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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Yonkers Short Sale: Do You Need an Attorney? YES

Here’s one from the other side of the closing table, where I represented buyers on a 5-month odyssey to purchase a short sale in Yonkers. It made me appreciate the waiting game that buyers must endure, and how valuable status updates are to home purchasers of a short sale in order to stay engaged and committed to the purchase. Buyers need to be updated to, among other things, time their mortgage application, appraisal, and rate lock.

Note that I did not say anything about ordering title work. Title work in a short sale MUST be ordered by the seller’s attorney in the beginning to ensure there are no 3rd party liens that might scuttle the sale later on. 3rd party judgments and liens are common in default properties because when there is financial hardship, there are other bills than the mortgage that go unpaid.

The home my clients sought to purchase was perfect for them- a recent build on a dead end street with a good location for their commute to work. Things on the seller’s side were not organized from what I could see, until I made substantive contact with the seller’s attorney, who entered negotiations later in the game when a private 3rd party hired to negotiate the short sale was sacked mid-process. I can’t judge their circumstances, only the scenery from our point of view. From contract signing in May until August, everything seemed to be in limbo.

In early August, the seller’s attorney spearheaded negotiations. The short sale was approved in late September with terms the seller could live with. We closed September 29, which was a nice anniversary gift. His communication with me was crucial to my buyer clients’ management of their mortgage financing. When they were ready, we were ready. No delays, no snafus, minimal drama.

This was a unique file in that I had a direct line of communication with the seller’s attorney, which brokers seldom have. Typically, I would deal with a listing agent, but that agent would be the conduit to their attorney. But the bottom line here is that the attorney’s involvement was indispensable, and the communication with our side affected a successful outcome. New York is different from many states where an attorney is not part of the process. But in New York, Connecticut, and New Jersey, it is clear to me through experience that without an attorney closely involved in the short sale, the closing may not succeed.

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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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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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Short Sale Fraud: By Banks!

CNBC is reporting that some banks are being accused of, of all things, bank fraud in short sales. Those of us who sell short sales know that the hardest cases are often the ones with subordinate financing, or in layman’s terms, a second mortgage. If you owe $500,000 on a house with a $425,000 1st loan and a $75,000 second mortgage, then a short sale for $400,000 cleans the 2nd loan out completely. If they are lucky, they will get $3000 from the first lender. They have little choice- if the house goes to foreclosure, they get nothing.

ON some files, the 2nd mortgage will try and negotiate an unsecured amount to be paid back by the borrower after the closing in exchange for release of the lien. That is their prerogative. It is, after all, money they are owed.

The fraud part comes when the 2nd lien wants cash paid to them that is not disclosed to the first mortgage holder. In other words, a “side deal” cash payment delivered at closing that is undocumented and not disclosed on the HUD-1 settlement statement.

So instead of Tony Soprano conspiring to defraud the first bank, it is the second bank. Has it happened? I’d say yes. Is it widespread? Hard to tell, probably not, but once is too many times. Does this surprise me? No. These are the institutions that screwed everything up to begin with. Nothing they do surprises me.

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Government: We Want 10 Day Short Sales

There is a new US treasury guideline that will, according to a report, mandate that banks make their decision on a short sale in 10 days. The new rule also proposes a $1500 allowance to the seller for moving expenses. I have said before that it shouldn’t take a lender more time to decide on a short sale than it currently takes to underwrite a mortgage. The process is virtually the same.

As enticing as 10 days sounds, I don’t see how it could be enforced, nor do I see 10 days as particularly realistic. It takes a week for example, to get an appraisal done. The pendulum does not need to swing so far the either way from 4 and 6 month short sales to under 2 weeks. I’d be happy with 30 days, and, frankly, so would the buyers. The banks are overwhelmed as it is, and they don’t have the staffing (or so they claim) to speed things up.

So how will they do it? Will this help or hurt? My fear is that, pressed to make a decision, the lenders will issue denials on deals they might otherwise approve if given a reasonable amount of time.

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Will Banks Finally Speed Up Short Sales?

There is some debate. I don’t think they will, for a variety of reasons, not the least of which is that they probably fear that if they make them easier, more people will try for one. Since the other side of the deterrent is foreclosure, and since loan modifications aren’t exactly saving the economy, status quo has at least enabled them to repay their TARP money, so why should they change now?

Bottom line: If you need to do a short sale, you still need an expert with experience, and not some guy who attended a seminar once.

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Monroe, NY Short Sale: First Time Buyers

An old wrestling teammate from high school referred me to his younger brother, who is also newly married and looking for his first home (Thank you Facebook!). Michael and Stephanie had been out looking for a while, and a prior agent had written an offer for them which didn’t work out. They didn’t have a good experience with this agent. It mattered to them that I was not a random agent, but a referral from a trusted relative.

They are a very earnest couple, and once we found the right place, it turned out to be a short sale. Now, when I represent the buyer I can’t negotiate the short sale. The listing agent did it herself, the seller’s attorney was no help (useless, actually. wouldn’t answer our lawyers calls for days, if that), and it took over 4 months. There were two mortgages, which complicated matters terribly, and the 2nd released the lien but the sellers had to repay some of the loan. This happens sometimes.

