Our firm has been featured in the New York Times for our expertise in distressed property sales and consultations. In an article entitled The Roller-Coaster Ride Called A Short Sale by Vivian S. Toy, Ms. Toy writes about the ups and downs of the short sale process in New York City.
One of the most important statements in the article talks about how seller's must protect themselves from further financial exposure after a short sale closing. Ms. Toy correctly points out that "because lenders can always sue after a short sale for what is still owed on a mortgage, sellers are advised to ask their lenders to waive the right to sue. But even with a waiver, lenders will often try to make up some of what is owed, either by seeking a cash payment at the closing or a promissory note. Any amount that is forgiven can be considered income by the Internal Revenue Service."
How we deal with this issue differentiates our firm from other real estate firms. As part of the short sale process we always negotiate a written release of further liability against the homeowner. This can be easily missed by less experienced short sale negotiators. In their haste to close the deal, they do not realize that any release of liability must be in writing.
We take pride in the work we do for our clients.
Thursday, August 19, 2010
Wednesday, July 14, 2010
Short Sales Are Growing In New York City...
A recent article in the online real estate publication The Real Deal titled Underwater Homeowners Face Reality and Take Loss In Sales by Catherine Curan discusses how certain areas in New York City are outpacing the national average in short sale process. Realty Trac provided The Real Deal with an analysis of pre-foreclosure sales. The research established that approximately 75 percent of pre-foreclosure sales were short sales. A short sale is when a lender agrees to let a property sell for less than the total amount owed on the mortgage balance. The primary areas were in the Bronx, Brooklyn, Staten Island, and Queens. Manhattan had about 15 pre-foreclosure sales in the first quarter of 2010.
A recent report by Realty Trac as reported by The Real Deal states that the New York metro area ranks 15th in the country for home foreclosure sales.
We predict that Manhattan will see an increase in short sales. It is just a matter of time.
A recent report by Realty Trac as reported by The Real Deal states that the New York metro area ranks 15th in the country for home foreclosure sales.
We predict that Manhattan will see an increase in short sales. It is just a matter of time.
By Gordon Sokich
Monday, May 17, 2010
This Is From The Most Recent Post of StrategicDefault.Org
In addition to our original content, the Luxor team will post articles (with permission) from www.StrategicDefault.org as part of our effort to bring relevant information to the forefront. Please read on as orignally reported by StrategicDefault.org.
The Wall Street Journal reports that "More US Homeowners Choose To Default on Mortgages".
Let's quote the most salient parts of the article. Each quote can stand alone. It points to the realization by WSJ that strategic defaults are real. It points to the realization that Wall Street is concerned and hints that something better be done. It presents a strong summary of the current trend.
"Strategic defaults are on the rise as more borrowers who are underwater on their home loans decide it's not worth it to stay current on their payments each month. That trend could have repercussions for the housing market, and for borrowers, in the future."
"These homeowners neglect their monthly principal and interest payments, but still pay other bills on time, including credit cards and auto loans"
"Growing social acceptance of this behavior could have ramifications not only for personal credit histories and the health of neighborhoods, but also for the future of mortgage lending...As more people watch their friends or neighbors choose to default, the more it becomes a viable option for homeowners who may otherwise wait years just to return to a positive equity position in their properties"
"If it really does become a legitimate problem, the implications are pretty dramatic for anyone that wants to buy a home in the future...[t]he lenders would have to build this into their risk models with either larger down payments or higher interest rates"
MY COMMENT : I find the above quote the most interesting of all. How could a lender price strategic defaults into its lending risk model. Is the implication that those individuals who strategically default will face higher interest rates and down payment requirements than someone else who unintentionally defaults on their mortgage? Or will lenders just price this risk generally, across the board, so all borrowers will face higher costs for loans? Whatever the implication, I am interested in seeing the underlying factors that will make up this new risk model. I doubt it will amount to much except an excuse for lenders to charge more for loans and blame it on strategic defaulters.
"In our data, what we've noticed is at about 25% negative equity, the behavior of owners begins to mimic that of investors -- they're more ruthless and rational, they're looking at it from a cash-flow perspective...The default rate rises as the negative equity gets deeper and deeper...People are also learning they often have one or two years before they get thrown out of a home after stopping payments...CoreLogic estimates that the typical underwater borrower is five to seven years away from regaining their lost equity...If people figure they'll wait more than a decade before regaining the equity they've lost, they're much more likely to cut bait and leave."
MY COMMENT: Its about time that owners behavior mimics investors. Why should any individual, investor or not lose money on a worthless asset.
