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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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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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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Solutions for No Equity and Falling Behind on the Mortgage

In some markets, people who only borrowed 80% of their home’s value are waking up to the fact that they actually have no equity. It is happening in all communities- Yonkers, Yorktown, Scarsdale, Somers, White Plains, Wappinger Falls, you name it. No demographic, neighborhood or school district is immune from the ripple effect of the declining economy. And if your mortgage adjusts, you lose your job, or any one of a dozen other unfortunate things, you may feel that you are in a dire situation. When the market was hot, people who had problems sold or refinanced rather easily. Problem solved. Not so easy in this climate.

Financial problems cause terrible stress. People that feel that they are trapped in a house they can’t sell because of a high mortgage balance can feel helpless and defeated. My observation is that the stress and worry are actually worse than the shortage of money. The worst thing to do is retreat, withdraw or give up. This doesn’t mean you have scream “Geronimo” and beat your chest. If you take small steps to help yourself you’ll be OK.  There are solutions if you are “upside down” or have negative equity. Help yourself- my most successful short sale clients were always proactive. Here are some things you can do:

• First, communicate with your lender. You’ll feel better that you are being proactive, and the lender will know that you aren’t going off the grid.
• Get help from a professional. List the home with a real estate agent who specializes in short sales. I’ll opine on how to find that agent later.
• Get educated. Google short sales. Go to the library. Understand the process. Taking the mystery away will settle your mind.
• Your hardship package should be treated like an extra credit project that you have to pass in order to not flunk out of school. Get the documents they request, fill out the forms and write that hardship letter. The better the package, the better  the chance for a fast approval on the short sale. Don’t put anything off, and ask your agent for help if you need it.

Now- on choosing an agent for your short sale:

• The agent has to be full-time, with a documented track record,  and references.
• Ask the agent directly how many homes they have sold in the past year, and how many short sales they’ve closed.
• Make sure they document their claims and if they can provide references.
• DON’T EVER let the agent obfuscate your questions by deflecting them and blathering about their company, office or sales team. You want to know how many sales/short sales THEY’VE done.
• Have the agent explain their plan to sell the house. The plan has to make sense. Do they negotiate directly with the lender, or do they have a 3rd party do it? Where will they advertise? What is their opinion of a starting price, and how do they justify that price?
• If you are not comfortable with the broker or agent, do not list with them.

Once you’ve listed the house on the market with an agent who is a good, full- time short sale specialist, pay attention to how many showings get scheduled. If you aren’t getting 1-2 showings a week, it may be time to lower the price. Bear in mind, too, that the house will have to be marketed as a short sale. There are two reasons: first, short sales have to be disclosed in most locales. Second, pre-foreclosures attract more buyers because people are looking for bargains. Since your bottom line is the same no matter what the final price, you should not be reluctant  to lower the price if so advised.

Making the house easy to show is crucial. Be as accommodating as you can be, and only reject showing requests in rare cases of emergency.  In many markets, there are 10 or 20 houses just like yours. If you are in Mahopac and the buyers are coming up from New Rochelle and you don’t allow a showing on a given day, they may not try to reschedule because of all the other options out there. People can’t buy what they don’t see. So, if there is a legitimate contagious illness or emergency, don’t do the showing. Friends visiting, a child’s birthday party, dinner, or a furnace being repaired are no reason to deny a showing. The stakes are too high.

Once an offer does come in make sure that your package for the lender has everything they ask for- bank statements, letters of explanation, disclosures filled out neatly, everything completed. Once your package in in review, the lender will send someone out to do either an appraisal or BPO(broker price opinion) to verify that the home’s value is indeed lower than the loan and in line with the offer.

At that point, you are off to the races. Typically, lenders give the buyer 30 days to close or the file has to be approved again. Make sure that the short sale terms, upon acceptance, are in writing and that you have, in writing, a release from the loan once the deal is closed. At that point you can, thankfully, start packing. 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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