The New Short Sale Rules – It’s About Freakin’ Time!

If you have ever been a party in a short sale transaction, or even know someone that has, you know what kind of nightmare it can be. For the last few years, the banks have been doing everything they can to make a short sale as difficult as humanly possible. They just don’t want to do them, it’s that simple. I have heard that only one in ten short sales are actually completed. Those are bad odds in any casino you go to.

But there is help on the way. The Home Affordable Alternatives Program (HAFA) has just released some new guidelines that are set to take effect in April of 2010. The new rules are designed to help homeowners get out of their property if they are underwater (they owe more on the mortgage than the house it worth). This is great news for all.

Here is summary of some of the points that will have the greatest impact.

• A homeowner will be able to get a short sale approval in advance. This is huge! In the past, the banks wouldn’t even look at a short sale unless there was a buyer with a signed contract. The homeowner, real estate agent and the buyer never even knew if the bank would consider the short sale. The new guideline allows the owner to receive a pre-approval from the bank that includes the minimum net amount it will accept.
• Lenders must respond within 10 days. If the net amount of the sale meets or exceeds the minimum stated in the approval, the servicer (or bank) will approve the sale.
• The banks cannot reduce the commissions of the real estate agents that are stated in the listing agreement (up to six percent).
• Provides new incentives for the borrower to complete the process. They are now given $1500 for relocation expenses.  This will make the transition much easier for the homeowner.
• Mortgage servicers will also get $1000 for each completed short sale.
• The homeowner is released of all liability for the loan. In some states, it is legal for the lender to come after the homeowner for any losses that they incur. This is called a deficiency judgment. This is not allowed any more. The borrower is free and clear after the sale is complete.

But there are some qualifications to these guidelines as well. The homeowner must be delinquent and unable to pay for his mortgage. The loan must be less than $729,750, made before January 1st of 2009, and the home must be the primary residence of the owner.

This is going to really help some homeowners in the Portland area, as well as other parts of the country. It is about time the government got serious and laid down the law to the banks!

If you want to read the official release (long), you can see it here: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf