It seems as though Short Sales are the growth segment in today's real estate market. Every day I receive calls from potential clients interested in buying or selling Short Sales. From speaking with the clients and their agents i know that there is a great deal of confusion as to how the transactions progress, and I've seen many short sale transactions mishandled and fail. In short, getting a short sale Contract is easy.... getting it to close is not.
Below is a brief outline of the steps in getting a Short Sale transaction to closing.
#1. Buyer makes the offer. Just like any other transaction, the buyer writes an offer with his or her agent. Hopefully, the listing agent added "subject to third party approval" in the listing and the buyer knows that the transaction is a short sale. Also, the buyer's agent should have advised the buyer as to the risks and difficulties involved in buyering a short sale. The deal has a much better chance of making it to closing if the buyer has realistic expectations about the time it may take to gain lender approval and also about the "as-is" nature of the sale.
#2. The offer is presented to seller. This is the first step where I see alot of confusions. Although the deal is a short sale, the home is still owned by the seller, not the bank. The seller can accept or reject the buyer's offer or can counter-offer. The decision is not (yet) up to the bank. Once the terms are agreed upon, the seller signs and there is a Contract.
#3. The contract goes through Attorney Review. As this point the contract is still treated like any other residential real estate purchase. The contract enters Attorney Review and is not binding on either party until Attorney Review is concluded. The seller's attorney should reiterate in Attorney Review that the transaction is contingent upon the approval of the seller's lender. The attorney should also state that the seller will not be responsible for any repairs, for the Certificate of Occupancy, or for any other aspect of the transaction. The buyer's attorney should add a "kick out" clause allowing the buyer to walk away if the seller's lender has not responded to the offer within a reasonable amount of time.
#4. The contract is presented to the seller's lender. Although the contract is now final between the buyer and seller, the transaction will not close unless the seller's lender agrees to accept less than full payoff of the loan to release their lien on the property. In deciding whether to accept the amount offerred, the lender will look at the value of the home as well as the seller's ability to make payments on the mortgage debt. Specifically, the lender will request a full package of documents including the Contract, a Comparative Market Analysis, a copy of the listing agreement, a draft closing settlement statement, and seller financial statements including copies of paystubs, bank statements and tax returns.
#5. Waiting and Negotiating. As you probably already know, waiting for the lender to approve the deal is the most frustrating part of the whole transaction. The lender may respond in two days, two weeks, two months, or never. If the contract submission package to the lender is missing a single document, the lender may refuse to even consider the offer.
All negotiating with the lender is conducted by the seller's agent and/or the seller's attorney. Very often, the key to success with the seller's lender is persistence. The lender's loss mitigation department is inundated with files, so getting your file in for consideration requires constant followup. In my office, we have one attorney whose job is to followup with short sale lenders daily. Every file, every day, she makes contact with the lender representatives and requests an answer.
#6. Getting to Closing. Once the lender accepts the Contract, the deal can move towards closing. The lenders usually give a very short amount of time to close, often just 10 or 14 days from acceptance. It is very important that the parties are prepared to meet the deadlines imposed by the lender. The buyer should be ready to close, with the appraisal, inspections, title searches all performed in advance of lender acceptance. Too many buyers wait for lender approval to do these things and this jeopardizes the deal since the lender's deadline will be missed.
The close ratio for short sales is well below that of traditional transactions. However, with the right team of experienced short sale experts (agent/attorney) the chances of your short sale making it through to closing are greatly improved. Getting lender approval is essential, but it is only part of the entire process. The right team of professionals will get the deal closed.
Sunday, October 5, 2008
Friday, August 15, 2008
Loss of Title Insurance Coverange on Deed Change
What happens if a homeowner changes her interest in a property by conveying the property into a trust or LLC?
If she is insured using the ALTA One-to-Four Family Residential Policy - 1987 (NJRB 1-06) or the ALTA Owners Policy - 1992 (NJRB 1-11), coverage will terminate. If she is insured under the ALTA Owners Policy - 2006 (NJRB 1-15) or the Expanded Coverage Homeowners Policy - 2008 (NJRB 1-16) policy, coverage may continue, depending upon the transaction.
