New York Real Estate

Home/New York Real Estate

Is a Short Sale Better Than a Foreclosure?

real estate for sale sign selling house short sale article

Is a short sale a better alternative than losing your home in a foreclosure?

Daniela Guerrero associate attorney real estate, personal injury, litigation

Daniela Guerrero, Esq

A “short sale” is term that refers to a sale of real property where the sales price, after the expenses of the sale are deducted, is lower than the amount owed on the property by virtue of mortgages, and other liens. A short sale is only possible if the lenders and/or lienholders with respect to the property, agree to accept an amount lower than what is actually owed on the debt.

In a typical short sale scenario, the homeowner initiates the transaction by accepting an offer from a buyer and then having a Contract of Sale prepared and signed by all parties. A good contract will state that the sale is subject to the approval of any creditors with liens or interests in the property, including, their approval of the sale price, which could be below the appraised value of the property. In order to approve the short sale, the creditors will ordinarily request a copy of the contract of sale, demonstrating the sales price, an appraisal or broker’s analysis demonstrating the property value, a broker’s listing agreement stating the broker’s commission
to be paid (if any), and a proposed settlement statement showing the closing costs associated with the sale. They may also request tax returns, bank statements, and financial information from the homeowner, to demonstrate a  financial hardship, and inability to pay the entire amount owed.

To qualify for a customary short sale, the Seller and the property must meet certain requirements such as: the net proceeds from the sale must be lower than the remaining balance on the mortgage (net proceeds simply is the sale price less all closing costs [e.g. legal fees, transfer taxes, realtors fees]), the seller must be close or already in default, the seller must show long-term financial hardship, and the seller must lack substantial assets that could be used to offset shortfalls. However, please note, that even if all those requirements are met, it does not guarantee that a short sale will be approved. The bank will collect all proceeds from the sale which are not used to satisfy closing costs, or other liens. The homeowner will almost always not be permitted to retain any proceeds from the sale.

There are numerous reasons why a short sale may be more beneficial and a better alternative to losing your home in a foreclosure sale. At times, the Lender will agree with a short sale because it is better to recover part of the mortgage loan in liquid funds from a closing, than to take the risk of selling the property at an auction, where the recovery could be much less, and could include multiple additional expenses to the foreclosing bank, including transfer taxes, additional legal fees, paying a broker to list the property for sale if the bank reclaims the property in foreclosure, maintaining the property while it being marketed for sale, and incurring ordinary property expenses like real estate taxes and insurance. It is beneficial for a homeowner in a few ways. First, most lenders will regard a recent foreclosure as equal to a recent bankruptcy, thereby reducing your ability to obtain a mortgage in the future. If you plan on owning another home in the future, you may want to avoid a foreclosure on your credit report. A foreclosure may be quite damaging on your credit report, and may stay on your credit report for up to seven years. Thus, it will be quite difficult and take time to qualify for a new mortgage. While a short sale can also be reported on your credit report, it is more likely to be reported in a less damaging way, which may will help you be a more attractive borrower, though you will still need to wait some time before becoming eligible for a new mortgage.

Another benefit, of a short sale is that creditors typically accept the proceeds of the sale as a settlement, and will give up the right to sue you to recover amounts unpaid after a short sale delivers less than the total outstanding loan, although this is not always the case. Unless the Lender agrees not to pursue legal action, it can file a lawsuit to recover the difference of the unpaid loan balance. If the Lender agrees to a short sale, you must be sure to obtain an agreement from the Lender that it will not pursue legal action to recover the unpaid loan balance after a short sale. This is why is it very important to have appropriate legal representation when involved in a short sale transaction.

In addition, in most cases the Lender will consider any portion of the forgiven debt as regular income to the borrower and will issue a 1099 for that amount to the IRS – meaning that the homeowner will have to pay income taxes on the forgiven amount. This is why it is very important to discuss the tax implications of a short sale with your accountant.

It is very important to get sound legal advice before entering into a short sale transaction, or any other foreclosure alternative. At Menicucci Villa Cilmi PLLC, we have the experience and legal knowledge to help you find the alternative that’s right for your situation, and to help you achieve your goals.

Why do I need a property survey?

Why do I need a property survey?

Anthony Palumbo lawyer litigation expert

Anthony Palumbo, Esq.

One of the most frequent questions I receive from many of my clients who are purchasing a home is, “Why do I need a survey of my property?” Whether it is a first-time homebuyer or not, this question has become more and more common. The reasons why I hear this question asked frequently are usually the same. The mortgage lender does not require a survey for the closing, the buyer wants to avoid the cost for a new survey, and the cost and delays that might arise waiting for the survey to be completed. Despite these reasons, a homebuyer should get a survey done prior to making any purchase of real estate.

