Buying any foreclosure is tricky, and a short sale is probably the longest process. Is purchasing a short sale right for you? Perhaps you rent in Westchester, Rockland, Putnam or Dutchess and are considering a short sale purchase in one of those areas. Here are some things you ought to know:

• You can’t be in a hurry. Negotiating a short sale might only take a month but in most cases it can go 90 days or longer. So don’t hire a mover, end your lease or lock your rate until you have confirmation that your offer is approved by the bank. If the seller accepts your offer that isn’t an approved short sale; any offer the seller accepts still requires approval from their lender.
• You are buying the house “as is.” In rare cases, such as in an environmental problem, the lender will pay for repairs but most if the time you are getting the house as is, as found. The seller is in hardship, so they won’t be able to help either. So make sure you do your inspections and know what you are getting into before going forward.
• You can’t “flip” the house. Short sales are very good deals in most cases but not so very low that you’ll be able to turn a short term profit. They usually are retail value, less repairs and maintenance, and perhaps less a bit for speed.
• Status updates take longer. Unlike regular transactions where updates are a phone call away, all parties are forced to wait on the lender, who is not, shall we say, committed to keeping everyone happy. This doesn’t mean that the purchase is lost in the ether; but it does mean that more patience is required than normal.
• If the listing agent is not a short sale specialist, it may turn into a nightmare. You wouldn’t want a podiatrist giving you root canal, nor do you need a rookie cutting his or her teeth on the biggest purchase of your life. Short sales are hard for experienced experts like myself; an agent who is doing their first or 2nd short sale is in for a long ordeal. The best way to handle that transaction is to not enter into it. If the house looks right for you and a short sale is disclosed, ask how many short sales the listing agent has successfully closed. If the agent hasn’t done many, the best thing to do might be to pass the house by. Otherwise, you might be in for 6 months of frustration.
• Subordinate financing takes longer. If the seller has a second mortgage, then two lenders have to render their approval, and coordinating the two complicates matters. Some specialists won’t even list those homes (I do.).  Ask if there is another lender, and even if they are the same institution, it will add a measure of difficulty (the same lender but two different loans means two different divisions or departments). Do a lien search on the home before going forward. If there is a 2nd lien the listing agent hasn’t disclosed you might consider walking- they may not be in command of how to close this workout.
• Ironically, you have to be ready to close rather quickly. This is the “hurry up and wait” irony of the short sale process. The lender will make you wait far longer than a normal purchase for a decision, but when that decision is issued there will typically be a 15 or 30-day deadline to close or the sale approval has to go back to review. By this point you should have done your inspections and other due diligence completed. Once the lender approves the sale it is then time to lock the rate, call the mover and give notice on your apartment.

This is a broad overview, but it boils down to knowing when to hold and when to fold.  No two short sale transactions are the same, even with the same lender. If you are in a state where attorneys are used it helps to have an attorney represent you in the purchase with short sale experience, but at the very least make sure they are experienced at real estate.

The long process aside, buying a short sale does put you ahead of the market, as the prices are more aligned with where the market is heading. This is significant, because the places where the bulk of my short sales are done (Westchester, Rockland, Putnam and Dutchess counties, and ther same goes for NYC and Long Island), prices are so high that even a 5% reduction can mean tens of thousands of dollars to you.

J. Philip Faranda is Westchester’s Premier Short Sale REALTOR. Find out more at www.NYShortSaleTeam.com

Chesley Sullenberger is the pilot who saved all aboard yesterday’s Flight 1549, which you have no doubt seen and read about by now. The local news calls it the “Miracle on the Hudson” and I agree. The man  faced a freak occurrence, made a life or death decision, warned the people, exercised heroic skill, and then walked the sinking plane TWICE to make sure all were out.

And everyone was saved. This man is a hero.

It is also worth noting that once he did his job, hundreds of others were able to do theirs well also. The NY Times called the rescue effort “an ad hoc flotilla of boats.” I get chills. So I extend my gratitude to NY Waterways, the Coast Guard, the NYPD, FDNY and the rest. But this is about Sully, who made the event possible. Without his clear thinking, excellent decision making, and perfect execution, it would have been just another unfortunate event.