Bottom Line: The Wall Street Journal has taken notice and the larger investment community is nervous. If consumers start acting like all business players aka "action rationally (not emotionally) about investments where does it leave investment models as it relates to consumer behavior.
Let's explore another update:
JP Morgan Warns Investors that Strategic Defaulters Will Cause Losses.
Before I get into this article, my initial comment is HUH!. I thought the losses had to do with exposure to bad bets on credit default swaps and derivatives, declining values of asset back securities, poor lending practices, acquisition of Washington Mutual (albeit for only $1 billion with none of the WAMU lossess) and throwing money to international ventures that went sour.
Let's look at JP Morgan's explantion in detail:
Now I do not want to be dismissive but lets get to the bottom line of JP Morgans recent announcement. Recognizing that negative equity is a primary factor for people to choose strategic defaults, JP Morgan reported "As of March 31, [2010] 27 percent of the home mortgages in its consumer credit portfolio were worth more than than underlying property, meaning those homeowners are underwater, according to the bank's Monday filing with the SEC. At the end of the previous quarter, which ended Dec. 31 of last year, that rate stood at 26 percent, according to the bank's filing...JPMorgan's Washington Mutual loans, though, are detailed in the bank's SEC filing -- and they're even worse than JPMorgan mortgages: The entire portfolio -- $98 billion of unpaid mortgage principal -- is underwater...And those mortgages are even deeper underwater at the end of this year's first quarter than they were at the end of last year's fourth quarter. The options ARMs loan-to-value ratio was at 113 percent, meaning they were 13 percent underwater; now they're at 119 percent, according to JPMorgan's Monday filing. Home equity loans were 15 percent underwater; now they're 20 percent. Prime mortgages were at 6 percent; they've climbed to 11 percent. Subprime jumped from 10 percent underwater to 13 percent." UH OH! That's Huge.
MY COMMENT : So in essence, JP Morgan understands that consumers who own properties with no value and such property having little chance of regaining value, are likley to stop paying their mortgage even if they could afford to pay. Hmmm...seems like something JP Morgan would do. JP Morgan doesn't like it but respects it.
The company respects it enough that it felt compelled to make mention of strategic defaults as a factor in future lossess.
So let cut to the chase. JP Morgan is using a very tangible issue by putting it out in the press. Essentially, the battle lines have been drawn. The consumer who strategically default (because it was in their best finanical interest) will start be to get a negative label. Where this goes, no one really now because this represents a major and permanent shift in consumer behavior. To further emphasize this point just read the following:
"[D]uring a conference call with investors and analysts, Dick Syron, Freddie's former chairman and CEO, in noting that the firm had seen a rise [in strategic defaults], used different terminology to phrase it...'[T]he term that['s] used for people walking away when they are caught up upside down, more frequently used in autos than it is in homes, is ruthlessness. Right? And we are seeing an increase in ruthlessness and I think, it is probably not just speculators or investors, but [I] think it is a different period and the changes... we have seen an enormous amount... [have] the potential for changing consumer behavior'...It's that change that JPMorgan Chase is warning its investors about."
And so it is.
The Wall Street Journal reports that "More US Homeowners Choose To Default on Mortgages".
Let's quote the most salient parts of the article. Each quote can stand alone. It points to the realization by WSJ that strategic defaults are real. It points to the realization that Wall Street is concerned and hints that something better be done. It presents a strong summary of the current trend.
"Strategic defaults are on the rise as more borrowers who are underwater on their home loans decide it's not worth it to stay current on their payments each month. That trend could have repercussions for the housing market, and for borrowers, in the future."
"These homeowners neglect their monthly principal and interest payments, but still pay other bills on time, including credit cards and auto loans"
"Growing social acceptance of this behavior could have ramifications not only for personal credit histories and the health of neighborhoods, but also for the future of mortgage lending...As more people watch their friends or neighbors choose to default, the more it becomes a viable option for homeowners who may otherwise wait years just to return to a positive equity position in their properties"
"If it really does become a legitimate problem, the implications are pretty dramatic for anyone that wants to buy a home in the future...[t]he lenders would have to build this into their risk models with either larger down payments or higher interest rates"
MY COMMENT : I find the above quote the most interesting of all. How could a lender price strategic defaults into its lending risk model. Is the implication that those individuals who strategically default will face higher interest rates and down payment requirements than someone else who unintentionally defaults on their mortgage? Or will lenders just price this risk generally, across the board, so all borrowers will face higher costs for loans? Whatever the implication, I am interested in seeing the underlying factors that will make up this new risk model. I doubt it will amount to much except an excuse for lenders to charge more for loans and blame it on strategic defaulters.
