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Posts Tagged ‘New York short sale Realtor’

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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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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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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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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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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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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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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