I therefore am calling on President-Elect Obama to appoint Chesley Sullenberger to a new position of US Economy Czar, overseeing the Federal Reserve, the SEC, Fannie Mae, Freddie Mac, and to answer directly to the President. Here are my reasons, and they are sound:

• Mr. Sullenberger knows how to handle a crash better than the clowns we’ve had the past few recessions.
• Mr Sullenberger told the passengers to brace themselves for a hard landing. How I wish Bush, Greenspan, Dodd and the other politicians would have had the guts to do the same. We would have been more prepared.
• Mr. Sullenberger knows how to make a decision devoid of political consequences, with simply the best interests of all in mind.
• He was the last man out of the plane. He made sure nobody was left behind.  That is the antithesis of all the corporate scoundrels who got tens of millions in golden parachute money after they ran their companies into the drink, leaving them to sink.  
• “Sully” is all about safety. He is the founder of Safety Reliability Methods, Inc.

The USA is a meritocracy. We succeed when we put proven winners in charge and we fail where nepotism occurs. Chesley Sullenberger is clearly underutilized. I would love to see how this guy would handle some jerky loss mitigator who won’t approve a short sale, Bernard Madoff, and the rest of the crew who contribute to the mess. How would things have been different if he were in charge when Katrina occurred or when the sub-prime crisis hit? I say we’d all be better off. Move over Lenn Harley, you were my first choice until yesterday.

Thank you, Captain Sullenberger, for reminding us that there are heroes in our midst.

I overheard an agent recently lamenting the difficulty of a short sale they had listed. They couldn’t reach anyone at the lender, they were unsure of how to handle a somewhat tricky issue with the file, and they wished it were easier. Nobody in their office was helping them, and they doubted a competitor would either. 

Think about that for a second. Imagine you are undergoing a medical procedure and you emerge from your fog to a litany of complaints from your surgeon that she can’t make this go right, no one will help her, and that she wishes it were easier. Pretty scary? You bet it is. Bill Cosby had a funny bit years ago when a patient heard the surgeon say “oops.” Do you want your clients to hear you say “oops” when they are depending on you desperately to help them avoid foreclosure?

Plumbers, electricians, surgeons, surveyors, architects, appraisers and specialists of all kinds do not become specialists cutting their teeth alone. They all do some form of apprenticeship or internship. The first 20 short sales I was exposed to and worked on were under the guidance of my broker, who was an expert. I never flew solo until I earned my wings. Just because you attended a short sale seminar or read in Inman news that short sales are the next big thing doesn’t mean you’ll start making money in that niche right away. And it hurts clients who may not know you are in your first or 2nd short sale and are learning the ropes on the backs of their financial future.

If you want to make money in short sales immediately, REFER IT OUT to someone who can close it and pay you a referral fee. It is in the best interest of the client to have a bona fide specialist and it makes you money without any more headaches. Don’t worry about saving face, just do it. You’ll be a hero. It is in the client’s best interest. The cost of erring could be catastrophic.

Alternatively, if you really want to dedicate yourself to becoming an expert, go dock your license with a specialist and learn under their watch and guidance. But don’t fly solo. Obviously, if you are in my neck of the woods, we’ll happily pay you a referral for a short sale listing. But even if you are in California, the point remains the same: refer the client to a specialist or go work for one.

In some markets, people who only borrowed 80% of their home’s value are waking up to the fact that they actually have no equity. It is happening in all communities- Yonkers, Yorktown, Scarsdale, Somers, White Plains, Wappinger Falls, you name it. No demographic, neighborhood or school district is immune from the ripple effect of the declining economy. And if your mortgage adjusts, you lose your job, or any one of a dozen other unfortunate things, you may feel that you are in a dire situation. When the market was hot, people who had problems sold or refinanced rather easily. Problem solved. Not so easy in this climate.

Financial problems cause terrible stress. People that feel that they are trapped in a house they can’t sell because of a high mortgage balance can feel helpless and defeated. My observation is that the stress and worry are actually worse than the shortage of money. The worst thing to do is retreat, withdraw or give up. This doesn’t mean you have scream “Geronimo” and beat your chest. If you take small steps to help yourself you’ll be OK.  There are solutions if you are “upside down” or have negative equity. Help yourself- my most successful short sale clients were always proactive. Here are some things you can do:

• First, communicate with your lender. You’ll feel better that you are being proactive, and the lender will know that you aren’t going off the grid.
• Get help from a professional. List the home with a real estate agent who specializes in short sales. I’ll opine on how to find that agent later.
• Get educated. Google short sales. Go to the library. Understand the process. Taking the mystery away will settle your mind.
• Your hardship package should be treated like an extra credit project that you have to pass in order to not flunk out of school. Get the documents they request, fill out the forms and write that hardship letter. The better the package, the better  the chance for a fast approval on the short sale. Don’t put anything off, and ask your agent for help if you need it.