"In our data, what we've noticed is at about 25% negative equity, the behavior of owners begins to mimic that of investors -- they're more ruthless and rational, they're looking at it from a cash-flow perspective...The default rate rises as the negative equity gets deeper and deeper...People are also learning they often have one or two years before they get thrown out of a home after stopping payments...CoreLogic estimates that the typical underwater borrower is five to seven years away from regaining their lost equity...If people figure they'll wait more than a decade before regaining the equity they've lost, they're much more likely to cut bait and leave."
MY COMMENT: Its about time that owners behavior mimics investors. Why should any individual, investor or not lose money on a worthless asset.
Bottom Line: The Wall Street Journal has taken notice and the larger investment community is nervous. If consumers start acting like all business players aka "action rationally (not emotionally) about investments where does it leave investment models as it relates to consumer behavior.
Let's explore another update:
JP Morgan Warns Investors that Strategic Defaulters Will Cause Losses.
Before I get into this article, my initial comment is HUH!. I thought the losses had to do with exposure to bad bets on credit default swaps and derivatives, declining values of asset back securities, poor lending practices, acquisition of Washington Mutual (albeit for only $1 billion with none of the WAMU lossess) and throwing money to international ventures that went sour.
Let's look at JP Morgan's explantion in detail:
Now I do not want to be dismissive but lets get to the bottom line of JP Morgans recent announcement. Recognizing that negative equity is a primary factor for people to choose strategic defaults, JP Morgan reported "As of March 31, [2010] 27 percent of the home mortgages in its consumer credit portfolio were worth more than than underlying property, meaning those homeowners are underwater, according to the bank's Monday filing with the SEC. At the end of the previous quarter, which ended Dec. 31 of last year, that rate stood at 26 percent, according to the bank's filing...JPMorgan's Washington Mutual loans, though, are detailed in the bank's SEC filing -- and they're even worse than JPMorgan mortgages: The entire portfolio -- $98 billion of unpaid mortgage principal -- is underwater...And those mortgages are even deeper underwater at the end of this year's first quarter than they were at the end of last year's fourth quarter. The options ARMs loan-to-value ratio was at 113 percent, meaning they were 13 percent underwater; now they're at 119 percent, according to JPMorgan's Monday filing. Home equity loans were 15 percent underwater; now they're 20 percent. Prime mortgages were at 6 percent; they've climbed to 11 percent. Subprime jumped from 10 percent underwater to 13 percent." UH OH! That's Huge.
MY COMMENT : So in essence, JP Morgan understands that consumers who own properties with no value and such property having little chance of regaining value, are likley to stop paying their mortgage even if they could afford to pay. Hmmm...seems like something JP Morgan would do. JP Morgan doesn't like it but respects it.
The company respects it enough that it felt compelled to make mention of strategic defaults as a factor in future lossess.
So let cut to the chase. JP Morgan is using a very tangible issue by putting it out in the press. Essentially, the battle lines have been drawn. The consumer who strategically default (because it was in their best finanical interest) will start be to get a negative label. Where this goes, no one really now because this represents a major and permanent shift in consumer behavior. To further emphasize this point just read the following:
"[D]uring a conference call with investors and analysts, Dick Syron, Freddie's former chairman and CEO, in noting that the firm had seen a rise [in strategic defaults], used different terminology to phrase it...'[T]he term that['s] used for people walking away when they are caught up upside down, more frequently used in autos than it is in homes, is ruthlessness. Right? And we are seeing an increase in ruthlessness and I think, it is probably not just speculators or investors, but [I] think it is a different period and the changes... we have seen an enormous amount... [have] the potential for changing consumer behavior'...It's that change that JPMorgan Chase is warning its investors about."
And so it is.
Sunday, May 9, 2010
CNBC reports "High End Homeowners Falling Into Foreclosure Trap"
Is this a sign of things to come?
The report states "[f]oreclosures of homes worth over $1 million began increasing at the end of 2009, according to RealtyTrac. Foreclosures reached a high in February 2010...[t]hat’s a 121 percent increase from a year ago." The report is based on a survey of high end properties nationwide. High end properties are defined as properties valued over $1,000,000.
This trend is in contrast to the stabilization of foreclosure among low and mid priced properties. When the debt crisis began, it was these properties that experienced high foreclosure rates will luxury properties were stable.
