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Offered at $299,000
Classic Four Square Colonial home. Features include an eat-in kitchen, formal dining room, living room and den. The full, partially finished basement has both outside and inside entrances. In-ground Pool.
Listed by Steven Monzeglio, you can find out more information and view additional photographs by clicking here: 16 Edwards Street
Selling when your house is worth less than your mortgage
Digging out in today’s real estate market.
Rather than go straight to foreclosure on properties where homeowners are behind on their mortgages, banks are entertaining short sales, a settlement in which they agree to take a lesser payment from the homeowner upon sale of the home to satisfy the mortgage due. The homeowner finds a buyer at regular market value and approaches the bank with the offer. Many homeowners qualify because the housing slump has made the value of their homes worth less than their mortgages.
Many Long Islanders are choosing the short sale route because it saves them the embarrassment of a foreclosure, and in many cases they can walk away free and clear from the sale – even if it comes up thousands of dollars less than they owed.
Short sale agreements are “hitting in every area,” including premium properties like “creek fronts and waterfronts in the Hamptons,” says Elizabeth “Missy” Capozzoli, licensed associate broker in the Westhampton Beach office of Town & Country Real Estate.
A short sale can save a homeowner’s good credit because if it is worked out beforehand, the bank agrees the mortgage has been satisfied in the sale, says Dwan Bent-Twyford, co-author of the new book “How to Sell a House When It’s Worth Less Than the Mortgage: Options for ‘Underwater’ Homeowners and Investors” (John Wiley & Sons, Inc., $19.95).
A house can also bring a better yield on a short sale, as these are completed more quickly (excluding time on the market, these close on average in three to four months) than a foreclosure, which can take one to two years, and the property is usually in relatively good shape.
“There’s no mystery,” says Phil Tesoriero, broker-owner of Dynamic Real Estate Services in Garden City, which primarily deals with distress sales. “A regular residential market will yield a higher price than a foreclosure.”
Banks are more willing to negotiate of late, Realtors say. In the past, a short sale agreement with the seller could only be entered into after the bank had filed a lis pendens, or notification of foreclosure; today, the short sale process can be started before the homeowner gets behind on payments but has proof of an impending shortfall.
Yet real estate experts agree, even short sales can financially haunt a homeowner if they aren’t handled correctly contractually. If the mortgage isn’t deemed “satisfied,” short sales can still jeopardize your credit rating. In addition, the bank may be able to sue you for the loss – that is, the difference between what was due on your mortgage and the amount the bank accepted, placing liens on your income until the loss is paid in full. Or it may report the amount not paid as income to the seller, and you will be faced with income taxes in the amount the bank wrote off as a loss.
Delays are common. “Banks are not geared up staff-wise to handle the influx of requests,” says Carolyn Webber, executive vice president with RE/MAX of New York in Garden City, which has been authorized by the Distressed Property Institute to produce training courses for its employees that lead to a certification in this area. She says that lenders are “in a quandary” regarding the price they should settle on in a short sale, so there are holdups. If there’s any doubt about your application, “they put it at the bottom of pile.”
What sellers need to know
While a short sale can be a good choice for the homeowner, there are caveats:
PROVE IT First, for the bank to agree to take a lesser amount than it is owed, a short sale must meet two criteria: The mortgage is greater than the worth of property. This is determined by comparable sales in the area. The homeowner must prove a financial hardship and demonstrate an inability to pay. People who are “upside down in their mortgage have to understand that they must be in financial hardship,” says Robin L. Long, an attorney with offices in Southampton and Ronkonkoma. It might mean “they got pregnant, have negative amortization on the loan, or loss of a job.”
ALL IS NOT FORGIVEN Sellers may still owe a deficiency judgment. “Many think the bank forgives the rest of the loan. But there is no absolute – no such scenario exists,” says Tesoriero, of Dynamic Real Estate Services. They may put a deficiency lien on your salary or a future mortgage may be contingent on it. Therefore, make sure the deficiency is negotiated as part of the short sale agreement with the bank, he says. “More often than not, the bank will waive its right to a deficiency judgment if you can prove a solid hardship,” says author Bent-Twyford. (Paying a small percentage of a judgment deficiency on second mortgages, however, is common, she adds.)
TAX ISSUES Sellers may owe back federal taxes. The bank may report its loss on the sale to the government as income you earned and you will be liable to pay income taxes on the 1099 the following year. The Mortgage Forgiveness Debt Relief Act of 2007 – which applies to short sales in 2007, 2008 and 2009 and relieves owners’ responsibility of paying these income taxes – will be reconsidered at the end of this year and may be reinstated. To overcome any taxes owed, says Bent-Twyford, “Always ask the bank to waive the judgment deficiency and the 1099 in writing.”
HOW LOW Simply losing value does not qualify a home for a short sale. “If there’s equity in the property, it doesn’t qualify as a short sale,” says Tesoriero, who teaches a 15-hour continuing education class for the Long Island Boards of Realtors called The Realtor Short Sale Professional. If the owner has assets and the ability to pay the mortgage, it also doesn’t qualify.