The New Jersey Supreme Court rendered a decision in Shotmeyer v. New Jersey Realty Title Ins. Co. on June 5, 2008. In that decision, the Court confirmed what the title industry had been advising clients for many years - that coverage terminates when the insured voluntarily conveys their entire interest in their property to another person or entity; but if the interest in the property is transferred as a matter of law (such as to an heir, devisee, or merger successor) the coverage remains in effect.
Under the definition of "Insured" in the 1987 Residential and 1992 Owners policies, coverage terminates when the insured voluntarily transfers title to another person or entity, whether or not that person or entity is in any way related to the grantor. However, coverage is continued if the transfer occurs as a matter of law. (It may also be continued under the 1992 Owners policy for any warranties made by the transferor.)
If the insured is covered by the 1987 Residential or 1992 Owners policies, there are two options to maintain coverage. First, they can obtain a new policy insuring the new entity. Second, they can purchase a Successors and transferees Endorsement (NJRB 5-66) to the existing policy. This endorsement modifies the definition of "Insured" in the two policies to include the following:
successors by operation of law, as opposed to those taking by voluntary transfer; or
trustees or beneficiaries of an inter vivos or testamentary trust, providing the insured is the settlor or testator and that the transfer is for no or nominal consideration; or transfers for no or nominal stated consideration provided the insured and transferee are related by blood or marriage; or the transferor is the owner of all or substantially all of the stock or other interests in the transferee or vice versa; or all or substantially all of the stock or other interests in both the transferor and transferee are owned by the same person or entity.
The cost for the endorsement is 10% of the applicable underwriting charge if purchased with the original policy, and 20% of the currently applicable underwriting charge for the underlying policy if the endorsement is issued subsequent to the issuance of the policy.
Please note that if the insured is the holder of a 2006 Owners or 2008 Expanded Coverage Homeowners policy, the definitions of "Insured" and "Continuation of Coverage" should be reviewed in light of the proposed transfer. The 2006 Owners policy contains a definition of "Insured" very similar to the definition in the Successors and Transferees Endorsement. The "Continuation of Coverage" in the 2008 Expanded Coverage Homeowners policy is limited to heirs and devisees, divorce situations, trustees or successors of a trust made by the insured, and beneficiaries of a trust on the insured's death. Consideration should be given to one of the other alternatives if the transfer does not fit into one of these specific situations.
If she is insured using the ALTA One-to-Four Family Residential Policy - 1987 (NJRB 1-06) or the ALTA Owners Policy - 1992 (NJRB 1-11), coverage will terminate. If she is insured under the ALTA Owners Policy - 2006 (NJRB 1-15) or the Expanded Coverage Homeowners Policy - 2008 (NJRB 1-16) policy, coverage may continue, depending upon the transaction.
The New Jersey Supreme Court rendered a decision in Shotmeyer v. New Jersey Realty Title Ins. Co. on June 5, 2008. In that decision, the Court confirmed what the title industry had been advising clients for many years - that coverage terminates when the insured voluntarily conveys their entire interest in their property to another person or entity; but if the interest in the property is transferred as a matter of law (such as to an heir, devisee, or merger successor) the coverage remains in effect.
Under the definition of "Insured" in the 1987 Residential and 1992 Owners policies, coverage terminates when the insured voluntarily transfers title to another person or entity, whether or not that person or entity is in any way related to the grantor. However, coverage is continued if the transfer occurs as a matter of law. (It may also be continued under the 1992 Owners policy for any warranties made by the transferor.)
If the insured is covered by the 1987 Residential or 1992 Owners policies, there are two options to maintain coverage. First, they can obtain a new policy insuring the new entity. Second, they can purchase a Successors and transferees Endorsement (NJRB 5-66) to the existing policy. This endorsement modifies the definition of "Insured" in the two policies to include the following:
successors by operation of law, as opposed to those taking by voluntary transfer; or
trustees or beneficiaries of an inter vivos or testamentary trust, providing the insured is the settlor or testator and that the transfer is for no or nominal consideration; or transfers for no or nominal stated consideration provided the insured and transferee are related by blood or marriage; or the transferor is the owner of all or substantially all of the stock or other interests in the transferee or vice versa; or all or substantially all of the stock or other interests in both the transferor and transferee are owned by the same person or entity.
The cost for the endorsement is 10% of the applicable underwriting charge if purchased with the original policy, and 20% of the currently applicable underwriting charge for the underlying policy if the endorsement is issued subsequent to the issuance of the policy.
