any long term deficiency, which he had and did.

Lessons learned:

• Re-verify taxes when homes are listed on or near reassessment dates.
• For the banks: stop using out of market brokers for price opinions. The same goes for out of market appraisers.

I give credit to our proactive seller for helping himself and remaining in strong communication. I am more leery than ever as to the wisdom of those people at the lenders, whose myopia about local knowledge for BPOs contributes to muddying up the short sale process and causing more stress and angst. I am sure this is part of the issue with recent moratoriums on foreclosures– the banks are getting unforgivably sloppy.

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Ossining Short Sale: Undramatic

As short sales become more prevalent in Westchester County, the anxiety around their newness tends to fade. With familiarity comes some confidence. We just closed on one such sale. The sellers were being transferred out of state after buying the house in 2006, right after the peak. They bought with a smaller downpayment, so when the market crashed they joined millions of other Americans (and thousands of fellow Westchester County homeowners) in being under water.

Being upside down is not necessarily a problem unless you have to sell. Well, when you get transferred, you typically have to sell. In going over our options, it was clear that they could not rent the home out and remain in the black, and there was no savings. Their housing expense in their new home would not enable them to carry two homes, so the house in Ossining couldn’t be kept. A short sale would be their best option. Wisely, they consulted with their attorney as part of the decision.

After listing the house they made one price adjustment, an offer came in, we went to contract, submitted everything to the lender, and it was accepted. No problems with the appraisal on either side, no issues with the new buyer, the buyer agent did her job, and we closed. The only drama was how a boat left in the driveway would be dispensed with. The seller’s relatives removed it.

It was that simple.

It took a little over 4 months for the short sale to be approved. I have to give credit to my clients for doing everything they needed to do, and to the buyers for having their act together when the approval came through. There was no drama and no suffering because everyone did their job and kept focus.

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Dutchess County Short Sale: Old School Guy from the Bronx

Earlier this month we closed on a short sale that was another marathon. I listed it in April of 2009 and got an offer that August. It went under contract in early September and everything looked like a relatively smooth deal until about a month into the contract period we still did not have a negotiator assigned to our case. I always warn short sale clients that we might be in for a wait, so we were all on the same page.

My client was a very nice man- a widower, originally from the Bronx, and had the house decorated “bachelor style” in his own words, and I knew what he meant. His other half had departed this earth, and he couldn’t handle the house alone.

By the time the autumn rolled around, we finally started to get some communication from the lender. They moved slow as molasses, and the buyers were getting understandably restless. These were cash buyers; we wanted to keep them and avoid the uncertainty of waiting out a loan approval once we had the short sale finalized. However, as autumn gave way to the holidays and Winter, it was clear that the bank did not share our zeal to put this transaction to bed.

A title issue was discovered in March when we thought that this was going forward, and at that point the buyers asked for their money back. Deadlines had long since passed, and we had no contractual enforcement to keep them in the transaction. It took until May to clear up the title issue, thanks in so small part to my clients’ hard work to produce needed documentation (clearly, his late wife was the organized one in that partnership, by his own admission).

I had remained in touch with the buyer agent and our attorney kept the lines of communication open with the buyer’s attorney. When we informed them that the issues were cleared and the bank was ready to close, they elected to return to the table. On July 12, 13 months after I listed the home, we closed. We successfully held off foreclosure action from the bank for over a year, the seller had a fresh start with no liability or debt after the closing, and he left the house with dignity. He deserved it- he was a good guy and a team player, and if he was stressed, he dealt with it very well.

Short sales are seldom this long a process, but even if they aren’t, a good short sale broker will help stop foreclosure action on the client’s house and keep negotiating with the lender until we get to “yes.” Moreover, it took some real teamwork to clear the title issues and get our client to the table. To his credit, he was very cooperative, and that is all you can ask for from a client selling his home in a short sale. Except maybe tidy up a little!

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NY Times Discovers Short Sales 14 Months After They Arrived in New York City

With their article entitled The Roller Coaster Ride Called a Short Sale, the NY Times has examined the phenomenon’s arrival in Manhattan. Of course, I posted Short Sales Have Come to New York City in March of 2009. That is when I referred one of the first ever in Manhattan to my esteemed colleague, Eileen Hsu of Prudential Douglas Elliman. Eileen brokered the deal very well and it closed successfully, which came as no surprise because she is a fantastic agent. It doesn’t surprise me that the short sale is now in the news. The thing is, it isn’t new news. Eileen and I know that very well.

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What Qualifies as Hardship in a Short Sale?

What qualifies as hardship in a short sale? I get this question fairly often, and it should be addressed. First, I’ll tell you what does not qualify as hardship, and that is simply being underwater. If you owe more than you are worth, being upside down alone is not adequate hardship to get a short sale approved. That is only half the equation. There has to be a financial hardship.

In every case of hardship I have ever seen, a loss of income has been involved. It could be unemployment, divorce, being laid off, the failure of a business, or any of a hundred other things, but a loss or decrease of income is absolutely hardship. When your expenses remain the same and your income goes down or disappears, you have a case for hardship. You could be a ditch digger paying a $500 per month mortgage or a brain surgeon paying $10,000 per month. If you lose income, hardship is not hard to prove. In rare cases, income has remained the same but the payment has adjusted up, but the mathematical outcome, namely a deficit, is the same.

That is as basic a yardstick as I can find. I’d be surprised to find a more common or less complicated theme.

Loss of income is almost always a case for hardship.

