By LORI TUROFF
Looking For a Bargain
Since the onset of the housing crisis I’m frequently asked about the availability of foreclosures and short sales in Hoboken. Buyers have read in the press about amazing bargains to be had by purchasing distressed properties at steep discounts. They want to find bargains in Hoboken.
When the current market value of a property is less than the amount of the mortgage on the property, the mortgage holder is said to be “under water” or “upside down”. Some people in this situation cannot or do not want to pay their mortgage. (The ethical ramifications of that decision are a discussion for another day.) Whether through a short sale or a foreclosure, the owner gives up the property and the bank discharges the mortgage. Both negatively affect the credit rating of the seller. A short sale will not hurt the owner’s credit score or ability to get another mortgage as much as a foreclosure will. In fact, it may be possible for the owner to get a new mortgage in as little as a year or two. So many opt for the short sale. In the Hoboken condo market, it is far more common to see short sales than foreclosures. In fact, I’ve encountered a few short sales of condos in Hoboken, mostly at the Skyclub. I have yet to see a single foreclosed condo property on the market in Hoboken. So let’s focus on short sales.
A Quick Summary of How a Short Sale Works
When a home owner has missed mortgage payments or claims that he or she will soon no longer be able to make them, the owner notifies the bank’s loss mitigation department and, after discussion with the bank, puts the property on the market. When an offer comes in, the bank must agree to accept the offered amount. Since it will typically be less than the mortgage and closing cost amount it is considered “short”. If and when the bank agrees to the sale, the full mortgage amount is forgiven and the debt is discharged.
So What’s the Problem?
You would think that with the banks crying to Congress about their woes, they might want to get the bad assets off their balance sheets as quickly as possible. Approving a short sale, however, often takes months and months. I was involved in a short sale recently. The buyer was purchasing the condo so she could move to Hoboken to make her commute easier. She waited over six months to hear from the seller’s lawyer that the bank was ready to approve the sale. It is common for the banks to take forever to approve these sales. Worse yet, the buyer, the buyer’s attorney and realtor are often left in the dark as to the bank’s progress. The timing may not be as important to you if you’re an investor and can wait indefinitely to close. In a declining real estate market though or, as in the case in Hoboken, when there is so much new condo inventory buyers have little incentive to wait that long for their deal to move forward. Better deals come along every day in Hoboken’s condo market.
Are More Hoboken Short Sales Likely To Appear?
There are some parts of the country like Las Vegas, Florida and Southern California where almost half of the properties on the market are foreclosures and short sales. Should Hoboken property values stay steady or decline only slightly we probably won’t see too many distressed property sales here in Hoboken. It’s my opinion that there are more at the Sky Club than elsewhere because there are more investor owned units in that building. The Sky Club was initially built as rental units but the developers switched to condos when the market started to take off. The units were sold at below the Hoboken market rate at the time. Many investors scooped them up to use as rental properties. It’s much easier for an investor to walk away from a mortgage (especially when the property was purchased in an LLC) than an owner occupant. I’m not saying this is what I believe will happen but, if Hoboken condo prices plummet, there will likely be way more short sales in our future. So it can’t hurt to know more about them.
Does A Buyer Know It Is a Short Sale?
I was involved in a deal recently where the short sale was not disclosed by the listing agent until after we negotiated a price, signed contracts and went into attorney review. Interestingly, the National Association of Realtors does NOT require disclosure of a short sale. They leave that decision up to the local Multiple Listings Service. I searched our local real estate board website for the local rules but could find none. Tomorrow I’d like to call the board and see if I can get a direct answer. The theory behind non-disclosure of a short sale is that if the buyer knows it is a short sale they will make a lower bid than otherwise. The intent is to help the seller/bank get the highest possible price. In light of the procedures involved in a short sale, and the inordinate delays, does that sound fair to the buyer?
What Does the Tax Record Say?
Tax records are public documents and easily searched. The first thing I do, and any good realtor should do when a buyer is interested in a particular property, is pull the tax record. The tax record states who the seller is, what they paid for the property, how long ago they bought it and from whom, and the current mortgage amount. Now I remember clearly from my days as a lawyer that a mortgage is a security instrument and, in order for the mortgage holder to perfect their claim on the subject property, the mortgage must be recorded in the public records. This gives notice to the world that someone other than the “owner” has an interest in the property. The last short sale in which I was involved, the property had been purchased in the early 2000’s, well before the real boom in Hoboken real estate prices. There was no recorded mortgage. Could the seller have very recently refinanced, taking all of the equity out of the property with the intention of selling it shortly thereafter? Did the seller know that the true market value of the property was likely to be less than the amount of the appraisal and the new loan? Are people out there scamming the system at the taxpayers’ expense?