Sullivan County Real Estate

The Saga of Short Sales

I recently started working on my 4th deal this year involving a short sale. For those of you not familiar with the term, a short sale is one where the seller is upside down on their mortgage relative to the sales price of the house — and rather than the seller being willing (or able) to make up the difference, the seller turns to the lender to accept a lower payout amount than the loan balance.

Sounds simple, but it isn't at all. Lender procedures for reviewing and approving short sale applications are convoluted, inconsistent and inefficient at best. At worst, they're something out of a Kafka novel, and make the IRS or NY Dept. of Motor Vehicles seem like Nordstrom. I'm not exaggerating. If the lender loses the application or supporting documentation only once during the process, you're doing well. Often when something isn't just right, the whole package is kicked back and you start again at the back of the line. And the Kafka cherry on the sundae? Supporting documentation, like BPO's (broker price opinions) or seller financial statements, usually have to be dated within a certain period of time of the short sale approval. So even if the application has sat on the reviewer's desk for two or three months (so the delay is totally in their court), they'll throw the application back because the supporting documentation (which they required just to get it to that reviewer's desk) is now out of date.

You may think that the short sale hell that lenders put these sellers through is a just punishment for these "bad, bad borrowers" who got in over their heads. But a short sale is really in the lender's interest; it will usually return a lot more of the principal to the mortgage investor than the other option, foreclosure.

The other party that suffers through this is the buyer. Short sale approvals can take 3 or 4 months, and that's if all the ducks are lined up and the paperwork is in order. Short sale reviews that drag on for six months or more aren't unheard of. Buyers can be out a couple of thousand bucks for inspections and contract preparation with little assurance the deal will ultimately be approved — because the lenders don't publicize their approval guidelines, and even if they did, they change more often than Madonna's personas.

That doesn't mean, however, that someone experienced in short sales can't 'reverse engineer' the factors likely to result in approval. There are a few threads that seem to run through most successful short sales:

• The seller should be behind in their mortgage payments, although the number of months behind to consider a short sale application varies by lender.
• The lender will likely have started the foreclosure process by filing a lis pendens or "notice of foreclosure" against the property.
• The seller must be able to demonstrate hardship — such as a loss of job or reduction in income — and preferably not have the ability to make up the shortfall with other assets. The fact that the house is worth less than the mortgage payoff amount on its own isn't sufficient to get the lender to write off the shortfall.
• The house has been on the market for a reasonable period of time, with regular price reductions and no offers sufficient to pay off the loan.
• Recent comparable sales showing that support the contract price.

Unfortunately, a lot of agents don't have short sale experience or have a grasp of the prerequisites for a successful short sale. I see all the time in the broker comments section of listings "subject to third party approval" (which is Realtor code for 'short sale'). When I call the listing agent about it, I ask about the short sale "set up" (the items in my list above) to determine the likelihood of short sale approval. I'm struck by how many agents believe that simply being upside down in a mortgage is sufficient for a short sale, and aren't able to discuss what steps have been taken to position the house for likely approval.

Short sales are a fact of real estate life. At the top of my real estate wish list for 2010 would be a desire that the lenders process them more consistently, efficiently and quickly. But that's probably about as likely as me growing a new head of hair. In the meantime, all of us involved in real estate are going to have to be more adept at working short sales within the current (and very frustrating) system, because I expect short sales are unlikely to disappear into a footnote in the near future.

Local Holiday Shopping

I want to bring your attention to two holiday gift shopping opportunities to support local artisans. The first is "Handmade for the Holidays" at Duke Pottery, 855 County Road 93, Roscoe, NY. Jill Wiener of Earthgirl Pottery and Carolyn Duke of Duke Pottery join together at Carolyn's studio for two weekends of holiday shopping. The dates are Nov. 28 and 29, and Dec. 5 and 6 from 11AM to 4PM. Carolyn also offers a selection of other craft items handmade by other local artisans. More information at dukepottery.com or earthgirlpottery.com.

