Short Sales In NYC : What Is A Short Sale?

New York City is not immune to the real estate downturn. A recent article by the Real Deal put a spot light on troubled condos in Manhattan. These homes are in foreclosure. To quote the writer, Sarah Riley, she says: “This predicament isn't playing out in some outer-borough neighborhood. It's happening in Manhattan.” In fact, on April 5, 2010, the US Treasury Department is launching a program in an effort to streamline and reduce the delays for approving short sales. The plan requires a short sale approval or denial within ten (10) days and it forgives the borrower from the entire debt. (forgiven debt can be considered taxable income).

A Short Sale is a good strategy for a property that is “upside down”. In other words the outstanding mortgage balance is greater than the value of the property. While there is a focus on homeowner's primary residence, a short sale is a viable strategy for investment and commercial properties.

What Is A Short Sale?

There are some lenders willing to accept less than the full amount due on a mortgage loan. This is commonly referred to as a “short sale.” Generally, a buyer will be willing to purchase the property from a seller at a "short sale" amount. The benefit to the seller is that it ends the foreclosure process. It also keeps further derogatory information from being placed on the credit report. A lender must approve a short sale in writing before a property can be sold. A lender benefits from a short sale because it can minimize its losses in a falling market.

The lender will want financial information from the owner/borrower, information about the property, and the exact terms of any short sale deal. The lender needs to see a written contract between the owner and the buyer to make sure the owner isn’t walking away with any cash from the deal. However some lenders may allow a payment of moving expenses to a seller. The lender will appraise the property. They may also request a listing agreement from a licensed broker. A listing agreement tells the bank that the owner tried to sell the property.

Keep in mind that if a lender agrees to accept less than what is owed there can be a tax on the difference or it can become a deficiency judgment. For example, if a property owner owes the lender $400,000 and the lender agrees to let the property owner sell the property for $350,000, the property owner can be taxed on the $50,000 difference or face a judgment.

It is important to consult with a qualified tax professional when it comes to the financial and legal impact of using a short sale. I work with several trusted attorneys and accountants.

If you have any questions email me at: Gordon@luxornyc.com.

One of Our Top Luxor Associates, Mable Ivory, Was Featured on NY1

Mable Ivory has lots of flair and serious passion about real estate. She was featured in a NY1 Interview about : What NYC Real Estate Can You Rent For $2200? Mable is talking about her niche neighborhood, Upper Manhattan. By the way if you somehow missed it, Mable, was featured in NY1 last year in Grand Concourse (Bronx) Paves Way For Real Estate Comeback.

Even in this slow economy, Mable understands that clients are looking for affordable housing and sellers are more than happy to sell at the right price.

Go Mable Go!!!