Short Payoffs in New York State
Helping You Save Your Property from Foreclosure
If you are trying to save your property from foreclosure, there are three traditional loss mitigation options, which include a loan modification, a short sale, and giving a deed in lieu of the foreclosure action. There is a also little known request called a “short payoff” where many lender allows the borrower to keep the property and pay a discounted amount from the real and higher payoff that includes not only the amortized principal and interest, but also taxes, insurance, legal and property preservation costs.
The requirements of a short payoff differ from traditional loss mitigation options and obtaining financing to pay the loan short is not always easy. For instance, if the borrower is in default, most public and private lenders will not finance. As a result, creative ways to obtain financing must be explored. If financing is unavailable, the borrower may agree to contract with a third party and then apply for a short payoff, which would allow them to create equity to cash out with.
Helping You Receive Money for Property Transfer
If the borrower is not interested in keeping the property but desires to receive money from a sale, a shortpayoff allows a legal way for the borrower to receive money from any equity obtained by the deduction of the amount to satisfy the payoff. To the contrary, a short sale requires that no money be paid to the borrower as a condition of the short sale (with the exception of a small relocation fee).
At James J. Quail & Associates, P.C. in Massapequa NY, we can help. Our attorney can review your situation and determine your options. Our team understands the overwhelming nature of your situation and will help you explore options available only by a seasoned attorney with that particulare expertise.
Reach out to our law office today at (516) 246-2449 to request an initial case review with our experienced attorney to learn more about foreclosure law and mitigation options.
Short Payoff vs. Short Sale: What’s the Difference?
Short payoffs and short sales generally have the same results, but it’s important to know the differences before you learn more about short payoffs below.
A short sale requires a property to be listed for up to 3 months so the lender can attempt to get the highest bid. Since they have to cover the expenses of the sale, including real estate commission and back taxes, lenders may end up losing a lot of money in the process.
Short payoffs require the lender to give a discounted price to the borrower at no expense to the lender. Instead, the lender only provides a mortgage satisfaction to the clerk once the discounted price is paid. Although they are not advertised, short payoffs are often preferred by lenders because they know that the borrower has the biggest incentive to pay the most money to the lender. After all, the borrower’s main goal is to keep their home and avoid foreclosure.
What Is a Short Payoff?
A “short payoff” is when a borrower cannot pay the mortgage or similar payments on a property, so the lender allows the property to be sold or paid off for less than the total amount owed. For this reason, short payoffs are desired because they allow a borrower to stay in the property or otherwise cash out any equity created by the discount in the payoff balance.
Alternatively, a short sale is when the borrower sells the property to an unrelated party and asking the lender to discount the note in order to engage in such sale. In that event, the borrower is not allowed to receive anything more than a stipend to relocate.
Keep in mind that most lenders and financial institutions advertise that they do “short sales” rather than short payoffs. Sometimes they refer to short sales as “loss mitigation,” “loan modification,” or “giving a deed instead of foreclosure.” An example of a short sale is if you owe $550,000 on your mortgage but find a buyer who can pay $400,000. You can request the lender or financial institution holding your mortgage to accept less than what is owed.
In other words, a short payoff doesn’t require you to sell your property or find the highest bidder. Instead, you are simply asking the lender or financial institution to discount their mortgage so that you, a family member, or a friend can buy the property back at fair market value. However, a short sale requires the lender to put the property on the market for 3 months to find the highest bidder. From there, you submit certain documents to your lenders/investors/insurers for their approval.
Short sales often occur in situations where lenders are owed more money than a property is worth. For instance, you may have borrowed $500,000 from the lender for a $500,000 house but didn’t pay the mortgage for 5 years. After those 5 years, the mortgage is now $800,000 with interest. However, the lenders know that if they put up the property at an auction, they will never get $800,000 because the property is worth far less than that amount. As a result, lenders are often willing to offer a short payoff to the borrowers themselves, resulting in big savings. For example, if your lender offers a short payoff, you don’t have to pay any transfer taxes, real estate commission, or title charges. You have the opportunity to essentially re-buy the house or property at fair market value without owing additional money on your mortgage.
Short sales were historically pushed by realtors and investors, which led to fraud (namely, by pretending that they were the third party and lowballing the offers). Eventually, lenders and financial service providers realized that they could actually make more money by selling the property back to the borrower at a lower price because if the owner wanted to keep the house, they had the biggest incentive to pay the most for it. Investors, on the other hand, were generally looking at 50 cents on the dollar in terms of buying and then selling for profit.
Accordingly, lenders and financial services companies do not advertise short payoffs. It’s never in their loss mitigation packages, and most people don’t think to ask if they can pursue it. As little advertising as they get, short payoffs are available through most financial service providers. You simply have to package it in a certain way.
That being said, many legal issues depend on an attorney who knows a client’s rights and which services lenders and other financial services institutions offer, as opposed to what they advertise.
Who Is Eligible for a Short Payoff?
Short payoffs are usually available to borrowers who need a “way out” of their mortgage when things turn upside down, meaning the borrower owes more on their mortgage than what the property is worth.
A borrower is eligible for a short payoff when they successfully explain to the lender why it should take less than what is owed. A property that has equity may qualify for a short payoff if there is adequate time before a foreclosure auction and the lender is paying carrying costs, such as taxes, insurance, property preservation, and legal costs. Similarly, if the property has damage, is in poor condition, has foundation issues, contains asbestos or lead paint, and other valid basis to discount, it would help the lender to agree to a lower payoff.
A borrower also might be eligible for a short payoff if their lender cannot produce the note or has some kind of break in the title due to numerous transfers of the mortgage loan. If that is the case, the lender will consider the lack of evidence or the difficulty in foreclosing when agreeing to accept less than they are owed.
Private lenders tend to be interested in short payoffs because they usually buy the note at a substantial discount and can still make money after a discount to the borrower. So, your chances of obtaining a short sale may be higher if you have a private lender.
Should I Pursue a Short Payoff?
A short payoff is a more attractive alternative to traditional options. The borrower essentially sells the property to a third party and asks the lender to discount the note. As such, the borrower only receives a stipend to relocate.
Although it may be challenging for a homeowner to finance a short sale, especially if they are suffering from poor credit, a non-owner spouse, relative, friend or hard money lender, or a reverse mortgage can make a payment on the short payoff. Thereafter, the property may be refinanced after the borrower’s credit is repaired, allowing them to stay in their home and obtain equity almost overnight.
What is a Short Sale on a Reverse Mortgage?
A short sale on a reverse mortgage is when a home is sold for less than what is owed. This sale can happen when the balance owed on the mortgage is greater than the home's market value. To get a short sale approved, homeowners work with a short sale agent to get approval from the bank that holds their reverse mortgage. The lender will only approve a short sale with proof of the home's appraised value.
Benefits of Short Payoffs
The main pro of a short payoff is the borrower gets to remain in their house at a discounted price, allowing them to pay the fair market price or less for the property. Further, a borrower can sell the property and receive money for created equity. Other pros are the homeowner gets to avoid foreclosure, a deficiency judgment, and possible eviction.
Set Up a Case Review with Our Experienced Attorney in New York State Today!
If you are concerned or curious about loss mitigation options such as a short payoff or short sales, our legal team can help you negotiate a short payoff and inform you of other options available to you, so you can make the best choice moving forward. Your property does not have to go through foreclosure. Contact James J. Quail & Associates, P.C. to discuss your foreclosure defense options.
Reach out to our law office today at (516) 246-2449 to request a case review and get started.
For more information on Short payoffs, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (516) 799-9100 today.