The Delaware Valley Arts Alliance in Narrowsburg has it's annual Holiday Show and Sale now through December 23rd at the Arts Alliance Signature Gifts shop at 37 Main Street, Narrowsburg. The annual holiday sale features works by more than 60 local artists and artisans. Tuesday through Saturday, 10AM to 4PM.

Fannie Mae's Deed for Lease Program

I got an email today from a reader, Chris Thorman, about Fannie Mae's new "Deed for Lease" program, which offers an option for owners in foreclosure proceedings to give up their deed for the house in exchange for the right to remain as a renter at market rates. I don't know much about the program, but Chris has written a good overview of it here. If this is something that may apply to you, you may want to check it out.

Current Market Conditions Report Posted with Oct. Sales

I just posted my latest Current Market Conditions Report with sales data through October. Not a whole lot of drama this month. Things seem pretty steady, with almost all the numbers (sales, prices, foreclosures as a percentage of total and bid/ask ratio) about just the same as last month. Check it out at www.catskill4sale.com/current.asp and then drop on back to post your comments on how you see the real estate market here in Sullivan County.

Swinging Bridge Sales Tally: Zero

Swinging Bridge Reservoir, in the Mongaup Valley 6 miles west of Monticello, is our largest lake, and traditionally has been a top destination for lakefront second home buyers. But this year there hasn't been one lakefront home sale on Swinging Bridge to my knowledge. None. Zero. Zilch. The last sale was 17 months ago, in June 2008 --- a 3 bedroom, 2 bath, 2,000 square footer that sold for $495,000.

The Swinging Bridge sales drought is now longer than the nail biting stretch with no sales in 2006 when the lake was drained to repair the dam. Sure, since the last sale we've slid into an economic malestrom, but in a lot of property categories we've been inching our way back out since early summer. And there has been a definite pickup in lakefront buyer interest. I get two or three emails or phone calls every week about lakefront property, and quite a few of those potential buyers are looking for houses on motorboat lakes, like Swinging Bridge.

We have inventory. This year there have been between 8 and 12 lakefront houses on the non-Chapin eastern side of the lake on the market at any given time, ranging from a 2 bedroom renovated ranch listed at $329,000 to a substantial home with a pool on 5 or so acres at $1.575M.

And we have water. Swinging Bridge levels were comfortably high this summer, with a modest draw down to repair a spillway, but well within recreational levels. So the sales slowdown can't be attributed to the water.

But there are two factors colliding on that lake — demographics and price — that have resulted in the poor sales showing. On the demographic side, the second home buyers I've been seeing since spring have almost all been in their 30's, with only a smattering in their 40's and 50's. There is a noticeable age downshift that's very explainable. 30-somethings with good stable jobs have been more insulated from the downturn. They have less invested in 401K's and are further from retirement, so haven't freaked out about a shrinking retirement nest egg. They see an opportunity window in this recession, with low mortgage rates and lower prices.

Among that demographic looking for lakefront, they tilt towards non-motorboat lakes. They're looking for a quieter, more pristine lake experience. I've done 5 lakefront deals this year (2 are closed, 3 are in various stages of closing). All 5 buyers had a preference for a non-motorboat lake. Motorboat lake fans tend to skew a bit older, and I'm sensing that as buyers move past 40, they're much more financially conservative, if they're looking at all.

That's where price enters the picture. The buyers who are shopping for motorboat lake (and I go out with one or two every month) aren't seeing the values there. The price range expectations I'm hearing from these shoppers are pretty consistent. Buyers looking for something "family sized" with 3 or 4 bedrooms on a motorboat lake want to spend between $350,000 and $400,000 tops. The less common 2 bedroom buyer is now looking to spend in the mid $200's, maybe up to $275K.

We don't have any motorboat lakefront houses that actually hit those price points. The least expensive 2 bedroom is listed at $329,000 (and has been on the market for over 2 years, originally listed at $399,000.) The least expensive 3+ bedroom is listed at $449,000 and another just above it at $475,000. The lion's share of 3+ bedroom motorboat lakefront houses are listed well above $500,000.