Please note that if the insured is the holder of a 2006 Owners or 2008 Expanded Coverage Homeowners policy, the definitions of "Insured" and "Continuation of Coverage" should be reviewed in light of the proposed transfer. The 2006 Owners policy contains a definition of "Insured" very similar to the definition in the Successors and Transferees Endorsement. The "Continuation of Coverage" in the 2008 Expanded Coverage Homeowners policy is limited to heirs and devisees, divorce situations, trustees or successors of a trust made by the insured, and beneficiaries of a trust on the insured's death. Consideration should be given to one of the other alternatives if the transfer does not fit into one of these specific situations.
Saturday, August 9, 2008
First Time HomeBuyer Tax Credit
WHAT IT IS. The 2008 Housing Act gives first time homebuyers a tax credit of up to $7,500 if they close on a home between April 9, 2008 and June 30, 2009. The actual amount of the incentive is 10% of the purchase price up to a maximum of $7500.
Note that this is a tax CREDIT not a tax deduction. This means that the gov't will give up to $7,500 to the qualifying first time buyer. To the extent that the credit exceeds any tax due, the gov't will send the buyer a check.
WHO QUALIFIES. To qualify for the credit, the buyer cannot have owned a principal residence in the U.S. in the three years prior to the purchase. Also, the credit is phased out for individual tax payers with an adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).
THE PAYBACK. The tax credit is actually a 15 year interest free loan. In the second year after purchase, the buyer must begin to pay back the credit/loan in equal installments over the next 15 years. If the buyer sells the home or it ceases to be the buyer's primary residence, before complete repayment is made, any remaining credit shall be due on the tax return for the year in which the home is sold. On the maximum $7,500 credit, the payback would be $500 per year.
HOW IT CAN HELP. The limitation of this incentive is that the funds are not available to the homebuyer at the time of closing, the funds come later when the buyer fills out his/her tax return. How can this incentive motivate buyers to buy if the money is not available to get them through the closing? I have three ideas:
1. Prospective buyer can borrow money from relatives for the closing and pay it back from the tax credit, as long as the buyer's mortgage lender's approves.
2. The buyer can immediately reduce his payroll tax withholding to the extent that the credit will cover the decreased tax payments. This will put extra money in the buyer's pocket each payday.
3. The buyer can buy a home that needs some work, knowing that he/she will have the tax credit money to pay for some repairs or remodeling. This may allow the buyers to consider homes that they otherwise would not consider. For example, the credit could potentially pay for a new roof or water heater, or siding.
Anyone have any other ideas on how the credit can help get buyers into houses? I love to hear them.
Jim Miner
The Law Office of James M. Miner, LLC
Westfield Office Short Hills Office
533 South Ave West 7 Short Hills Ave.
Westfield, NJ 07090 Short Hills, NJ 07078
908-232-9962 973-315-3089
908-232-9965 (fax)
www.BuyersLawyer.com
Note that this is a tax CREDIT not a tax deduction. This means that the gov't will give up to $7,500 to the qualifying first time buyer. To the extent that the credit exceeds any tax due, the gov't will send the buyer a check.
WHO QUALIFIES. To qualify for the credit, the buyer cannot have owned a principal residence in the U.S. in the three years prior to the purchase. Also, the credit is phased out for individual tax payers with an adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).
THE PAYBACK. The tax credit is actually a 15 year interest free loan. In the second year after purchase, the buyer must begin to pay back the credit/loan in equal installments over the next 15 years. If the buyer sells the home or it ceases to be the buyer's primary residence, before complete repayment is made, any remaining credit shall be due on the tax return for the year in which the home is sold. On the maximum $7,500 credit, the payback would be $500 per year.
HOW IT CAN HELP. The limitation of this incentive is that the funds are not available to the homebuyer at the time of closing, the funds come later when the buyer fills out his/her tax return. How can this incentive motivate buyers to buy if the money is not available to get them through the closing? I have three ideas:
1. Prospective buyer can borrow money from relatives for the closing and pay it back from the tax credit, as long as the buyer's mortgage lender's approves.
2. The buyer can immediately reduce his payroll tax withholding to the extent that the credit will cover the decreased tax payments. This will put extra money in the buyer's pocket each payday.
