Category Archives: Short Sales

The Five Year Marathon

BHHSNJ NJ301_H_Seal_cab_cmyk


by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

It all started in mid 2006.  I sold a small house in Glen Ridge for way more than its asking price.  Needless to say, the sellers were quite pleased with me.

Three years later that seller was happily re-settled in his new house when he called me.  He and I had kept in touch as his domicile changed and his family grew.  In that phone call he told me of a friend of his in Glen Ridge who was going through some tough times.  She was a retired senior citizen, her husband had just died and she could no longer carry the expenses of the home.  He wondered if I would talk to her and see how I could help her.  Of course, I agreed.

The result of my meeting with the lady was a listing for a short sale which I took in January of 2010.  Little did I know I would break all endurance records before bringing this transaction to a successful conclusion.

The first 3 years, or so, of this short sale were spent trying to get the lender’s attention.  We were shuffled from the original lender to another lender and nothing was forthcoming from either.  This may have had to do with the moratorium on foreclosures in New Jersey which just ended sometime in 2012.  Getting anyone from the lender on the phone or getting a response from the lender to an offer was impossible.  We had also reduced the price a couple of times and had some very low offers which we couldn’t act on without any communication from the lender of the moment.  As a result, those buyers disappeared.

Then, in 2013 the mortgage was sold to yet another lender who, right away, seemed more communicative.  Of course, every time we switched banks we had to start the paperwork all over again for the short sale.  Short sales have an astounding amount of paperwork and with the HAFA program for short sales the Federal Government is involved – more paper.

A year’s worth of back and forth with the new lender led to their foreclosing on the property.  They did not, however, send it to auction.  They kept it on their short sale desk.

The seller had moved out so, naturally, I had the plumbing winterized and supervised the preparation of the empty house which now had no heat or utilities.

A string of prospective buyers went through the property because it was inexpensive for Glen Ridge but it was a mess.  It needed major renovation, had a buried oil tank and there was no relief for a buyer from either the lender or the seller.

The original seller’s attorney was arrested – nothing to do with us and I won’t give any more details but, at this point I’m thinking “why not?”, everything else has gone wrong, including a break-in and burglary.  We then were represented by a law firm that specialized in short sales and their patience ran out in 2013 when no progress had been made.  They then demanded a retainer from the seller who could not afford it and we lost yet another attorney.  I then shopped this deal around to multiple lawyers all of whom took one sniff and also demanded a retainer. Finally I found a local attorney who would take this on – bless her heart – with only a fee at closing.  I promised her to do most of the heavy lifting so as not to take advantage of her good graces.

Finally, in late 2013 we got a buyer who made a legitimate offer and the lender rejected the offer.  At least I had heard from the lender.  Then the lender told me to list the property $200,000 over the current listing price and to put it on the foreclosure site Hubzu.  I refused.  The price was ridiculous and I wasn’t going to waste any more time on this under those circumstances.  I told the lender, no, and they could take the property and do whatever they wanted with it.

It was revealed that their higher price point was the result of a drive-by BPO (broker’s price opinion). These are done by REALTORS who don’t do much else, they get paid $50 to $100 for each BPO, they don’t always know the market area and they probably don’t really care for the small pittance they are paid.  This REALTOR had not gone in the house and established his, much too high, opinion of value based on looking at the outside only.

I told the lender that, if they wanted to continue with me, an appraiser, not a REALTOR, would have to inspect the house inside and out.  The buyer offered to hire an appraiser but the lender would not accept findings from anyone hired by the buyer.   After quite a few more phone calls I began dealing with some people at the lender who seemed to be on the ball and I convinced them to send an appraiser at their expense – which they did, finally.

The appraisal must have been correct because, after that, things started moving more quickly.  By now we were in 2014 and I had long since given up much hope of seeing a dime from this deal.  But I did keep the process going.  They buyer made a counter offer which the lender seemed to like and we went through attorney review (1 year) and emerged with a binding contract.  Then, another offer appeared for similar money.  The lender told me to go back to both and see if they would sweeten their offers and both did.  The original buyer was slightly higher at this point and the lender chose him and told me to proceed toward a closing.

You would think we were close to the finish line – but think again.  I had the seller’s attorney submit multiple HUD1 settlement statements to the lender as we hashed out the dollar details.  Then I started dealing with the 2nd lien holder – oh, yes, there were 2 mortgages.  Junior lien holders usually take a bath on short sales and it makes them cranky and uncooperative.  This one was no exception.  Weeks worth of back and forth finally resulted in a dollar figure they would accept.  Bear in mind my objective was to obtain agreement with both lien holders that my seller would not be pursued for any deficiencies given the lower sale price so that needed to be negotiated.

Finally, in late March 2015 after the buyer had closely inspected the property and was comfortable with its condition and after he had ironed out all the details with his lender and I had obtained the municipal Zoning Compliance Certificate (I held my breath during that inspection), we closed the transaction much to my seller’s relief and to my amazement.

I was given hearty praise for sticking through this deal but I only felt I had done what I was supposed to do.  It’s not about the money.  It’s about doing what’s right.  It’s not even so much what’s right or helpful to anyone else.  I don’t look for medals for what I do.  It’s what I can feel good about when all is said and done.

Can’t get enough of my opinions? Take heart. I have another (non-real estate) blog called “The World At Large by Jim Stefanile – Thoughts On Everything Else”.