I get periodic calls from listing agents on many of these properties encouraging me to show them, and indicating that the sellers are motivated and to bring an offer. True, there have been modest price reductions on some of the houses, from, say, $749,000 to $699,000 or from $349,000 to $329,000. But nothing that screams serious motivation, move this house. None of the houses I've shown on Swinging Bridge in the past few months has generated a response from a buyer of "Wow, what a great deal." The more common response is a polite ho-hum.

The reality is that we're in a market where generally the only houses that are selling are those that are perceived as super deals. (I've blogged about this a number of times over the past few months.) Not just good deals, or OK values, but super deals. Until some of the houses on Swinging Bridge move into that range, the sales tally there will likely remain at zero for the foreseeable future.

Four Seasons Lodge - See This Movie!

I went to the opening night last evening of a new documentary, Four Seasons Lodge at IFC in Manhattan. It's a remarkably touching documentary by Andrew Jacobs about a summer bungalow colony near Ellenville that has been the Catskill retreat for close knit group of Holocaust survivors, most now in their 80's. Unlike most Holocaust films, it doesn't focus on horror testimonials, but rather on the bonds that these survivors formed with each other through their 26 summers together, and the joy and zest for life they share. Albert Maysles (Grey Gardens, Gimme Shelter) did the cinematography.

For me, as a Sullivan County resident who often views bungalow colonies disparagingly, there is a second layer to the film. It made me think of them in a new light; that for decades, they were the hearts of communities that came together to share and enjoy summer. These families spent 26 summers together. My generation can barely get it together to plan a short vacation with a few friends two or three months out.

The film also left me wondering if my generation has lost the enjoyment of being with others and a feeling of belonging. My parents' generation revelled in being with others (granted, in their stoic 1950's way). They didn't seek privacy and seclusion, a retreat from others where they controlled access and interaction. With most of the clients I work with (my generation and the generation behind), privacy and seclusion are key factors most are striving for in a second home getaway.

Ironically, a cherished concept for housing among "organistas" (organic, environmental, socially conscious) is "co-housing". In co-housing. individual families have smaller homes clustered around shared outdoor space that fosters interaction, and there is usually a common house with gathering space. maybe studio or workshop space, a children's playroom and a few guest suites — so everyone doesn't need to build extra bedrooms for the once a year visit by Aunt Millie.

If you look at bungalow colonies through the lens of co-housing, that, in fact, is exactly what they were — in a summer version.

Four Seasons Lodge is playing at the IFC Center through Tuesday, Nov. 17th.

Two I Like

In the last week, there were price cuts on 2 houses I really like. The first (at left) is a 2 bedroom + den lakefront cottage at Wolf Lake north of Wurtsboro. (GHVMLS 473539) The place is just adorable, and has that whole cozy lake cottage thing going for it. The asking price has dropped to $369,500, an the owner has indicated that at that price it will be a short sale. Short sales can be tricky and require the patience of Job, but they can yield a pretty good deal for a buyer prepared to navigate the short sale waters. And there is the possibility that the seller's lender won't approve the short sale. Wolf is a very pretty non-motorboat lake, and owners at Wolf Lake have private use of 1,500 surrounding community acres.

The second price reduction that caught my eye is a 4 bedroom, 1 1/2 bath, 1,800 sq. ft. farmhouse on 4.45 acres on Swiss Hill Road between Jeffersonville and Bethel Woods. (SCMLS 24738)This house was originally priced at $299,000, and the owners have made a number of price reductions, and it's now at $229,000. When it was at $249,000 over the summer it was one of my "Best Value" picks. Frankly, this is one I'm very surprised hasn't sold. It's consistently a house I find a pleasure to show. I particularly like the 1950's Ozzie and Harriett kitchen.

Is the house perfect? No. The enclosed front porch detracts from the classic lines. (In my opinion, whoever buys it should bring it back to an open rocking chair porch.) The kitchen could be opened up to the dining room, and possibly two of the second floor bedroom could be combined into a master suite. But none of this needs to be done to enjoy the house.

The house does sit on a corner parcel, and some folks I've shown it to thought it was too "exposed". But we're talking the corner of Swiss Hill and Birch Ridge roads, for heavens sake. The two charmers on CR93 in Fremont Center that sold earlier this year (in the same price range) had more road impact than this house. This house on Swiss Hill has very gentle fields around it, and I think would be great for kids.

