While the current housing crisis has some homeowners and sellers worried that the sky is falling, savvy investors recognize that if you are in the market to purchase or resell a property there are some great opportunities out there.

Buying a home in foreclosure can often mean amazing deals, sometimes as much as 25% below market prices or more.  However, as a real estate investor myself, I know the ins and outs of dealing with foreclosure sales, and there are some pitfalls to watch out for.

Unlike a regular sale, where you are dealing with an individual homeowner, when buying a distressed property you may end up dealing with several different lenders and investors, each with their own agenda and procedures to follow.  This can often drag the process on for many months.  The bank that services the loan may not even own the loan, in which case they will need to confirm what investors who do own the loan are willing to accept.

A great example of an eventually successful but drawn out short-sale property in Long Island was described in a recent article in CNN Money.  Shopping for a new home on Long Island after the birth of their daughter, Chris and Diane Moore fell in love with a 1920s Mediterranean-style home with a storied history.  According to the article, the home was sold as a short sale, in which a lender must agree to accept less than what’s owed on a property.  And as often happens with such deals, the buying process soon turned into a horror show.  The property was one of a kind, and the couple eventually secured the property at a 26% discount, but it took 10 months of negotiating.

Some short sales may qualify for the Federal HAFA program (Home Affordable Foreclosure Alternatives); and if it is a bank approved short sale or HAFA qualified short sale, this can speed up the process considerably.

Investors may wonder if it is safe to purchase a foreclosed property.  With recent news of the ‘robo-signing’ scandal, many illegally or improperly filed foreclosures and properties being returned to the original home owners, I understand your concerns.   Rest assured, as long as the new lender and buyer have title insurance, the former owner cannot seize the property.  Lenders always require a lenders title policy.  Owner’s policies are optional, but highly recommended for foreclosure properties.

If you are in the market for a home, it is especially important in this volatile and sometimes confusing real estate market to work with a real estate team that you can trust.  As a real estate investor myself as well as a real estate attorney, I can help you navigate these troubled waters to secure the amazing properties you are looking for.  Please feel free to call me with any questions or concerns.

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Purchasing Real Estate is a major life event, right up there with marriage and career.  It is one of the most important investments you will make and can carry with it much excitement and anticipation—as well as significant stress.  I cannot express how important it is to make sure you have a real estate team that you can trust to make sure your investment is a sound one.

A recent lawsuit has many asking the question, how do you determine the square footage of a property?  Is it calculated by the livable area?  Does it include closets or even the insides of the walls?  Incredibly, in New York, where every inch of space is precious, there is no hard and fast rule; and lawyer Rishi Bhandari recently discovered that some developers and sellers will even ‘estimate’ square footage to their advantage, in some cases over stating the square footage by several hundred square feet.  Many buyers take the information that a developer or real estate broker advertises at face value.

The New York Times recently reported on an ongoing lawsuit over a Brooklyn condo, noting that the state attorney general’s office, which oversees the sale of new condominiums, does not tell developers how to tabulate space, but requires them to disclose to buyers how they do it and to abide by their stated guideline. (In co-op conversions, square footage is not required to be reported.)

Homebuyer Mr. Bhandari, said he was also pursuing a principle: if he walked away, developers would continue to sell properties with inflated floor plans.

The standard of measurement can get confusing for buyer: exactly how is square footage defined?  Is the square footage advertised based on gross square footage or net square footage?  Appraisers and architects generally measure from inside wall to inside wall including the closets.  Gross living area as defined by Fannie Mae and the Appraisal Institute’s Dictionary of Real Estate: “Gross Living Area (GLA) – The total area of finished, above-grade residential space excluding unheated areas such as porches and balconies; the standard measure for determining the amount of space in residential properties.” In a perfect world, this information would be accurately disclosed to potential buyers and overstating square footage would be an illegal practice; unfortunately, we do not live in a perfect world.

The good news is that this is just one of the many details that your real estate team can assist you with to make a well informed decision when purchasing real estate. You may want your real estate team to include: a real estate agent, title company, inspection team, insurance agent, and of course—a knowledgeable real estate attorney.

I know exactly how important it is to have a team you trust; not only because of my years of experience with real estate law, but also because of my own experience with buying and selling property as a real estate investor myself.  If you have any questions, or need help in putting together the best real estate team for your needs, do not hesitate to contact me.