It also appears that lenders are prepared to do more to prevent foreclosure by accepting a short sale transaction or renegotiating the loan. The cost to hold and maintain high end properties is very high for lenders.
Our firm has seen a rise in foreclosure in the Manhattan and Brooklyn high end market. We understand that effective strategies are needed to prevent foreclosure.
The report states "[f]oreclosures of homes worth over $1 million began increasing at the end of 2009, according to RealtyTrac. Foreclosures reached a high in February 2010...[t]hat’s a 121 percent increase from a year ago." The report is based on a survey of high end properties nationwide. High end properties are defined as properties valued over $1,000,000.
This trend is in contrast to the stabilization of foreclosure among low and mid priced properties. When the debt crisis began, it was these properties that experienced high foreclosure rates will luxury properties were stable.
It also appears that lenders are prepared to do more to prevent foreclosure by accepting a short sale transaction or renegotiating the loan. The cost to hold and maintain high end properties is very high for lenders.
Our firm has seen a rise in foreclosure in the Manhattan and Brooklyn high end market. We understand that effective strategies are needed to prevent foreclosure.
Thursday, April 15, 2010
NYC Foreclosure Monitor - January 2010 to April 15, 2010
A recent report by realtytrac.com notes a rise in foreclosure cases filed in NYC. March 2010 foreclosure filings were 30% higher than foreclosure filings in February 2010. On a quarterly basis, first quarter 2010 saw a decrease of 2% as compared to fourth quarter 2009. However, in comparison to first quarter 2009, first quarter 2010 was 10% higher. Realtytrac also reported that through out the nation more properties were taken over by banks and scheduled for a foreclosure sale than in any other quarter since January 2005.
2010 Manhattan Foreclosure Filings
From January to March 2010, a total of 359 foreclosure cases were started in Manhattan. This averages to approximately 119 foreclosure cases per month. There have been 61 foreclosures cases started from April 1 to April 14.
2010 Brooklyn Foreclosure Filings
From January to March 2010, a total of 2,251 foreclosure cases were started in Brooklyn. This averages to approximately 750 foreclosure cases per month. There have been 315 foreclosures cases started from April 1 to April 14.
Will NYC see a decrease of foreclosures in the long term or should we expect an overall increase in foreclosures? We expect an increase in foreclosures. There is a growing inventory of distressed property on the market. There are other factors in play. There is a large "shadow inventory" of unsold condos; banks have significantly reduced lending through stricter lending standards; interest rates are slowly creeping up; and the unemployment rate is increasing while wages are stagnant. We are entering the adjust dates for many of the 3 to 5 year adjustable rate or option arm mortgages utilized by many property buyers.
With this in mind, the primary question is "how will a homeowner get out of their distressed situation?"The choices for a property owner are: 1.) negotiate a loan modification 2.) successfully defend a foreclosure action. 3.) short sale. 4.) deed in lieu of foreclosure and/or 5.) bankruptcy.
It is important for all property owners to seek the advice of a qualified and experienced professional before making a decision.
You can contact the author Gordon Sokich at gordon@luxornyc.com.
2010 Manhattan Foreclosure Filings
From January to March 2010, a total of 359 foreclosure cases were started in Manhattan. This averages to approximately 119 foreclosure cases per month. There have been 61 foreclosures cases started from April 1 to April 14.
2010 Brooklyn Foreclosure Filings
From January to March 2010, a total of 2,251 foreclosure cases were started in Brooklyn. This averages to approximately 750 foreclosure cases per month. There have been 315 foreclosures cases started from April 1 to April 14.
Will NYC see a decrease of foreclosures in the long term or should we expect an overall increase in foreclosures? We expect an increase in foreclosures. There is a growing inventory of distressed property on the market. There are other factors in play. There is a large "shadow inventory" of unsold condos; banks have significantly reduced lending through stricter lending standards; interest rates are slowly creeping up; and the unemployment rate is increasing while wages are stagnant. We are entering the adjust dates for many of the 3 to 5 year adjustable rate or option arm mortgages utilized by many property buyers.
With this in mind, the primary question is "how will a homeowner get out of their distressed situation?"The choices for a property owner are: 1.) negotiate a loan modification 2.) successfully defend a foreclosure action. 3.) short sale. 4.) deed in lieu of foreclosure and/or 5.) bankruptcy.
It is important for all property owners to seek the advice of a qualified and experienced professional before making a decision.
You can contact the author Gordon Sokich at gordon@luxornyc.com.
Monday, March 8, 2010
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.
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!!!
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