Short Sale Listings In Ny

When you are having difficulty paying your mortgage on time every month it can be a scary situation. When do you know if a short sale is the best option for you? Here in New York, where I hold my broker’s license, Mahopac Real Estate has seen an exploding number of short sales. However, short sales are not for everyone. Let’s talk about the process and what you need to qualify. Short Sale Listings In Ny

Why would any bank or mortgage holder agree to a short sale? Because, banks are not in the business of owning and managing real estate. They are in the business of lending money and having real estate owned (REO) on their books negatively affects their credit rating with the Federal Reserve, hindering them from borrowing money and at a good rate. Moreover, it is less costly for a bank to accept less than originally agreed upon than to incur the expenses of selling the home at auction or worse, not being able to sell the home at auction and having to hold on to the property until it sells on the open market. Believe me, the last thing they want to do is foreclose.

How does a short sale affect your credit? Someone online once made a perfect analogy to explain the difference between how a short sale affects your credit versus how a foreclosure affects your credit. She said that one is like getting hit by a car while the other is like getting hit by a mac truck. Some say that there is no difference between the two, as far as credit is concerned. In my experience, you can recover a lot quicker from having a short sale on your credit report compared to a foreclosure. Some people have reported drops of 200 points after the former and a 300 point drop after the latter. Even if the point drop is about the same, other people have reported being able to purchase a home again two years after a short sale, whereas, after a foreclosure you can forget about buying another home for at least 7 years.

If you owe more than your home is worth, many people think right away that a short sale is an option for them. Just because you owe more than your home is worth is not reason enough. More importantly the bank must see that you are experiencing a financial hardship and are unable to pay the monthly payment amount. If you are on time with your payments, it is unlikely that the mortgage holder will grant you permission to sell the home for less than you owe and pardon you of the amount not covered by the sale. They would rather you continue to make the monthly payments.

Now, you have decided that a short sale is the best option for you, you have proved your financial hardship and the mortgage holder allows you to pursue a short sale. You then must go through the same process of selling your home as anyone else. You preferably list with an agent or broker, as opposed to selling on your own, since your situation needs more special attention and expertise than normal. Short Sale Listings In Ny

Keep in mind that you are still expected to make your mortgage payments during the “for sale” period and the short sale process can take 6 months to a year. Congress is working to pass legislation to force the banks to respond in a more timely fashion but as for now the process is still a long one and requires a ton of patience.

Once you have found a buyer, you must then go back to the bank and see if they will accept the amount that was agreed upon between you and the buyer. In a short sale situation, things get tricky because you are now, effectively, negotiating with two other parties, not just a buyer. The bank will then send someone out to obtain a BPO, or broker’s price opinion. They will base their decision on this BPO and whether they believe they are getting a fair price for your home. Obviously, the bank is already losing on the deal because they are accepting less than they were promised, so they definitely do not want to lose more on the deal by accepting less than the current market value.

One advantage, if any, to take away from this situation is that you do not have to worry about paying the broker’s commission or bank fee. The price that the bank accepts from the buyer will cover all expenses and fees. While in negotiations with the bank and the buyer, the bank will often give the broker a number that they have to walk away with after the commission and all fees have been covered. Short Sale Listings In Ny

If your mortgage loan balance is higher than the value of your property and you don’t have the money to make up the difference, you probably want to know whether you’d qualify for a short sale.  To find out, we have to look at a short sale from a bank’s perspective.  While there are many factors that banks consider, getting your lender to approve your short sale application generally boils down to 3 main challenges:

1) Getting your lender’s attention and giving your lender a reason to discount your mortgage loan

2) Demonstrating that you have a legitimate financial hardship preventing you from paying your mortgage

3) Getting your lender to accept that the price your buyer is paying for your property is close enough to your bank’s independent valuation of the property

To understand why these are the three key requirements, we have to understand how banks make money and how they limit losses.  Banks earn profits by collecting interest payments on money they lend.  It stands to reason then that in most cases banks won’t even consider a short sale application if the borrower is currently paying his mortgage.  However, when those payments stop, instead of making money, the bank is now losing money and as a result has an incentive to limit those losses.  Although banks lose money when a property is sold via short sale, the sale of the property allows the bank to recover a portion of the defaulted loan and get the ‘bad loan’ off its books.  Banks always take notice when they don’t get their money and borrowers who miss mortgage payments force lenders to at least consider discounting the mortgage.

The second major challenge in qualifying for a short sale is demonstrating that you have a financial hardship.  Banks lend money expecting to get that money back, which is why they need a very good reason to accept less than the total amount that they are owed.  The most compelling reason for a lender to accept less than the total amount owed is that the borrower doesn’t have enough money to make the interest payments or to pay off the balance of the loan.  As the saying goes, you can’t squeeze blood from a turnip.  Even so, the borrower must prove his financial hardship to the bank’s satisfaction with supporting documents like tax returns, bank statements and pay stubs.  Demonstrating financial hardship is critical to getting your lender to approve your short sale.

The third key challenge in getting a short sale approval is showing that the price your buyer is paying for your property is indeed the property’s current market value ( that is current market value in the eyes of the bank!).  The simple truth is that a property is worth what a buyer is willing to pay for it.  Nevertheless, just like the bank has the final say when it comes to approving your short sale, they also have the final say with respect to the market value of your property.  In spite of this, documenting that similar properties in your neighborhood have recently sold for a similar price will help persuade the bank that the price your buyer is paying is sufficient.

In summary, to qualify for a short sale you must prove you have a financial hardship and that you are selling your property at current market value in the eyes of your lender.  More importantly, you have to give your lender a good reason to discount your mortgage.   Since non-performing loans normally reduce the amount of money a bank can lend, when a strong case for a short sale is made, your bank should want to help you get rid of both your property and the mortgage loan attached to it.

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