Home Buying in Irvington>Question Details

Dave V., Other/Just Looking in New Jersey

I'm considering purchasing a 3-family via short sale.

Asked by Dave V., New Jersey Sun Jul 13, 2008

Property was just listed last week. Listing agent has told me that the bank is Countrywide, and that she hasn't submitted the paperwork yet because they wanted her to wait until she had a buyer. She seems to have experience with short sales, so that should be a plus. I don't know how much the seller owes on the mortgage, but I know they bought it about 2 years ago and paid about 100K more than the price it's currently listed for, which is under 200K. Logic tempts me to assume that the listing price is probably somewhere in the neighborhood of the outstanding balance. Is this a valid assumption, or is it just as likely to be totally unrelated? Are there any stats out there (or impressions) regarding the correlation of initial listing price and eventual selling price on short sales in Essex County, NJ? Also, how likely is Countrywide to accept an offer significantly below what they are owed, and how quick are they with processing and making a decision? Any other thoughts welcome...

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Dave,

You are correct in stating that the it's contingent on bank approval but once the attorneys finalize the actual contract terms, you will be out of attorney review and under contract (it doesn't matter if the bank still has not responded to the dollar amount of the offer). In the meantime you will be proceeding with home inspection and mortgage applications so you should be ready if and when the bank accepts your offer and gives you a 24-72 hour time period to close. The bank pretty much controls everything. Also not sure in what shape the house is in but most likely it will be sold as is irregardless of the home inspection and are you responsible for obtaining the CO? If the house is in Irvington - be prepared for a list of things needed to be repaired to get the CO. Irvington is very strict when it comes to obtaining a CO.

Again, good luck.

Gina Chirico, Sales Associate/Realtor
Prudential New Jersey Properties
973-715-1158 cell
973-239-7700 ext 132
GinaChirico@PruNewJersey.com
1 vote Thank Flag Link Mon Jul 14, 2008
Hi Dave V,

It's me again - I responded to your post on the Section 8 tenants.

From my experience with short sales and the banks I've dealt with (none being Countrywide), they won't talk money (not even a price range in which they would accept) until an offer is on the table however it doesn't hurt for the agent to send in the hardship letter from the seller, the letter of authorization from the seller authorizing the bank to speak to the seller and I typically send the listing agreement, a copy of the listing and the comps supporting the short sale price. When an offer comes in, I forward to them the offer, along with comps supporting the offer and the seller's attorney will prepare a preliminary HUD 1. About 10-14 days later a negotiator from the bank is appointed to handle the transaction and from that point it will typically take about 60-90 days for the entire process to be completed. If there are multiple offers - it gets even more confusing and the process takes longer. Many short sales training courses I have taken have advised that upon submitting the first offer, all offers should be back up offers only and you should not send multiple offers to the bank. I've never been in that situation of multiple offers on a short sale so I'm not really sure however I do know that there does tend to be multiple offers if the house is in good condition and priced relatively low.

I've also heard that some banks have been turning down some short sale offers (again not knowing if it was Countrywide or the exact circumstances). In some cases where there is a second lien on the property, problems can arise too.

In all reality, irregardless of what the sellers paid for the property, it's not worth that same amount today so either way the bank is going to take a loss. It's just a matter of how much are they willing to lose? If they foreclose on the house, they tend to lose a lot more but they bank will weigh the risks of what is cheaper for them - agree to the price of the short sale or foreclose on the property.

The last short sale seminar I attended said the typical short sale discount is approximately between 10%-22% of the original loan amount.

The best you can do is submit your offer and WAIT. Just make sure if and when you submit your offer, you have a current pre-approval and/or proof of funds (if cash deal). I've also come to learn through my experience is that short sales fall apart during attorney review due to the fact that the seller's attorney wants the buyer to proceed as if it's not a short sale (i.e., proceed with home inspections, appraisal, etc.) but the buyer's attorney does not want his client to expend any money until they know that the bank will accept the offer submitted. I tend to understand both sides but understanding doesn't always keep the deal together. But in any event, it's something for you think about - if you want to spend the money not knowing if the bank will accept or decline your offer. There are many times where a buyer expends the funds for inspections, etc. and the deal falls apart but at least you had an agreement to start out with. In a short sale, its really the bank that controls everything.
I hope some of this really long answer helped you.

Good luck.