Luckily, when the approval came through they had their act together, and were able to close a day ahead of the lender’s deadline. The closing itself was not without drama, as the seller’s attorney was never on point and our lawyer had to do some fast work that morning to make everything come together. The closing lasted 3 1/2 hours. But close it did.

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Obama and Administration Encourage More Short Sales

The government has moved to increase the incentive for lenders to allow short sales on their defaulted loans. I welcome this, although there is nothing specified as to how they’ll hold banks accountable for streamlining the process, which is rife with red tape, bureaucracy and long waits. If they truly want to make short sales happen more frequently to help more distressed homeowners out, they would mandate a maximum of 6 weeks for a short sale approval.

Continued  here.

J. Philip Faranda is Westchester & the Hudson Valleys’s Premier Short Sale REALTOR. He has listed and sold successful short sales in Westchester, Rockland, Putnam, Dutchess, and Orange County, as well as the boroughs of New York City. Find out more at www.NYShortSaleTeam.com

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Why Armadillos Don’t Own Real Estate

I have blogged previously that lizards who are smart enough to move survive and those that sit still are quickly eaten by any colonies. Both sitting still and moving are survival mechanisms, but depending on the circumstances one can kill you and the other can save your life. In a New York short sale, curling up in a ball might work fine for an armadillo to survive, but it doesn’t help a homeowner avoid a foreclosure. I have often stated that proactive sellers, who help themselves, have far better results. It’s just that simple.

Yesterday, I met with one of my agents and a client who had bought a home with her about 4 years ago. We have known for months that they were having difficulties, and for some reason they delayed meeting with us. In fairness, they were trying to refinance and then for a loan modification, but when that failed they went to an outfit that promised to solve all their problems for a fee. The money for the fee disappeared, but their problems did not.

Continue blog posting  here.

J. Philip Faranda is Westchester & the Hudson Valleys’s Premier Short Sale REALTOR. He has listed and sold successful short sales in Westchester, Rockland, Putnam, Dutchess, and Orange County, as well as the boroughs of New York City. Find out more at www.NYShortSaleTeam.com

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Fannie Mae to Banks: You Can’t Cut Broker Commission

Fannie Mae’s recent edict forbidding the cutting down of the broker commission as part of the short sale negotiation is very good for distressed sellers and buyers, not just the agents. I’ll explain.

Naturally, brokers and agents are relieved because it ensures that the considerable time and effort that goes into selling a short sale property will not end with their compensation being raided by the lender in what has always amounted to 11th-hour extortion. In a market like mine in Westchester County, where the typical transaction is 45-60 days, the time to sell a short sale is easily triple that time in some cases.  Sometimes the bank has accepted short sales with the caveat that the brokers get paid less, often with the rationale that something is better than nothing.

This decision is made by an out of state negotiator whose obtuse agenda is to minimnize the loss to the lender, but the consequences are far more damaging than a little pinch, because many brokers and agents are now refusing to show short sales to their buyers. While it may not amount to a blatant boycott, the agents will discourage their buyers with a variety of reasons, such as the long wait, the uncertain nature of the time invested, and the condition of the house. The real reason, however, is that they want to get paid. In this economic climate, that rationale is understandable.

I don’t agree with it, but it is understandable.

The ecology of the agent’s unwillingness to sell short sales is disastrous. Fewer showings mean fewer sales, and that hurts not only the sellers in the short term, it hurts everyone.

• More unsold short sales mean the market will take longer to adjust.
• Toxic assets remain on the books longer. Non-performing loans do no one any good.
• Tax bills are not paid, hurting municipalities.
• Buyers may be discouraged from buying what may be the perfect home for them.
• Brokers who take longer to sell a buyer the right home may eventually lose that buyer to another broker, a for sale by owner, or inertia.
• People who might otherwise benefot from selling their home in a short sale face foreclosure.
• More foreclosures are the last thing this economy needs.

While Fannie Mae does not hold all loans, it holds enough to influence other entities. My local market of Westchester County has lots of Fannie Mae borrowers who are in negative equity. If brokers have confidence that they will get paid in full for selling a short sale, it will expedite the wringing out of bad loans, helping sellers and lenders alike, and speed an economic recovery.

J. Philip Faranda is Westchester & the Hudson Valleys’s Premier Short Sale REALTOR. He has listed and sold successful short sales in Westchester, Rockland, Putnam, Dutchess, and Orange County, as well as the boroughs of New York City. Find out more at www.NYShortSaleTeam.com

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Westchester Short Sales- March Mumbers

Unless otherwise indicated, all data in this post is from the Westchester-Putnam Multiple Listing Service.

There are 3,454 single family homes actively for sale in Westchester County. Of those, 148 are disclosing either a short sale or foreclosure proceeding in process. This is about 4.3% of the available single family home inventory.

