Stress: The Worst Part of a Short Sale

I have listed two new short sale homes this weekend. One is just shy of $1 million, the other is around $200,000. One is in lower Westchester County, the other is in central Dutchess County. One is almost 3000 square feet, the other is closer to 1300 square feet. Although it doesn’t sound likely, the two clients have a great deal in common.

• Both are responsible and hard working
• Both are frugal and fiscally conservative in their management of money
• Both are college educated professionals
• Neither fits the profile of an irresponsible foreclosure candidate
• Both are mortified at their situation, feel alone, and under considerable stress.

What is different about many short sales in the current market is that due to job loss, loss of income, or something else completely not related to their responsible behavior, otherwise good and accountable people are finding themselves needing to sell and not having the equity to cover their costs. These were not sub prime borrowers. They are stable. One had his business fail due to the recession, and the other has lost income. This is unfamiliar territory for both, because they have always watched their Ps and Qs and never overextended their credit.

In both cases, I have let them know that they are not alone, and that they are actually smart for getting proactive and contacting me. In both cases, I will get them out from under their upside down mortgage and get their short sale approved. They will not owe the lender anything after they close. They will get a fresh start. I will keep a roof over their head and help them repair their credit over time. In 2 years after they sell, if they want, I’ll help them buy another house.

The money is not the worst part of a short sale. No one starves or has no clothes. The worst part is the stress. Address the stress or find someone to help, and you’ll be lucid enough to help yourself. That goes for Scarsdale. And Chappaqua. And Yonkers. And New Rochelle. Everywhere.

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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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The Divorce: Dutchess County Short Sale

This short sale closed at the end of this past year. The clients were divorced, and the home they had built while married was incomplete and upside down. The house was listed this past summer.

Divorce cases are in and of themselves difficult. I have to give both clients credit in their dealings with me- they kept it to the transaction. It still was more difficult than with a happily married client, and there were the dicey moments one might expect, but in context we did well in spite of the circumstances.

There were numerous offers on the property, but getting consensus on which one to submit to the lender complicated matters. No offer separated from the pack- price was an issue with one (rather crucial in a short sale), another was an acquaintance of the husband, which the ex wife was reticent to accept, and we were unsure of how to go forward for a time.

Not long after, what appeared to be a tie-breaking offer came in. Price, terms and details did give it a distinct advantage, that is, until the incomplete state of the home came into play. Without a final certificate of occupancy, they reduced the offer by $20,000. A decision had to be made, and with time running short the acquaintances were chosen.

It took another 90 days to get approved. Unfortunately, the buyers then asked for an extension! Given the rigid guideline of the approval we could only grant one brief extension. When another was requested, we had to deny it. We began to get concerned that the buyers might no longer qualify, but the file was cleared to close the day after their extension was denied. They might have been jockeying for a better loan; it might have been a stroke of luck. Because the closing was scheduled in haste for a morning I was already booked, I was unable to be present for the closing.

I later found out that the buyer voiced a complaint about me at the closing. I have never dealt with this person (just his agent), nor was I the source of any of the difficulty on our side. The combination of a short sale and divorce would make any transaction difficult, and perhaps the buyer transferred his frustration to me. I have no way of knowing. I do know that the seller’s attorney advised him that he was mistaken and that I was a good guy. You know you are living right when an attorney sticks out their neck for you and you don’t get a bill!

J. Philip Faranda is Westchester & the Hudson Valleys’s Premier Short Sale REALTOR. Find out more at www.NYShortSaleTeam.com

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Should Sellers Sign a Contract Prior to Short Sale Approval?

A recent posting from an Ohio broker highlights how real estate differs from place to place. In it, she says that she advises her clients to not sign a contract with a buyer if the house is a short sale prior to getting the bank’s approval. While I won’t quarrel with what works for someone else in another market, I disagree.

That may work in Ohio, but it is ill-advised in New York. I do most of my short sales in Westchester, Rockland, Putnam, Dutchess, Nassau, Suffolk, Queens, Orange and Fairfield (CT) Counties. It is the same in each place- when the buyer makes an offer, it is submitted to the lender with the seller’s hardship package and a contract that is conditioned on the approval of the short sale. The contract is prepared by the seller’s attorney. If the short sale is approved, we have a deal. If it is not approved, my seller is not obligated to sell and incurs no financial obligation to the buyer. Most of the time we continue to negotiate with the lender anyway, but the contract protects both parties.

For the buyer, the contract ensures that they will not lose the house to another buyer after enduring the long process of short sale approval.