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As you probably know, short sales in New York can be confusing transactions. Most people who enter into a short-sale agreement with their lenders assume that they are getting rid of their problem as well as their property, and are financially free and clear after the closing of a bank approved short-sale.  Unfortunately, this is not always true.

The short sale usually results in a “release” of the lien of the mortgage but not always a “cancellation” or “satisfaction” of the promissory note.  Unless a release or satisfaction of the entire promissory note is obtained, there remains the ability of the bank to sue the borrower for the balance of the unpaid promissory note.  In the case of a 2nd mortgage, this might be the entire amount of that loan if the 2nd mortgage bank took very little or nothing so the short sale could succeed.

The documentation regarding a short sale is important.  The borrower needs to know what further obligations could be in the future as a result of the short sale.  Although we’ve heard this doesn’t happened often, if the unpaid balance of the promissory note is enforced by the bank, then it can file a lawsuit against the borrower and the result will likely be a deficiency judgment for the payment of money in the amount of the unpaid portion of the promissory note.

For example, if you owe $200,000.00 on your first mortgage and enter into a short sale agreement for $150,000.00, you may still be responsible for the remaining $50,000.00.  Even though the lender accepted $150,000.00 and released the mortgage lien to enable the short sale, if the deficiency balance isn’t waived then the lender may be able to pursue a judgment against you for the remaining $50,000.00 owed on your original promissory note.  The secured debt is simply transformed into an unsecured debt, and I have read that some lenders will sell the unsecured debt for pennies on the dollar to collection agencies whose primary objective is to recoup their investment and collect on the debt.

In California, a new bill (SB 931) has recently been signed by Governor Schwarzenegger which aims to disallow lenders from pursuing deficiency judgments after a short sale. It comes into effect on January 1, 2011 and it forces primary lenders to consider short sale yields as settlement in full of the seller’s debt.  Lenders waive all right to come after the borrowers for any deficiencies in the future, and the borrower can be sure that he is released from all obligation.  New York law, in contrast to the new California law, still does not protect the borrower to this extent.

In New York, many factors need to be examined to determine if the short sale will be a release of liability under the promissory note. First, does the letter state that the remaining liability for payment of any deficiency or of the promissory note is being released or forgiven? Second, does the letter specifically state that the mortgage is being “satisfied”?  Satisfaction of a mortgage usually (but does not necessarily) includes language that the underlying obligation (the promissory note) is paid in full. Better language in the letter would be the “mortgage and note are being satisfied”.

In summary, it is important to read and question the short sale approval letter you get.  A “release and satisfaction” of a mortgage is NOT necessarily a cancellation of the promissory note (forgiveness of deficiency).  The letter from the lender should be clear and unequivocal and not subject to supposition or interpretation.  If you are uncertain, ask the lender for clarification and get it in writing.

For more information on the short sale process, or if you are currently involved in a short sale and need advice, feel free to call me anytime, I can help.

This article is for information purposes and is not specific advice to any one reader.

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As the economy declines so do housing prices, which over the past few years has meant that the number of real estate short-sales has increased (i.e. transactions in which the sales proceeds fall short of the balance owed on the property’s loan). Unfortunately, as the volume of short sales increases so does the incidence of alleged short sale fraud.

This article in Bloomberg Business Week reports on two Connecticut real estate agents arrested in June for short sale fraud, or house “flopping”.  The recent trend towards short sales (and short sale fraud) means that it is getting quite a bit of attention as of late; both from the FBI (as with Operation Stolen Dreams) and in the media, including this story in the New York Times and this one from the Freddie Mac website. Furthermore, I just read on Inman News that “Lenders who originate 70 percent of U.S. mortgages are now participating in a loan monitoring program operated by data aggregator CoreLogic to help detect short-sale ‘property flops’ and other mortgage fraud.” (To read the entire article click here.)