Homebuyer Tax Credit Extended, Expanded

First time home buyers chewing their nails wondering if their purchase will close by Nov. 30th to qualify for the $8,000 tax credit can relax. Yesterday, the deadline for the popular tax credit was extended until May 1, 2010 — and now you only have to be in a binding contract by the new deadline date, not fully closed. (Although the sale does have to close by the end of June.)

The extension includes two other changes that expand eligibility. First, the income limits have been increased — from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples filing jointly. Second, if you're not a first time home buyer, you may still qualify for a new, slightly lower $6,500 tax credit if you've lived in your current primary residence for 5 of the 8 previous years, and are purchasing a new primary residence.

For all the details on the new expanded home buyer tax credit program, check out the US News and World Report article.

Twins Separated at Birth?

Do these two houses look similar? Yup. They're almost identical, and both are on the market. The house on the left sits on 5 acres on Rowley Road near Barryville and is on the market at $299,000 (MLS 25388). The house on the right is just a few miles away, on 2.4 acres on Forestburgh Road in Glen Spey, and is on the market for $154,500. (MLS 473885.) The difference? House A has been stylishly renovated, with new systems and updates. House B is a bank owned foreclosure, and to put it charitably, is kind of a mess. The previous owners had started - but not finished - their updating. The kitchen and bathrooms are partially finished, some walls are raw, untaped sheetrock and there's evidence of mold in the basement. (House A doesn't have a basement.) But the house could be a great deal for a savvy cash buyer willing to take on the project. (Financing on this one could be tough because of the unfinished renovation.)

The owners of House A have gone very modern in their renovation and decorating, bordering on starkly sleek. It's ready to go out of the box. No assembly required. House B is more challenging, needing a buyer with the time, resources and imagination to turn it into a great little modern getaway. 

Sales Shockers

Last Friday, a 2,300 sq. ft., 2 bedroom log log home on 94 acres in Fallsburg township closed at $400,000! The property had originally been listed in 2007 at $999,000. It was relisted in May of this year at $769,000 with a mid summer price reduction to $699,000. In late October, the owner said "sell". The price was reduced to $499,000, which resulted in an immediate deal. The cash sale closed 7 days later. (No, this wasn't my deal.)

This sale probably takes the prize as a sales shocker, but there have been quite a few others this year. I've been involved in a number of them — two homes, one at the Chapin Estate (non-lakefront) and one up at Lew Beach selling in the mid $400's, and a lakefront home on 5 acres on Edgewood Lake in the Beaverkill Valley in the mid $300's. All were on the market for more than two years with original asking prices more than double where they finally sold. All 3 had various drawbacks that tempered their appeal at a higher price, but once they reached a certain price the buyers looked through the negatives to see a great deal.

And there have been other super deals sprinkled throughout the county, but they aren't common. They generally all involve the combination of factors I've written about before that result in a "super motivated" seller — a long time on market, some factor like illness or financial hardship that motivates a quick sale, and — this is important — the ability to actually sell at a super bargain price. On the buyer side, they typically are 'seasoned' with a good feel for value and trade offs. So when that super deal tipping point is reached on a house, they're primed to move on it.

The complication with the handful of 'super deal' sales is that they set a bar. Does that $400,000 sale now set the price expectation for a log home on large acreage? Of is it reasonable for a log home on large acreage to sell for $450K or $500K if there aren't 'sell now' distress factors involved? When the last 2 lakefront sales on 5+ acres were $363K and $430K, is another seller reasonable to have a price expectation of $450,000 or $500,000 for a similar house, when there isn't anything else similar currently on the market for less? Are sales similar in situations when a buyer expects to do full due diligence and is using mortgage financing versus one where the buyer is paying cash, waiving full due diligence and closing in a couple of weeks?

These are the kinds of things that make pricing very challenging right now, particularly in the mid to upper range where sales are thin, and the vast majority fall into the "super motivated" category. In the lower, affordable to mid range, there are "super motivated" and foreclosure sales, but there have also been a number of non-distress sales that offer some balance.