New York Real Estate Lawyers Blog
When our firm is retained by a new client whose property is in danger of being foreclosed, one of the first issues that needs to be determined relates to the equity in the property. Equity can be defined as the net value of the property, once all liabilities are calculated. It is an important component of deciding the correct game plan for defending any potential foreclosure action.
The first step towards calculating the equity in a property is to obtain an estimate of the current market value of the property. Although there are online service such as Zillow which may give an estimate of a home’s current value, these “zestimates” are approximate and may not reflect the current physical condition of the property. In order to obtain the most accurate value, we recommend hiring a professional appraiser. The appraiser is an independent licensed professional who will thoroughly examine both the interior and exterior of the house, and also compare it to other similar properties on the market in the area where the property is located. Once they have completed their inspection, they will provide a written report which gives a current market value for the specific property.
The second step is determining the current debt on the property. Payoff letters can be requested from the current mortgage holder. Keep in mind that there may be more than one mortgage on the property, requiring obtaining multiple payoff letters. The payoff letter will show the amount needed to pay off the outstanding mortgage. Depending upon how advanced the mortgage foreclosure process has proceeded, there may be additional charges added by the lender, such as property taxes advanced by the lender, as well as costs and attorneys’ fees for any foreclosure actions.
There may be additional debt on the property, such as a judgment against the property owner. Judgments which are entered in Court become a lien on the property, and the premises cannot be sold without satisfying the judgment. Experienced counsel may be able to negotiate with a judgment holder and could possibly settle the debt for less than the full amount.
Outstanding unpaid property taxes must also be paid prior to the property being sold. A title search on the property will show whether the property taxes are current, or whether there are amounts past due.
Once the current market of the property is determined, and the total debt that must be paid, the equity is then calculated by subtracting the debt from the appraised value. It should also be noted that selling the property through a real estate broker will generally incur a broker’s fee of about 5-6% of the sales price. This amount should be calculated as to be subtracted from the equity.
Calculating the equity correctly will allow the owner’s attorney to determine whether the property should be sold to avoid a foreclosure action. If there is sufficient equity to pay off the lender, and allow the homeowner a profit, a sale may be the most prudent solution, rather than continuing a Court case which would result in the property being sold at public auction.