All this being said, let me be clear that there is nothing wrong with making a profit buying and selling short sales; and short sales, if done correctly, are perfectly legal and ethical.  If the bank or lender knows up front that a flip is taking place then you are not committing mortgage fraud. However, because of the rise in short sale fraud allegations it is no longer enough to strive for a great price and terms on your transaction, care must be taken to ensure you are staying within the law. The following guidelines from The Fund can help:

1. Be sure your transaction does not violate any restrictions listed in the short sale payoff letter or closing instructions.
2. There should be no misrepresentations to the lenders or the purchasers regarding the ownership or value of the property.
3. All disbursements must be made exactly as stated on the HUD-1 settlement statement, and only to the parties involved in the transaction.
4. Each half of the simultaneous closing must be kept separate and stand on its own. The sale from A to B must be fully funded and dispersed with money coming from and going to all appropriate parties, likewise the sale from B to C. The money from C’s lender must not be used to fund any portion of the A to B transaction.
5. The investor’s “right to sell for profit” should be appropriately disclosed in the purchase contract.

If you want to ensure that you’re not committing fraud with your short sale then you as a buyer should disclose your intent to re-sell for a profit. To further ensure the legality of your transaction you can enlist the involvement of a knowledgeable and experienced real estate attorney. Having a real estate attorney to help draft and review contracts, and keep an eye on the process itself can be an invaluable safety net.  The laws are vague on the subject of short sale fraud, and with so much paperwork going back and forth you may be unaware that some part of your transaction could be considered fraudulent.  Your real estate attorney, however, will be able to advise you, and notify you if something begins to go south.

For more information on the short sale process, or if you are currently involved in a short sale and need advice, please contact my office.

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I recently came across this article in the New York Times which suggests that the housing boom is over—not only for now, but forever—and that the days of making money with real estate are over as well.  “People shouldn’t look at a home as a way to make money,” quotes the article, “because it won’t.”

Respectfully, I disagree.

It is certainly true that with real estate in such a depressed state, now is not the time to buy property and simply hope the value increases; however, now is the perfect time to purchase “rental” property that will pay for itself in the short-term, and increase in value over the long haul.

A few years ago real estate was skyrocketing and it seemed that everyone’s advice was to invest.  But the time to invest is not when everyone is buying and prices are high.  The best time to invest is when prices are low… so long as you have the time and the resources to hold onto under-valued property until the market recovers—which, as David Streitfeld mentions in his article, may take years. The question you need to ask yourself is not “Is now a good time to invest in real estate?” but “Can I afford to put the time and money that may be required into this investment to see it through?”

According to Andy Louis-Charles of The Motley Fool, the true key to real estate investing is rental value, not appreciation, “this is the only tried-and-true metric that ensures a worthy real estate purchase.” Everything else “is either speculation or indulgence.” The question of whether or not real estate is a good investment now becomes a matter not of luck but of strategy.

The key to success in the investment of rental properties is five-fold:

1. Know Your Timeline (or at least have a good idea). How long you plan keep your rental property will be a large factor in determining how much you’ll need to invest above and beyond the initial cost of purchase. Improvements, maintenance and repairs will have to be considered as part of your overall plan.
2. Have Your Financial Ducks in a Row. Owning a rental property means you’ll be dealing with people… some of whom will miss a month’s rent or leave you with unexpected vacancies.  Have enough money in reserve to comfortably deal with these crises.
3. Find the Right Location. Everybody knows that it’s all about location.  Of course some locations will be more profitable than others, but many non-traditional locations can be profitable if you know who your target rental audience will be.
4. Have Good Advisors. Agent, Mortgage Broker, Attorney, CPA, Management Company… these are just a few of the people who will be invaluable in helping you make the right moves and decisions along the way.
5. Get the Right Price. According to the old adage, “You make your profit when you buy a property, not when you sell it.” And now is definitely the time to get the right price. July of 2010 saw 325,000 foreclosure filings, that’s “the 17th month in a row total filings exceeded 300,000” according to RealtyTrac’s CEO, James Saccacio. Although this is a disheartening statistic for the economy in general, what it means for investors is that the cost of property is low and there is a higher rental demand.

The NY Times article rightfully suggests that investing in property now isn’t likely to make the quick profit it might have a decade ago, but that doesn’t mean we should throw the baby out with the bathwater.  Remember, rental property is often referred to as the “IDEAL” investment:

I: Income/Cash flow
D: Depreciation and tax deduction
E: Equity buildup from mortgage paydown
A: Appreciation in property value over time
L: Leverage; using a small amount of your own money to control a large value asset

Land is still land. People still need a place to live and a place to house their business. You can be a part of that, and my firm can help.

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