Gina Chirico, Sales Associate/Realtor
Prudential New Jersey Properties
973-715-1158 cell
973-239-7700 ext 132
GinaChirico@PruNewJersey.com
1 vote Thank Flag Link Sun Jul 13, 2008
A few generalities, based on what you've said...
The bank, like any seller, is interested in getting as much money as it can. If the property is newly listed, they won't accept a low-ball offer. Banks approving short sales usually take a long time to approve an offer. They will expect you to complete lots of paperwork, and then probably lose some of it. This is a short-sale situation, not a foreclosure, so the bank didn't decide on the listing price (like it would if they had foreclosed.) A lot depends on the skill and experience of the listing agent. If you are working with a buyer's agent, he or she should be advising you on the value of the property, regardless of whether the owner owns a property free and clear or is upside down. If you are dealing through the listing agent, you can still ask for comparable sales info. More importantly, as this is a 3-family property, I guess you want use this as an income property, so the return the most important part of your analysis. Ask for verified expense figures if you can get them. There is a great website http://www.IAnalyzeRE.com that will help you decide if the purchase makes sense.

I don't sell in Essex County, but in Hudson County, the short sales I've been following tend to sell for 90-95% of their FINAL listing price, regardless of the initial list price. (This is not unlike the normal sales.) In most cases prices are reduced every 60 days or so -- although some have been on the market at the same price for a year. Be prepared for "hurry up and wait". You may be required to be prequalified by Countrywide (although they can't force you to get your mortgage from them). Although they often take a long time to answer you, if they accept your offer, they'll expect you to close in a hurry. Be prepared to do your home inspection before attorney review has concluded, and expect to take-it-or-leave-it afterward.

Good luck with your purchase.
Joan Prout, MBA
Broker Associate
RE/MAX Villa REALTORS
Jersey City, NJ
mailto:Joan@JoanProut.com
800-671-0596x1
Web Reference: http://www.JoanProut.com
1 vote Thank Flag Link Sun Jul 13, 2008
Dave,

Good questions. This is where your attorney will come into play. Typically its the buyer's attorney who makes the first contact through attorney review and basically rewrites the contract. Tell him all these issues upfront and he should take a direct approach as to a "backout" clause for the inspection issues to protect your interests - the sales contract will have the typical inspection clause in it (lines 257-270) .

In addition, specify to your attorney as well regarding the CO. I've been told that banks will usually cover the CO but I've not experienced that firsthand. A CO is required before closing and the closer it gets to the closing date...the higher the fees are especially for smoke/fire/carbon certificate (which are most likely the least of your problems should the property not be in good condition). If the town is requiring a lot of repairs and time isn't on your side with especially with the bank holding things us, sometimes you can get a temporary CO and your are allotted a certain amount of time to fix the repairs after closing (but make sure you fix them within that time and have the town come back to re-inspect).

Gina Chirico, Sales Associate/Realtor
Prudential New Jersey Properties
973-715-1158 cell
973-239-7700 ext 132
GinaChirico@PruNewJersey.com
0 votes Thank Flag Link Mon Jul 14, 2008
Hi Gina,

Thanks again for a great answer. So, we go into attorney review and I get my inspection done like usual. Even though they may be selling it "as is", all that means is that they won't fix anything. Am I correct in thihking that I still have the right to back out if I don't like what I see on the inspection?
So then with regard to inspection, mortgage application, Section 8 inspection, state inspection (I heard this is necessary for a 3-family also), obtaining of CO, and closing, what's the sequence of events?
And can I go for the CO prior to closing, and if so, can I make the deal contingent upon my getting the CO?

Thanks,
Dave
0 votes Thank Flag Link Mon Jul 14, 2008
Gina and Joan,

Thanks for your great answers. I'm already pre-approved by Countrywide, so at least I have that in my favor.
There is one thing that confuses me however. If the seller and I agree on a price and go into attorney review, since this is a short sale, wouldn't the deal be contingent on the bank's approval? If so, wouldn't we be in attorney review the whole time (2-3 months, whatever it takes) until the bank approval comes through? If that's the case, how am I supposed to be ready to close right then? Wouldn't I have to go through the whole mortgage application process first? From my experience with other homes I've owned (not short sales), the mortgage application process takes weeks, even if I'm pre-approved. In fact, in the past, I couldn't even start the mortgage process until I was out of attorney review if I remember correctly. What am I missing?
0 votes Thank Flag Link Sun Jul 13, 2008
Dave V,

Picking up on what Joan said, I know if its a REO property, you definitely have to be pre-approved from Countrywide but not sure in a short sale situation. From the short sales I've dealt with, the buyers did not need approval from the seller's bank. In addition, it is also true that when they are ready to close -- you best be ready too.

Again, good luck.

Gina Chirico, Sales Associate/Realtor
Prudential New Jersey Properties
973-715-1158 cell
973-239-7700 ext 132
GinaChirico@PruNewJersey.com
0 votes Thank Flag Link Sun Jul 13, 2008
Processing short sales are much longer than what they were a year ago, KEEP IN MIND the bank has to pay for realtors fees, closing costs and etc. you can place an offer determine where it may go however there could be a bidding war all foreclosures, pre foreclosures, short sales have drama.
http://www.lynn911.com http://www.homes-for-sale-dallas.com
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Sun Jul 13, 2008
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