For the seller, whom I represent far more often, the contract ensures that the buyer will not simply walk away without penalty or recourse after that same lengthy process. If I list a short sale, my job is to protect my seller. Handshake deals do not protect the seller, only contracts and deposits protect them. This does not “imprison” the buyer. It is virtually the same sort of contingency as their own financing, which is in almost every real estate contract, and no seller objects to such contingencies.

Moreover, the lenders require a valid contract of sale before they approve a short sale. With no contract, the offer is hypothetical. Hypotheticals don’t help my clients whose goal is to avoid foreclosure.

J. Philip Faranda is Westchester’s Premier Short Sale REALTOR. Find out more at www.NYShortSaleTeam.com

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Should You Buy a Short Sale?

Buying any foreclosure is tricky, and a short sale is probably the longest process. Is purchasing a short sale right for you? Perhaps you rent in Westchester, Rockland, Putnam or Dutchess and are considering a short sale purchase in one of those areas. Here are some things you ought to know:

• You can’t be in a hurry. Negotiating a short sale might only take a month but in most cases it can go 90 days or longer. So don’t hire a mover, end your lease or lock your rate until you have confirmation that your offer is approved by the bank. If the seller accepts your offer that isn’t an approved short sale; any offer the seller accepts still requires approval from their lender.
• You are buying the house “as is.” In rare cases, such as in an environmental problem, the lender will pay for repairs but most if the time you are getting the house as is, as found. The seller is in hardship, so they won’t be able to help either. So make sure you do your inspections and know what you are getting into before going forward.
• You can’t “flip” the house. Short sales are very good deals in most cases but not so very low that you’ll be able to turn a short term profit. They usually are retail value, less repairs and maintenance, and perhaps less a bit for speed.
• Status updates take longer. Unlike regular transactions where updates are a phone call away, all parties are forced to wait on the lender, who is not, shall we say, committed to keeping everyone happy. This doesn’t mean that the purchase is lost in the ether; but it does mean that more patience is required than normal.
• If the listing agent is not a short sale specialist, it may turn into a nightmare. You wouldn’t want a podiatrist giving you root canal, nor do you need a rookie cutting his or her teeth on the biggest purchase of your life. Short sales are hard for experienced experts like myself; an agent who is doing their first or 2nd short sale is in for a long ordeal. The best way to handle that transaction is to not enter into it. If the house looks right for you and a short sale is disclosed, ask how many short sales the listing agent has successfully closed. If the agent hasn’t done many, the best thing to do might be to pass the house by. Otherwise, you might be in for 6 months of frustration.
• Subordinate financing takes longer. If the seller has a second mortgage, then two lenders have to render their approval, and coordinating the two complicates matters. Some specialists won’t even list those homes (I do.).  Ask if there is another lender, and even if they are the same institution, it will add a measure of difficulty (the same lender but two different loans means two different divisions or departments). Do a lien search on the home before going forward. If there is a 2nd lien the listing agent hasn’t disclosed you might consider walking- they may not be in command of how to close this workout.
• Ironically, you have to be ready to close rather quickly. This is the “hurry up and wait” irony of the short sale process. The lender will make you wait far longer than a normal purchase for a decision, but when that decision is issued there will typically be a 15 or 30-day deadline to close or the sale approval has to go back to review. By this point you should have done your inspections and other due diligence completed. Once the lender approves the sale it is then time to lock the rate, call the mover and give notice on your apartment.

This is a broad overview, but it boils down to knowing when to hold and when to fold.  No two short sale transactions are the same, even with the same lender. If you are in a state where attorneys are used it helps to have an attorney represent you in the purchase with short sale experience, but at the very least make sure they are experienced at real estate.

The long process aside, buying a short sale does put you ahead of the market, as the prices are more aligned with where the market is heading. This is significant, because the places where the bulk of my short sales are done (Westchester, Rockland, Putnam and Dutchess counties), prices are so high that even a 5% reduction can mean tens of thousands of dollars to you.

J. Philip Faranda is Westchester’s Premier Short Sale REALTOR. Find out more at www.NYShortSaleTeam.com

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Short Sales

A Short sale occurs when a bank accepts a lower price than the mortgage balance, allowing distressed homeowners to sell their home and satisfy the debt with no future obligation or deficiency judgment.

J. Philip Real Estate specializes in these transactions, and I personally broker several per month. My first short sale was in the late 90’s.

My intention with this journal is to explore the practice, share success stories, and to promote my firm as your first choice and best option if you are facing the need for this difficult transaction type.

J. Philip Faranda is Westchester’s Premier Short Sale REALTOR. Find out more at www.NYShortSaleTeam.com  

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