This week the Treasury Department issued new guidelines to try and "speed" the short sale process. The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales. A short sale is where a lender agrees to accept a sales price on a purchase agreement even if the price falls short of the amount owed on the mortgage.
Financial incentives for completing short sales include a $1000 payment to the loan servicers and a maximum of $1000 to go to investors who sign off on payments to subordinate lien holders. Among the requirements, the mortgage servicers have 10 days to approve or deny the short sale. When the short sale is complete, the lender must fully release the borrower from the debt. It also prohibits the mortgage servicer from reducing real estate commissions on the sale.
Short sales are favored by real estate agents and community groups over foreclosure because they can leave the property in better condition and don't hurt a borrower's credit rating as bad as a foreclosure. The lenders still have steep losses, but they are not as bad as a foreclosure.
Fannie Mae came out in June 2009 with new rules regarding short sales and foreclosures. In the past it was 4 years from the foreclosure completion to get a new mortgage, that has been extended to a minimum of 5 years. The time period required for a pre-foreclosure sale is now 2 years. There are no exceptions for extenuating circumstances to the 2 year time period. For a deed-in-lieu of foreclosure, the time period is still 4 years.
Short sales have been frustrating for both borrowers and real estate agents as negotiations between multiple lien holders and mortgage insurance companies have held up transactions. Sales have fallen through as lenders fight over the sales price and what they should receive from the proceeds. I have had a few transactions that have cancelled after a 4-5 month waiting period without any answers from the lien holders. Hopefully the 10 day requirement will help speed up the short sale transactions and allow more properties to be sold prior to a foreclosure.
All things to try to move things along are a help. I like the point that a short sale is only 2 years against 4 years for a foreclosure. This is important. Many home owners don’t always understand the benifit of shortsales.
It’s well known that cash can make us disembarrass. But how to act if somebody does not have cash? The one way only is to try to get the loans and just small business loan.