Originally posted at Westchester Real Estate Blog

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Dealing with Second Mortgages in a Short Sale

New HAFA rules are forcing home sellers to negotiate directly with subordinate liens, or, in common terms, second mortgages, on their own, according to Bankrate.com. The way the rules are written, there is a financial incentive for the 2nd mortgage  to settle and release the lien, but the onus of getting assurances that the bank will settle rests on the borrower, which seems incongruous with the intent of the law. If the law is that the bank gets $3,000 from the government to settle, then it is the government who should be getting written assurances that they will indeed settle, not the borrower. The article points out that distressed sellers are already bleaguered and beaten up and in no condition to play hardball with another bank.

I agree. Distressed home sellers ought not do this on their own. They need an advocate, and a 3rd party with experience is very likely going to get a better result than a beaten up home owner. This is what we do, but rather than make this post a commercial I’ll also add that here in New York, the attorney should be on the front lines dealing with the 2nd mortgage as well as the first. The attorneys that we have on our team are excellent; the sellers can rest assured that the arrangements they help negotiate are the very best that can be agreed to. They also read the “fine print” with a fine tooth comb. The devil is in the details in these things, especially in New York.

All short sale agreements from lenders should be in writing, and all short sale agreements from lender should specify that they will not go after the borrower for the difference after closing. Anyone can get a short sale with no assurances of financial security after the closing. It takes a professional to ensure that the seller’s obligations in a short sale end at closing with no residual debt. That is our job, and that is how we do our short sales.

Doing a short sale on your own invites peril. We have done dozens, and that puts you in good hands compared to the guy in the mirror.

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The Wall Street Journal Agrees with Me on Short Sales

Amy Hoak’s timely article on HAFA and short sales in yesterday’s Journal concludes with timely advice that I wrote myself the very same day. The article focuses on the many pitfalls of short sales, as well as the new HAFA (Home Affordable Foreclosure Alternatives) regulations which are set to go into effect on April 5, 2010.

Here is what I wrote yesterday:

Yet people still do not ask their prospective agents how many short sales they have closed. You simply cannot be a specialist with no experience; I’m sorry. I don’t care if you have a PhD or a photo shaking the Pope’s hand. What they taught you in class simply isn’t all it takes to handle the loss mitigation department of a lender. Sellers need to understand that if they hire an inexperienced agent to do their short sale, they do so at their own peril. I’d never want a surgeon cutting their teeth on my gall bladder, a lawyer apprenticing at the expense of my freedom, or an agent getting their feet wet at the expense of my finances.

Simply ask : “How many short sales have you successfully closed?” prior to listing your home. That will guide you far better than a patch on their arm.

Sellers at the conclusion of the Journal article are advised much the same thing: to ask their prospective agent how many short sales they have successfully completed, and how many were lost to foreclosure.

Obviously, the word is getting out. Experience trumps marketing when your financial life is at stake.

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What Makes a Short Sale Specialist?

When I closed my first short sale in 1998 I had no idea that 10 years later I’d be doing them with any regularity. At that time, short sales were uncommon; they remained uncommon through 2006. Even in 2007, other agents needed to be educated about what a short sale was, how long it took to close, and what process the negotiation would entail.

Having closed dozens of short sales in the period since 2007 in Westchester and the surrounding counties, I now see a larger number of agents who are familiar with short sales. I also see a higher number of agents who bills themselves as “short sale specialists.” In some cases, they have earned a designation. I applaud any agent who furthers their knowledge. However, designations can be misleading and may not help the client.

There is only one problem with an agent who calls them self a specialist these days, and that is this: they may not really be specialists. Designations mean nothing if you cannot successfully negotiate and close a workout. In Westchester, there are enormous numbers involved, and if a home seller cannot close on their short sale because their agent, well, stunk, they could be stuck with a lingering debt, or, worse, a deficiency judgment for tens of thousands of dollars. What’s worse, if these sellers really knew how many short sales their “specialist” agent actually closed (often, between zero and one) they would be mortified.

The code of ethics strictly prohibits misleading clients as to the agent’s scope of expertise. A special designation might circumvent an outright violation. But it doesn’t protect a Westchester homeowner from huge problems if their agent can’t get the job done. In many cases, the homeowner never asked the agent how many short sales they have actually closed. This is madness. I would never have eye surgery with a rookie doctor. Our obstetricians had decades of experience. The same goes for the guy that installed our pool table, water heater, and appliances. The reasons are obvious.

Yet people still do not ask their prospective agents how many short sales they have closed. You simply cannot be a specialist with no experience; I’m sorry. I don’t care if you have a PhD or a photo shaking the Pope’s hand. What they taught you in class simply isn’t all it takes to handle the loss mitigation department of a lender. Sellers need to understand that if they hire an inexperienced agent to do their short sale, they do so at their own peril. I’d never want a surgeon cutting their teeth on my gall bladder, a lawyer apprenticing at the expense of my freedom, or an agent getting their feet wet at the expense of my finances.

Simply ask : “How many short sales have you successfully closed?” prior to listing your home. That will guide you far better than a patch on their arm. And if you are an agent who wants to get into short sales, work for someone who does them with regularity. I have often said that any agent can make money in short sales. However, 99% of them should be via a referral to a true specialist.

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New Federal Short Sale Program Starts April 5

The NY Times is reporting on a new Obama initiative to create a financial incentive for banks and home sellers alike to do short sales. A few highlights from the article:

Program starts April 5, 2010

Lenders will be “compelled” to accept short sales. We’ll see about that.

The administration wants to streamline the process. We’ll see about that too.

Financial incentives are $1,500 to the home seller, $1,000 to the lender, and $1,000 to a subordinate lender.

Agents will be used to valuate the properties, but lenders will not be forced to accept offers beneath the agent valuation.

Continued at Westchester Real Estate Blog.

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