Now- on choosing an agent for your short sale:

• The agent has to be full-time, with a documented track record,  and references.
• Ask the agent directly how many homes they have sold in the past year, and how many short sales they’ve closed.
• Make sure they document their claims and if they can provide references.
• DON’T EVER let the agent obfuscate your questions by deflecting them and blathering about their company, office or sales team. You want to know how many sales/short sales THEY’VE done.
• Have the agent explain their plan to sell the house. The plan has to make sense. Do they negotiate directly with the lender, or do they have a 3rd party do it? Where will they advertise? What is their opinion of a starting price, and how do they justify that price?
• If you are not comfortable with the broker or agent, do not list with them.

Once you’ve listed the house on the market with an agent who is a good, full- time short sale specialist, pay attention to how many showings get scheduled. If you aren’t getting 1-2 showings a week, it may be time to lower the price. Bear in mind, too, that the house will have to be marketed as a short sale. There are two reasons: first, short sales have to be disclosed in most locales. Second, pre-foreclosures attract more buyers because people are looking for bargains. Since your bottom line is the same no matter what the final price, you should not be reluctant  to lower the price if so advised.

Making the house easy to show is crucial. Be as accommodating as you can be, and only reject showing requests in rare cases of emergency.  In many markets, there are 10 or 20 houses just like yours. If you are in Mahopac and the buyers are coming up from New Rochelle and you don’t allow a showing on a given day, they may not try to reschedule because of all the other options out there. People can’t buy what they don’t see. So, if there is a legitimate contagious illness or emergency, don’t do the showing. Friends visiting, a child’s birthday party, dinner, or a furnace being repaired are no reason to deny a showing. The stakes are too high.

Once an offer does come in make sure that your package for the lender has everything they ask for- bank statements, letters of explanation, disclosures filled out neatly, everything completed. Once your package in in review, the lender will send someone out to do either an appraisal or BPO(broker price opinion) to verify that the home’s value is indeed lower than the loan and in line with the offer.

At that point, you are off to the races. Typically, lenders give the buyer 30 days to close or the file has to be approved again. Make sure that the short sale terms, upon acceptance, are in writing and that you have, in writing, a release from the loan once the deal is closed. At that point you can, thankfully, start packing. That day is the first day of the rest of your life.

I relate to people that bought a house in the boom, spent thousands improving it, and then are told that it is worth the same or less than the price they paid, even with the improvements. Very discouraging stuff. What sellers need to realize, however, is that home buyers today are not buying roofs, windows, bathrooms or kitchens. They are buying the land under those things. And that land is, in a large sense, a stock certificate in the economy. It relates to supply and demand. When the economy goes down, demand goes down, & inventory goes up.

Lower supply =higher prices. See 2005. High supply= lower prices. Look out the window.

Right now, supply is enormous and growing, because more and more people are losing their jobs and being forced to sell. Unemployment was below 5% prior to 2008. 2009 forecasts are for close to 8%. That will flood the already swollen supply with even more distress sales, short sales, and bank foreclosures. If you have a nice home to sell and want what you feel is a reasonable price, you need to understand that you are competing with unreasonably lower prices all around town. Buyers know this, are concerned for their own jobs and security, and therefore want to buy for as low a price as possible.

This is no different from the seller -driven spikes up in price when the market was higher. The current market would turn around in 180 days if everyone lowered their price to reflect the /crash/correction, but that is unpalatable for some and impossible for others with no equity. Short sales would help those people, but that would require the cooperation of the lenders whose deplorable judgment got us into this mess. And until banks can streamline the short sale process to something that doesn’t seem like a 4 month root canal, we will have ridiculously high inventory.

Make no mistakes about it. Your kitchen hasn’t lost value, nor has your roof, granite countertops or hottub. But the dirt beneath has lost value, and until adjustments are made to address the preferences of the cautious, nervous buying public, the value of that dirt will remain suppressed.  

I will be the first to say that staging is important. A home should be tidy, well-kept, and laid out in an sensible way. There are lots of simple things people can do to raise their appeal- scented candles, clearing off kitchen counters, removing unneeded furniture, and TURNING ON THE LIGHTS (pet peeve of mine. Hard to show a dark house). Appearances and first impressions matter.

All that said, some agents take it a little too far. While holding a house open today I noticed that some walls were bare, with nails sticking out. I recalled a passing remark my client made about her old listing agent telling her to take down the family pictures so that buyers would have an easier time envisioning it as “their” house. This agent had the listing for a year and couldn’t get the job done. Why were they taking her (ahem) psycho-babble advice?