3. The buyer can buy a home that needs some work, knowing that he/she will have the tax credit money to pay for some repairs or remodeling. This may allow the buyers to consider homes that they otherwise would not consider. For example, the credit could potentially pay for a new roof or water heater, or siding.
Anyone have any other ideas on how the credit can help get buyers into houses? I love to hear them.
Jim Miner
The Law Office of James M. Miner, LLC
Westfield Office Short Hills Office
533 South Ave West 7 Short Hills Ave.
Westfield, NJ 07090 Short Hills, NJ 07078
908-232-9962 973-315-3089
908-232-9965 (fax)
www.BuyersLawyer.com
Saturday, July 12, 2008
IndyMac Mortgages, will they close?
You've likely heard by now of the FDIC takeover of IndyMac Bank. This is bad news for IndyMac depositors (at least those with deposits in excess of the insured limit) and for IndyMac shareholders.
The big question for those of us in the real estate industry is whether or not IndyMac, or its successor entity, will honor IndyMac's outstanding loan commitments.
So far there is no clear answer. One IndyMac loan officer sent me an email from his vacation to say that "yes" the commitments would be honored. I heard of another case, however, where the FDIC placed additional conditions on the loan which will ultimately prevent it from closing.
For those of us with clients with IndyMac loan commitments, we'll have to wait it out through the weekend. I don't expect any definitive answers before Monday. I believe that even the IndyMac websites will be down until then.
Come Monday, information should be available from the following source, courtesy of the FDIC:
"VI. Loan Customers
If you had a loan with IndyMac Bank, F.S.B., you should continue to make your payments as usual. The terms of your loan will not change under the terms of the loan contract because they are contractually agreed to your promissory note with the failed institution. Checks should be made payable as usual and sent to the same address until further notice. For all questions regarding new loans and the lending policies of IndyMac Federal Bank, please contact 800-998-2900 or visit the IndyMac Federal Bank website at www.IndyMac.com."holders.
We'll see what happens. Meantime, I'll be checking with other lenders to see who would be well positioned to take over clients with IndyMac commitments and to quickly arrange for alternate financing.
Good luck, and feel free to give me a call if you have any questions.
The big question for those of us in the real estate industry is whether or not IndyMac, or its successor entity, will honor IndyMac's outstanding loan commitments.
So far there is no clear answer. One IndyMac loan officer sent me an email from his vacation to say that "yes" the commitments would be honored. I heard of another case, however, where the FDIC placed additional conditions on the loan which will ultimately prevent it from closing.
For those of us with clients with IndyMac loan commitments, we'll have to wait it out through the weekend. I don't expect any definitive answers before Monday. I believe that even the IndyMac websites will be down until then.
Come Monday, information should be available from the following source, courtesy of the FDIC:
"VI. Loan Customers
If you had a loan with IndyMac Bank, F.S.B., you should continue to make your payments as usual. The terms of your loan will not change under the terms of the loan contract because they are contractually agreed to your promissory note with the failed institution. Checks should be made payable as usual and sent to the same address until further notice. For all questions regarding new loans and the lending policies of IndyMac Federal Bank, please contact 800-998-2900 or visit the IndyMac Federal Bank website at www.IndyMac.com."holders.
We'll see what happens. Meantime, I'll be checking with other lenders to see who would be well positioned to take over clients with IndyMac commitments and to quickly arrange for alternate financing.
Good luck, and feel free to give me a call if you have any questions.
Thursday, July 10, 2008
Short Hills NJ Real Estate & Summit NJ Real Estate
I'm very happy to let everyone know that my Short Hills office is up and running. This office is for the convenience of our realtors and clients in the Summit and Short Hills areas. Along with Westfield, I consider these to be among the most desirable towns in NJ, especially for families with young children.
Contact information:
The Law Office of James M Miner LLC
7 Short Hills Avenue
Suite 204
Short Hills, NJ 07081
973-315-3089
www.ShortHillsLawyer.com
www.SummitLawyer.com
I look forward to expanding our presence in these great towns. Jim.
Contact information:
The Law Office of James M Miner LLC
7 Short Hills Avenue
Suite 204
Short Hills, NJ 07081
973-315-3089
www.ShortHillsLawyer.com
www.SummitLawyer.com
I look forward to expanding our presence in these great towns. Jim.
