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Posts Tagged ‘New York short sales’

Now that Bank of America has joined Chase and GMAC in suspending foreclosures in 23 states (BoA is actually suspending them in all 50), including New York, the entire industry is abuzz with questions as to what the consequences are for the market, a recovery, and most of all, distressed homeowners. Now known as the robo-signing scandal, the issue is calling into question the legitimacy of thousands of foreclosures.

What’s more, with foreclosures halted, what will banks do to dispense with default properties and non-performing loans? The answer to my mind is clear: start paving the way for more short sales. Title is passed from one owner to the next with no interruptions or questions, the process saves the banks both time and money, and more borrowers can move on with their lives with dignity which is all to often a missing element of the current system.

The advantages are enormous:

  • In a short sale, the bank doesn’t have to take 1-2 years to repossess the home. They get their money faster.
  • In a short sale, there are no legal fees associated with a foreclosure.
  • In a short sale, the bank does not have to manage the property, put the utilities in their name, or winterize the property except in rare cases.
  • Short sales are seldom boarded up, vandalized, or vacant. They therefore net the lender more money.

This has always been the case, and made me wonder why banks are so difficult, but with foreclosures off the table short sales now appear to be their only option.  With New York among the states that more lenders are suspending foreclosures, this gives distressed sellers breathing room, and, more importantly to my thinking, dignity.

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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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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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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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    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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    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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