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Benefits of Buying a Short Sale: An Interview with Richard Lovell of The Law Firm of Richard H. Lovell PC

By Richard Lovell

Tell us about your company and its foundation.

Although first admitted to practice law in New York in 1981, I did not immediately begin practicing that profession until 1987. Up until that time I served as a writer, editor and Vice President of Marketing for a national publisher of books for law students. By 1987 I decided to start practicing law by establishing my own law practice in Westchester County. As a struggling young attorney, I accepted a position as an Adjunct Professor at Iona College teaching Real Estate Sales and Real Estate Brokerage. As my real estate students started developing their own careers, they started to send me referrals for real estate clients and my law practice grew.

A Queens County native and resident, I worked to develop contacts there too! It was through those contacts that I began to represent real estate brokers, mortgage brokers and mortgage bankers from all over the New York City Metropolitan Area and also national mortgage lenders with their regulatory compliance needs. I served as a member of the Board of Directors of the New York Association of Mortgage Brokers for over thirteen years.

In addition to representing buyers and sellers of real estate I also handled Criminal Law Matters, Business Matters and Wills and Estates issues. As I started to represent more and more NYC and Long Island based clients, I moved my practice to Queens County to better serve their needs. Currently, I teach the Real Estate Sales and Real Estate Brokerage licensing classes for a number of institutions as well as the Mortgage Loan Origination licensing classes. In addition to the New York Bar, I am admitted to the Florida Bar and the Bar of the United States Supreme Court.

Please provide a brief explanation of what a "short sale" is.

In all residential real estate sales, first a homeowner (usually with the assistance of a licensed real estate sales agent or broker), makes a determination as to what his or home is worth. Say, for example, that it is believed that the home is worth $600,000 and the homeowner owes $400,000 to their mortgage lender. In this standard (i.e., non-short sale transaction), if the home actually sells for $600,000 the Seller will receive at closing $600,000 less the $400,000 owed to the mortgage lender, or $200,000 (excluding expenses of sale, of course).

When the Seller's mortgage lender receives the $400,000 it is owed, that lender issues a Satisfaction of Mortgage and the home being sold is released from the mortgage lien. The lender being paid off has no choice but to accept the $400,000 and release the property from the mortgage lien. The seller has not further obligation to that lender.

A Short Sale transaction is different and somewhat more complicated. Like with the traditional sale, a home's value is determined and the homeowner tries to find a purchaser who is willing to pay the highest possible price to the seller. However, with a short sale, the amount that the seller owes to his or her mortgage lender may be MORE than the value of home being sold. For example, suppose that the value of the home is $600,000 BUT the seller owes $700,000 to the mortgage lender.

Unfortunately, many homeowners are finding themselves in this position. A likely question for a home owner to ask is "how can I sell my house for $100,000 less than what I owe my mortgage lender when I do not have an extra $100,000 to give them from my pocket at closing"? Many homeowners are discovering that in many cases the transaction can be consummated, often with the assistance of experienced professionals (such as real estate agents and attorneys).

The goal, after a Contract of Sale is signed by the buyer and the seller at the agreed upon price, is to convince the mortgage lender being paid off that the selling price is the best price that will be paid for the home. If the lender agrees, they will accept an amount less than what is owed to them in exchange for issuing a Satisfaction of Mortgage upon receipt of the agreed upon amount of money. Also, the mortgage lender usually agrees to cancel any additional debt that the homeowner owes to the lender.

How low do short sale sellers typically go?

The real question should be, how low of an amount will the mortgage lender being paid off go? Since the seller of a short sale property is not going to receive ANY money at closing except for that amount needed to pay off his or her mortgage and to pay the closing costs, a seller generally doesn't care about how low the purchase price will be as long as the mortgage lender will satisfy the mortgage. So, the best answer is that a seller will usually go as low as the property is truly worth under present market conditions. If they were to accept a price much lower than this, the mortgage lender would probably not accept the short sale payoff amount and the transaction would not be allowed to close.

What are the benefits of buying a short sale home?

For the buyer, purchasing a home utilizing the short sale process may be the only way to purchase the particular home that they desire. A buyer rarely will purchase a home for more than its market value. Unfortunately, without following the short sale process, a seller may NOT be able to ever sell their home and satisfy their mortgage obligation unless their mortgage lender is willing to accept less money than is owed. In this case, the buyer would have no choice but to purchase the property as a short sale. Additionally, while mortgage lenders have learned plenty about the process in the last few years and have become smarter in how they determine the amount that they will accept, they will sometimes accept prices slightly lower than market value.

What is the ideal situation to buy a short sale home?

The ideal situation to buy a short sale home would be where the seller is VERY motivated to sell, usually because their mortgage lender has already begun a foreclosure action to take the property away from the homeowner for non-payment. A short sale may be the homeowner's only opportunity to reach a settlement with their mortgage lender for all money which the homeowner may owe under the terms of the mortgage loan made to the seller. If the seller is not very motivated, they might not cooperate as fully with the requests made by the mortgage lender, thus making approval of the short sale that much more difficult and time consuming.

Do you have any significant advice for homeowners deciding to make these decisions?

For a seller, owing more money to the mortgage lender than the home is worth can be both frustrating and difficult to deal with on a regular basis. If the seller is in a position to continue to make timely mortgage payments, then they will be allowed to stay in the home for as long as they continue to do so. While this, in and of itself, may be comforting, at some point the homeowner is going to have to decide what the long term solution is.

For most homeowners, there will come a point that they just don't want to live in that particular home anymore and they have to decide how they can get out. Most simply cannot afford to pay their mortgage lender the additional amount needed to satisfy their mortgage obligation (over and above the selling price) from money in the bank upon sale. This homeowner should be asking questions such as "where would I like to move to if I could sell my house?" Is this a good time in my life to move on regardless of the status of my present mortgage? What affect will a short sale have on my future credit rating? If I stay in the house much longer will the house require a significant investment for major repairs that I just cannot afford?

The answer to these questions will assist the homeowner to make the right decision for them! It is also most important to note that mortgage lenders have become extremely alert to potential fraud between short sale sellers and purchasers. Fraud is not only wrong but is a criminal offense. Seller should be very careful to make sure that they do not do anything which could be considered fraud that might induce their mortgage lender to accept the terms of the short sale.

What's the best way to contact you and your company?

We love hearing from purchasers, sellers and real estate agents whether or not we are involved in the transaction. While we can only give legal advice directly to clients, we can sometimes answer general questions for everybody. Our office telephone number is 718 835-9300 and my email address is LovellLawnewyork@gmail.com Emails always receive a prompt reply. Our website is www.LovellLawnewyork.com. We also would be happy to send, at no charge, to anyone our Buyer's Guide and/or Our Seller's Guide to Home Transactions ? just send an email.

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About The Author

Richard Lovell has been admitted to the practice of law in the State of New York since...

Phone: 718 835-9300

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