Sale pays fees Some owners forgo the chance to make a short sale because they don’t think they can afford to pay for fees for attorneys, real estate agents and others. This is a fallacy. Money is paid out of the proceeds of the deal, explains Tesoriero.
DOCUMENT IT A lengthy process causes more deals to fall through. To overcome this, before finding a buyer, gather proof of hardship, deeds, notes and surveys so that they can be submitted to bank quickly when a buyer is found, says attorney Long.
BANK ISSUES Banks are not prepared to expedite the overwhelming number of short sale requests, and the time it takes to complete them is increasing. Often mortgages are resold to out-of-state and offshore banks, which are typically difficult to reach and unfamiliar with current local home values and are hesitant to accept deals. “We are getting the royal runaround by banks,” says Joan Bischoff van Heemskerck, associate broker and managing director of North Fork operations for Town & Country Real Estate of the North Fork in Southold.
MORE BANK ISSUES Even when homeowners or their representatives reach the proper bank personnel, “If you don’t fit their script, you go on hold for three hours,” says Long. “They are not geared up to work with us.”
ONE avenue for escaping foreclosure may be getting a little easier to navigate: the so-called short sale, through which distressed owners sell their homes for less than the mortgage amount and are forgiven the remaining loan balance.
As the credit crisis deepened, short sales became harder to complete. Among other things, people who had second mortgages, including home equity lines of credit, found that the second lien holders often balked, fearing they would be left with nothing, or close to nothing, after the holder of the first mortgage was paid off.
Homeowners in these situations would typically stand by while lenders argued about how to divide the proceeds from a sale, and the impasse would frequently result in a foreclosure.
But mortgage executives say they are now working more cooperatively on short sales, and proposed changes in the industry could increase the number of these transactions.
“Without a doubt, lenders are more willing to work through short sales,” said Andre L. Mitchell, the executive vice president of the Lynx Mortgage Bank in Westbury, N.Y. “In this marketplace if the lenders can negotiate in any way to get rid of a bad loan, they’re going to do it.”
The Treasury Department said last week that it would increase incentives for lenders to work out short sales when borrowers fail to keep pace with their loan payments. The department did not release details about those incentives.
Lenders have been eager for direction from the government, especially when more than one loan is involved. “To be able to systematize the negotiation would be a big plus,” said David Sunlin, Bank of America’s real estate management executive.
In the meantime, Mr. Sunlin said, Bank of America has shifted its own policy to encourage more short sales.
In the past, the bank followed the recommendation of Fannie Mae, the government-sponsored mortgage finance business, and gave second lien holders about 10 percent of the second mortgage balance in a short sale where Bank of America held the first lien. When Bank of America held the second lien, it also required first lien holders to forfeit that amount in a short sale.
Now, when it holds the second lien, Bank of America will accept 5 percent of the net proceeds of the short sale, Mr. Sunlin said. When it is the first lien holder, it will offer the same to holders of the second lien.
Banks encourage short sales because they lose less money on such transactions than they do in foreclosures, where they must sometimes carry the house for months before selling it.
Homeowners who are considering short sales can often make the process smoother by involving the bank early in the process.
For instance, if a home is worth $375,000, but has a first mortgage of $390,000 and a second mortgage of $20,000, the borrower might contact his or her first mortgage holder and raise the possibility of a short sale. If that lender knows it can negotiate successfully with the second lien holder, it can start those negotiations and put the borrower in touch with a real estate agent with experience in short sales.
The borrower would then list the home for its appraised value, and the agent, after conferring with the lender, usually accepts any offer close to that amount. After the house sells, the bank pays the agent’s commission of around 6 percent, and pays the second lien holder a portion of the proceeds. Both lenders then forgive the remaining debt.
The borrower is not off the hook completely, since after the short sale his or her credit score is likely to fall. But even then, the credit score would probably be far better than it would be after a foreclosure.
Mr. Sunlin said that homeowners who are considering short sales do not necessarily need to involve the bank early on. He said they can contact the bank within five days of getting an offer on the house and still expect good results.
That is especially true, he added, if documents are presented showing that the offer is in line with others in the local market, as well as pay stubs and other paperwork demonstrating the borrower’s financial hardship.
Mr. Mitchell of Lynx says short sales are often the best approach, even for homeowners considering a new loan to save the home.
“It’s gotten to the point where people understand that sometimes you have to start over,” he said. “A loan modification might help you in the short term, but sometimes what people need to do is get out completely.”
Offered at $259,000 ~ SALE PENDING
Well maintained Colonial home with wood floors, stainless steel appliances, crown moldings and updated bathrooms with tile floors. Master Bedroom with vaulted ceilings and recessed lighting. The den could be a playroom or fourth bedroom. Cozy front porch and large back deck for entertaining.
Listed by Kevin Loiacono, for more information and to view a video tour, click here: 8 Cozine Road, Center Moriches