What is a Survey?

The process of surveying real property has been around for thousands of years and has been the cornerstone for identifying who owned what parcel of land. Simply put, a survey is defined as a map or plan of a property with detailed descriptions and measurements of the boundaries and any improvements, and restrictions that are contained within those boundaries.

If you are buying a property, the survey company will research the property and prepare a survey map which will show the boundary lines around your home and parcel of land and any improvements on the property and their dimensions and locations, such as: buildings, patios, pools, garages, and driveways. Because most improvements are required to be located a certain distance from other improvements and property lines and filed plans; permits and certificates of occupancy usually limit the size of the improvements. The information contained in a survey is vital for a buyer to determine the legality of such improvements. A survey will also display whether or not any of your improvements might encroach upon your neighbor’s property that may cause legal disputes, and the existence of any easements over said property. Basically, a survey will reveal if the legal description of the parcel of land correctly matches the outline of your property.

If you are selling a property you may have to provide the buyer with an up-to-date survey of your property. This can help provide the buyer confidence in their purchase, verify the size and expanse of their new property, and help avoid later legal snafus that can arise from an inaccurate property description.

So, the answer to the question “Why do I need a survey?” is a resounding YES. A survey is fundamental to the ownership of property. However, as previously mentioned, a client might claim the following reasons for not needing a survey:

“The mortgage lender does not require a survey.”

About twenty years ago, most lenders required that the borrower/ buyer had a survey that was updated within the last ten years, but since then that requirement has waned. Title insurance companies still insure lender’s mortgage priority and other interests, while accepting or excluding the need for the survey. However, that exception to the policy while protecting the lender’s interest doesn’t protect the homebuyer’s interest. Although the lender might not require a survey before closing on the property, if there are any boundary line disputes or issues with the legality of any improvements on the property, they are the buyer’s responsibility. Regardless, if any of these issues exist your mortgage payment will still be due and you also might have a problem selling the property in the future.

“I do not want to spend the money on a new survey.”

The cost for a survey is relative and the purchase of a home is usually one of the biggest investments of a lifetime. The cost of a survey preparation is relatively low in comparison to the issues that can arise when making the investment without a survey.

The average cost of a new survey for most homes in New York and New Jersey is approximately $800.00 to $1,200.00 in 2018. The cost of a survey varies depending on the lot size, detail of the survey, and other factors.

A homebuyer has the option to price and order his own survey. Most attorneys are not going to have the time to make a cost analysis of local surveyors. Typically, a law firm will have two to three local surveyor companies that they recommend working with, or an attorney might just rely on the title company to choose the surveyor. However, a homebuyer has the ability to easily shop for these services online. Keep in mind, as can be with all professionals, especially when looking for services on the Internet, not all surveyors are the same. The homebuyer should at the very least, consider your attorney’s recommendation for a surveyor.

If a homebuyer decides to order his own survey then they should advise their attorney at the beginning of the process to avoid duplicating the buyer’s costs.

“Getting a survey might delay my closing and that delay might cost me additional money.”

Most attorneys do not order a survey until the buyer has a Mortgage Commitment Letter and the title is “clear”. The reason for this is that the cost of survey preparation is not contingent upon anything but the work performed. So, regardless if the buyer actually closes or not, they are still responsible to pay the surveyor for work performed. In order to prevent buyers paying for surveys on homes they do not purchase, attorneys only order the survey when the closing is imminent, the title is clear, and the lender has committed to finance the purchase. Some attorneys collect the survey cost upfront from the buyer and explain to their clients that the cost of the survey may be forfeited in the event that the transaction does not close for a variety of reasons. Note, this can be the same as appraisal fees and inspection costs, and considered as part of the homebuyer’s “due diligence” cost. Other attorneys completely put the
onus on their client to order and pay for their own survey prior to closing.

So if the attorney is waiting for the title to be clear and the lender to issue a commitment letter before ordering a survey, then logic dictates that the survey preparation might delay a closing date. Such a delay might cause the buyer to incur additional costs (e.g. interest rate lock extension fees). Such a delay should typically take two weeks-time, and as the survey is so important to home ownership, the delay and any costs related to it should be considered; but should not be subordinate to getting a survey.

In conclusion, although mortgage lenders, realtors, and loan officers might be advising that a buyer does not need a survey to proceed to closing, attorneys will always advise that a buyer to get the survey regardless of cost, delay, or mortgage company. It is an important component in a homebuyer’s due diligence and when you make such a sizeable investment, the cost or delay is negligible when compared to the benefits a survey provides a landowner.

If you have any questions for Anthony Palumbo, Esq. or the Menicucci Villa Cilmi PLLC team about the legality of land and home surveys, or purchasing or selling a home in New York, call 718-667-9090 today!