This month’s post is “Saddest of Smiles”  Chapter 1 of the history of my family.  I hope you can visit:

Leave a comment

Filed under Short Sales

Short Sales

by James Stefanile,ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

The result of the last 2 years in our economy has been a large amount of homeowners behind on their mortgage payments.  Eventually, these homes fall into foreclosure or the owners will attempt to sell the property before that happens.  When a seller receives less for the sale of a home than he or she owes to the lender in mortgage balance, the result is a short sale.  Short sales are also known as pre-foreclosures.  There are many homeowners who are “under water” or “upside down”, both slang terms for short in value vs. mortgage balance.

So, are these homes a bargain when they come on the market?  Perhaps, but there are caveats. 

The first is:  Don’t be in a hurry.  The seller’s mortgage lender has to approve your offer.  This could take a while.  You are now dealing with a bank department swamped with short sales so don’t expect an answer this month…or maybe not next month.  I’ve seen attorneys tear their hair trying to get a green light from lenders in short sales.  Also, be aware that you are not the ideal buyer in the eyes of the seller’s lender.  They’d much rather have a cash deal with an investor who doesn’t intend to live there than you and your need for a mortgage of your own.

The second caveat is: Don’t expect the seller (or the seller’s bank) to honor your home inspection concerns.  If the seller had the money to re-imburse you for the leaky roof or the blown out boiler, he’d have enough money to pay his mortgage.  He has neither.  The seller’s lender is certainly not going to reduce the price for these issues.  You simply have to deal with the fact that there isn’t any money for improvements and they are going to be on your dime exclusively.  The decision is whether the house is enough of a value to justify the money you will need to spend after closing. 

Caveat number 3:  Your lender may require more paperwork, given the distressed financial nature of the property.  Your lender may be hesitant to approve your loan if the property is physically distressed.  Most investors want to lend on homes that are “move in ready”.  More delays.  Even well qualified buyers who are purchasing non-distressed properties are made to jump through hoops by lenders in today’s mortgage environment, so expect your hoops to be higher still.

 Number 4: Who pays the property taxes?  The homeowner in distress probably has no money for them, either.  You may have to shoulder this cost.

Number 5:  Are there any other liens on the property – IRS, construction loans, water & sewer bills?  Guess who’s responsible for that?  You need to know what other obligations the seller has left behind before you inherit them.

Number 6: Is there a second mortgage?  If so, expect more delays while that lender has his say.  Make sure you’re not inheriting a home with this additional obligation.  Title insurance is a must!

 Number 7: Are the utilities still on?  Is there still oil in the tank (if applicable)?  Is the heat on or is the house winterized?  Are there any municipal requirements to be executed based on the municipal fire or C of O inspections?  If so, who’s going to pay for that?  Most likely, you are.

Number 8:  As a buyer, never forget you are dealing with a seller in distress.  He doesn’t wish you well and he’s not going to leave a bottle of champagne on the kitchen counter after the closing for you.  He’s scared, emotional, resentful and angry.  None of those emotions are good ingredients in a real estate transaction.  The short sale and foreclosure process is, by its very nature, adversarial.  The seller is being forced out of his or her home and you are attempting to score a bargain.  In the most extreme of cases, the dispossessed occupants have even vandalized their own home.  Be sure your sales contract is contingent on your home inspection so you don’t buy a home with cement poured down the chimney and toilets.  A home warranty may also be a very good idea when purchasing a property in distress.

Number 9: Don’t think the seller doesn’t care how low a price the home sells for.  The larger the forgiven debt (difference between sales price and mortgage owed) the bigger the seller’s tax liability for that amount.  Also, his lender may reserve the right to come after him for the amount of shortage.  His lender has to approve the sales price as well, since they’re taking the loss.  If you and the seller have agreed on a price that’s lower than the bank’s approval amount, the sale may not go through or you may be asked to pay the difference.

Number 10: Make sure you have an attorney who’s done short sales before (as a buyer or seller).  All of the circumstances above require very specialized skills from all attorneys in the transaction.  You need specialists in all aspects of this transaction, from your REALTOR to your home inspector, etc.  Assemble a panel of experts in the distressed property realm and sit at their feet and learn.

Number 11:  I saved the best for last.  Make sure you know you’re attempting to purchase a short sale.  Huh?  The listing REALTOR is obligated, if he or she knows, to disclose a short sale, either in the MLS, or by face to face disclosure.  I’ve seen transactions that didn’t start out as short sales and the listing REALTOR had no idea.  There’s now a field for the listing agent to check in the Garden State MLS listing called “Lender Approval Required – yes, no, unknown”.  Unknown?!!?  You had better know before you jump into that one.

As a seller it’s also vital to hire professionals who have short sale experience.  The same conditions as those above apply to the seller and they are even more crucial since they apply directly to the seller’s situation.  The seller’s attorney is doing much of the heavy lifting when it comes to dealing with the seller’s lender.  That attorney must be particuarly well schooled in short sales.  There are law firms that specialize in these kind of transactions – a sign of the times.

The glut of short sales and foreclosures is skewing prices and will continue to do so until this kind of inventory is removed from the market over time.  We seem to be in a “jobless” economic recovery and, until there’s more stability in the job market we’re going to continue to see homes in distress and caution among consumers regarding real estate.  As of now, approaching the end of 2010, there seems to be some signs of stability in the market, but that only means it’s not in free-fall.  A healthy market will arrive with the rest of the recovery.  In the meantime, there are going to be some buyers and sellers who will be brought together by short sales.  Real estate transactions tend to be somewhat emotional anyway and mortgage distress only sharpens that condition.  Professionalism, knowledge, cool-headedness and patience are needed, above all, in this process.

1 Comment

Filed under Short Sales