Some people overdo it; we’ve all walked through homes where the sellers have their mugs in every room, Mom’s portrait above the fireplace, and a family pictures everywhere as if they are afraid that they’ll forget what each other look like. Real vanity. This isn’t that kind of home. We aren’t talking 40 photos, we are talking 5 or 6.

Nothing sells like a happy home. And if a few tasteful wedding portraits and family photos are bad staging, we had better build an ark.

The stereotypical view of people who face foreclosure is that they are irresponsible or unintelligent. But sometimes, they are good, intelligent professionals who have had bad things happen. My own older brother, a Cornell alum, lost his house in the early 90’s due to illness.

One couple I listed was in similarly bad circumstances. She was a nurse; he was incapacitated due to an incurable debilitating illness. They were certainly upside down after refinancing 2 years earlier to catch up when health and work issues crippled their finances. One week after they went on the market she told him she had a headache. Those were the last words she ever spoke.

The house was taken off the active market while the family grieved. It was a terrible, unexpected tragedy, and bitterly ironic, since she was the healthy one. Unfortunately, the house was off the market for the earlier summer and when it went back on the sub-prime crisis hit, thinning the herd of buyers and blowing a hole in the confidence of those that remained. Fortunately, that winter we got a buyer.

The loss mitigation process on this file was particularly difficult, because the original lender was insolvent. Then, when the buyer’s lender required a test of the underground oil tank, it failed. We needed to get another $10,000 from the lender to remediate, but that wouldn’t be issued until closing. The buyer agent and I called in ever favor we could from the oil tank company to do the work and get paid at closing. They were understandably reluctant. This closing was not a sure thing. Thanks to the good relationship the buyer agent had with the owner of the firm, the work was competed, allowing the borrower to get their mortgage cleared to close.

Last minute environmental issues, while rare, can send a regular tranaction into a tailspin. You can’t underestimate the havoc they cause in a short sale. Teamwork got this done, and my client was able to open a new chapter in his life and move on as best he could. In a way it was almost like an estate sale as well, because they were taking the last step in burying a loved one.

A young newlywed couple bought the house.

Some transactions stay with you your whole life. This occurred almost 2 years ago and seems like it was last week. The clients lived in Orange County, an exurb of NYC about 40 minutes north of White Plains. They were desperate, and their situation was compelling.

First, they were restoring an older Georgian. Even in an incomplete state, it was a magnificent place. As with many younger couples in the multi-tasking pursuit of making a family, they were also trying to have a baby with little luck. Then, she got pregnant.  Their daughter was born prematurely, and never made it home. Language limps in describing such a tragic event. She became understandably depressed, and then he lost his job.

I met her at the house on a cloudy day. She was back on her feet, physically and mentally, with a fat file filled with research on short sales on the kitchen table. She knew everything I was talking about. She educated herself. Unlike many people with overwhelming financial problems, she was not paralyzed with fear. I’ll explain.

While she was showing me the house, explaining what was completed and not, we came to what was the baby’s room. The poor Little Soul never slept in it. Briefly, she was sad again. She became depressed when she was told she couldn’t have a baby. I am blessed with 4 rugrats- what could I say? Have you thought of adopting, I asked. She looked me right in the eye. “Of course. But they won’t let you adopt if you have a foreclosure.” How dumb of me! Adoption agencies weigh finances very heavily!

And THAT is why she was on her feet, lucid and fighting. She wasn’t fighting to save her credit; she wasn’t fighting for sheetrock and plumbing;  she was fighting for motherhood. She was on her toes for a child who wasn’t even in her life yet, a child who was just an idea.

I am proud to say that there were multiple offers on that house (it was expired with a prior broker who tried to sell at a higher price because they didn’t know short sales). The lender approved the short sale, an offer about $15,000 over asking price as I recall, and it closed successfully. Was it easy? Hell no. Did I care? Hell no.

They mailed me a photo of their daughter later that year. You can’t make this stuff up.

If you’ve ever arrived at a closing and been informed that your commission was being disputed, withheld, or otherwise not being paid, you’ll appreciate New York State’s newly-minted Commission Escrow Act.  It requires the commission money to be deposited in escrow with the county clerk pending resolution. The great thing about this law is the certainty of getting paid when you win your case, as opposed to maybe someday collecting when the money is held by the seller’s attorney.

However, the act is not automatic. Listing agreements have been updated with verbiage to make sure brokers are protected, so contact your broker or MLS to get copies before you list another house.

Forewarned is forearmed! Finally Albany does something right! This law was way overdue.