The actual number is probably far higher than that. That is because on many homes the listing agent has not disclosed, either knowingly or unknowingly, that the house is upside down or delinquent. Also, there are hundreds of overpriced listings which would be short sales if the price were lowered to market value. In other words, there are lots of $450,000 homes listed for $550,000 because the mortgage balance is $500,000.  Continue reading here

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

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Negative Equity Graph for NY Area

Zillow has published a graph on how many homeowners have “negative equity,” or owe more than their home’s value. Not all these home owners are in touble; but the numbers are instructive.

Zillow Negative Equity Graph

As you can see, the downpayment rquirements after 2007 became far more stringent, no doubt due to the sub prime crisis. Negative equity started to rise in 2004 before the market peaked; that really tells us how much the bubble was inflated by bad loans.

Many of these people, should they need to sell, will either have to come up with money to close or face a short sale. This chart is for the New York metro area. If you’d like to see your marketplace, click here.

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

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What is a BPO?

BPO stands for “broker price opinion.” It is a part of the short sale process that the lender uses to evaluate the merit of a short sale application. Simply put, the lender uses a BPO to ensure that the proposed sales price is aligned with market conditions. Some Westchester County Short sales, for example, are 20% less than the house’s value from 3 or 4 years ago. A home that was purchased in 2005 for $500,000 may only be worth $400,000 currently. Just to be certain, the lender sends out a 3rd party to verify this.

The BPO report looks very similar to an appraisal. There is a description of the subject property, and usually at least 4 recent comparable sales. If the offer on your home is $380,000 and the comparable sales are $410,000, $395,000, 375,000 and $355,000, then the lender will know that the value is legitimate. If all the comparable sales are over $425,000 and there is no compensating factor, such as deferred maintenance or needed repairs, the bank may deny the application. As much as the BPO report resembles an appraisal, it is not an appraisal, which is more expensive and produced by a licensed appraiser.

Often the lender will forego a BPO and do a full-blown appraisal. The theory here is that the appraiser will be more accurate. This is a sound theory, but one pitfall I have personally experienced is that lenders have a bizarre habit of contracting appraisers from a different marketplace who turn in robotic, formulaic reports based solely on price per square foot and not local market conditions. We have had short sales denied because the home has over appraised, causing more work and, in one case, a foreclosure. After it was repossessed, the home ended up selling for $100,000 less than what the lender claimed to be market value. That lender is no longer in business.

As prices continue to shrink, overpriced BPOs and appraisals are becoming less common. The BPO usually comes after the rest of the process is complete, so in those cases a decision from the lender on the short sale ought not be far off. Some lenders do them earlier, but as the marker changes I see that less and less.

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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Westchester Short Sales by the Numbers

The question that pops up for people who can no longer pay their mortgage is how much money they’ll have to come up with in order to get out from under their mortgage through a short sale. It is like the old catch-22 I’ve often heard where the client tells me that they want to seek bankruptcy protection but they don’t have the money to pay the attorney (of course, the answer to that is that the good attorneys I know will not charge for a preliminary consultation).  It is an understandable conundrum, and I’ll do some math illustrations here.

First, in a typical sale, the seller has numerous expenses, but the big one are the real estate commission, New York State transfer tax ($4 per thousand), Attorney fee, and the big one-the mortgage payoff (typically the biggest check drawn at closings).

On a $500,000 house with a $400,000 mortgage balance, assuming a 6% commission (all commissions are negotiable of course) and a $1500 attorney fee, the seller is liable for the following:

• Commission: $30,000
• NYS Transfer tax: $2000
• Mortgage payoff: $400,000
• Attorney: $1500
• Total: $433,500

If you have the equity, all expenses come from the proceeds and you don’t give it another thought. Let’s look at a short sale scenario where the balance and market value are both $450,000:

• Commission: $27,000
• NYS Transfer tax: $1800
• Mortgage payoff: $450,000
• Attorney: $1500
• Total: $480,300 shortage of $30,300

In a short sale, the bank absorbs the loss and discharges (settles/forgives) the loan debt, with no post-closing obligation, even if there are back  taxes and back payments. The reason is hardship. Lenders recognize that sellers do not have magic wands to wave and make the market values any higher, and that in selling the house the debtor is making a good faith effort to pay their debt. If you have hardship (which is typically why the house needs to be sold to start with), you should have a successful short sale. If you have  $100,000 in the bank, you don’t qualify for a short sale. I should also add that my clients do typically pay a small attorney fee to defray the attorney expense for the workout, but in short sale situations where the lender refuses and returns mortgage payments, it becomes a relatively negligible matter.

This is the same structure in my short sales in Rockland County, the Bronx, Putnam, and Dutchess.  Some municipalities such as Yonkers have a higher transfer tax. Of course, the broker or agent you choose matters as much as the surgeon you choose for an operation. You need a specialist or the results could be fatal. The lesson here is that homeowners experiencing hardship ought not put off acting because they don’t have money. You really don’t need any to get informed, get started, and get your life moving again. And the best part is that once the short sale is completed, the slate is clean. That day is the first day of the rest of your life.

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

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