Thursday, May 3, 2007
Successful Real Estate Transactions
As a real estate lawyer in NJ I handle transactions from $70,000 co-ops to multi-million dollar homes. In every case it is a major financial transaction for the buyer and seller and everyone hopes for a smooth transaction.
I've handled thousands of transactions and I can tell the secret to a smooth and painless transaction: get the right team of Real Estate Professionals working for you. Your core team should include a great Realtor, a great mortgage lender and a great real estate attorney. Your core team can help you find other professionals that you will need along the way, such as a home inspector and a homeowner's insurance agent.
How do you find the right professionals to place on your team? Research. Ask friends and neighbors for personal referrals. If you have chosen one member of your team, ask him or her for referrals for the other members. Once you have a few names, call them up and interview them. You will be spending alot of time with your Realtor, Lender and Attorney, so make sure you can develop a good rapport and that you will be comfortable working with them. Ask if they are full-time or part-time, ask how many transactions they have handled, ask how long they have been in the business. Ask if they will be with you through the entire transaction or if they will hand you off to an assistant. Ask if they are comfortable using the latest technology to help you with your transaction. Will they email documents and information to you, or will they ask you to go sit by a fax machine? Do they offer online access to your transaction documents or will you have to call for status updates? Do they have assistants who can help you when they are out, or do you have to wait for a call back? Through this process you will find out how the professional operates and you will find out if this is a person that you would like to work with.
Keep the following in mind:
Any licensed attorney is considered qualified to handle real estate transactions. You may want to find out if the attorney you are considering specializes in real estate or has this as a small part of a general practice. The attorney you choose will be responsible for ensuring that all deadlines are met and that you do not lose important rights by missing a deadline.
Any licensed real estate agent is considered qualified to handle your transaction. You may want to know if the agent you are considering is full-time or part-time. You may also want to know if the agent has handled dozens of transactions, or if yours is their first.
Any mortgage representative can get you a pre-qualification. But did you know that mortgage reps are not licensed? There is no testing or license requirment to be a mortgage representative in NJ. You should make sure that the person responsible for financing the biggest transaction of your life is well qualified to do so.
Putting together the right team takes time and effort. The effort that you put into this stage of the transaction will pay big dividends later when the transaction goes smoothly, with no surprises!
I've handled thousands of transactions and I can tell the secret to a smooth and painless transaction: get the right team of Real Estate Professionals working for you. Your core team should include a great Realtor, a great mortgage lender and a great real estate attorney. Your core team can help you find other professionals that you will need along the way, such as a home inspector and a homeowner's insurance agent.
How do you find the right professionals to place on your team? Research. Ask friends and neighbors for personal referrals. If you have chosen one member of your team, ask him or her for referrals for the other members. Once you have a few names, call them up and interview them. You will be spending alot of time with your Realtor, Lender and Attorney, so make sure you can develop a good rapport and that you will be comfortable working with them. Ask if they are full-time or part-time, ask how many transactions they have handled, ask how long they have been in the business. Ask if they will be with you through the entire transaction or if they will hand you off to an assistant. Ask if they are comfortable using the latest technology to help you with your transaction. Will they email documents and information to you, or will they ask you to go sit by a fax machine? Do they offer online access to your transaction documents or will you have to call for status updates? Do they have assistants who can help you when they are out, or do you have to wait for a call back? Through this process you will find out how the professional operates and you will find out if this is a person that you would like to work with.
Keep the following in mind:
Any licensed attorney is considered qualified to handle real estate transactions. You may want to find out if the attorney you are considering specializes in real estate or has this as a small part of a general practice. The attorney you choose will be responsible for ensuring that all deadlines are met and that you do not lose important rights by missing a deadline.
Any licensed real estate agent is considered qualified to handle your transaction. You may want to know if the agent you are considering is full-time or part-time. You may also want to know if the agent has handled dozens of transactions, or if yours is their first.
Any mortgage representative can get you a pre-qualification. But did you know that mortgage reps are not licensed? There is no testing or license requirment to be a mortgage representative in NJ. You should make sure that the person responsible for financing the biggest transaction of your life is well qualified to do so.
Putting together the right team takes time and effort. The effort that you put into this stage of the transaction will pay big dividends later when the transaction goes smoothly, with no surprises!
Saturday, February 10, 2007
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