Buying Pre-foreclosure Short Sales on Staten Island, New York
If you are buying a home and want the best “deal” in the purchase of Staten Island real estate, a short sale may be your best option. Buying a Staten Island short sale can be a difficult and often a frustrating process. To have success, hire experienced professionals that understand all aspects of the transaction. Expert advice can be provided by real estate agents, attorneys, mortgage brokers, bankers and home inspectors. Interview real estate agents that have achieved designations such as the CSP (Certified Short-Sale Professional) or Certified Distressed Property Expert (CDPE) Designations.
A Short Sale Defined
Homeowners that have financial difficulties may pursue a short sale as on option prior to foreclosure. This process may be a preferable option to preserve their credit and limit their debt exposure. In New York, the laws governing foreclosures provide incentives for lenders to negotiate with homeowners that have financial hardships. The foreclosure process takes time and money and may prove to be more costly to the lender. Under the Home Affordable Alternatives Program (HAFA) offered in 2010 by the Treasury Department, lenders and homeowners have additional incentives to consider a short sale. If a homeowner has a sufficient hardship then lenders are more likely to negotiate for a sale prior to foreclosure.
The Short Sale Purchase and Sales Agreement
You begin the process of buying a short sale by negotiating a contract with the homeowner that must be approved by the lender. In order to prevent foreclosure, the Seller is under a timeline to “sell short” and must have an offer that meets guidelines for lender approval. Follow these guidelines to improve your chances of a buying and closing on a Staten Island short sale listing:
Are You a Qualified Buyer?
Providing creditable evidence that you can purchase the property is absolutely necessary. The Seller is not likely to accept your offer without a valid credit approval as the lender will reject the contract. Obtain a credit approval from a reputable lender or if a cash buyer provide proof of funds. The approval must not contain conditions such as selling an existing property as this is an issue for the lender.
Indentifying Potential Short Sale Listings on Staten Island
Sellers selling short typically have a time-line they must meet to avoid foreclosure. If they have not connected with their lender(s) and started the process, there may not be sufficient time to affect a sale. Your real estate agent can pre-qualify a Staten Island short sale listings on your behalf. Information they will obtain includes:
- Is the seller’s short sale package prepared for submission to the lender?
- Does the property have multiple liens? If more than one, what are they? Is there a plan to obtain releases from all the lien-holders?
Be careful in pursuing a short sale as you do not want to take yourself out of the market for a property that has no chance of closing.
Negotiating the Contract to Purchase
The first step is in the short sale negotiation is to have your offer accepted by the Seller and you will be competing against other buyers. Real estate agents often list the property at a low value to encourage multiple offers. Others price the property at the bottom of fair market value. Price, terms and your qualifications will be the deciding factors for Seller acceptance. Sellers and lenders prefer “clean” contracts without contingencies.
You’re Earnest Money Deposit – Sellers will not be likely to accept your offer with a low deposit. Buyers can easily “walk away” from a contract with low deposits. Offering the Seller a strong deposit indicates that you are serious about buying the property and will “stay in the game” until lender approval is obtained.
Home Inspection – It is customary to conduct the home inspection prior to submitting the accepted contract to the lender. A seller may not want to take the risk of allowing the inspection after lender approval. The buyer can easily “walk” from the home inspection and lenders normally will not approve them.
Flexible Closing Date – once the lender approves the offer, they may require a “quick” closing. You must be prepared to comply if you want to consummate the sale.
Subsequent Offers – The listing agent must submit all offers to the Seller. A contract with a higher sales price may have a better chance of being approved by the lender. The lender will give the homeowner direction as to submitting additional offers. Also, be prepared to lock your interest rate thru closing so that your mortgage commitment will be valid.
Lender Approval for the Short Sale
Lenders have no set formula for determining the value of the property other than to substantiate values through due diligence. However, Freddie Mac (one of the largest secondary market lenders) has a value range of 88% of one or more broker price opinions (BOP). Have realistic expectations of the approval process as it may take between 30-180 days and market conditions can change.
If the Seller has agreed to participate in the HAFA (Home Affordable Foreclosure Alternatives) Program option with a participating lender, then you will receive a more timely response through a streamlined process. One step in this process is for the lender to approve the listing price so that offers can be negotiated. If the home owner is attempting to negotiate a short sale outside HAFA the process is either an acceptance or rejection, not a negotiation.
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