Sunday, August 15, 2010

A Better Way to Do Short Sales

A short sale occurs when the seller owes more on his mortgage than can be recovered by the sale of the house. Banks have made the short sale process so painful, that most buyers won't even make an offer on a house that is listed as a short sale. Buyers know they will wait several months before the seller's bank will look at their offer, and then the lender will refuse to make repairs and may counter at a higher sale price. At the last minute, the real estate agent's commissions can be reduced, and the agents have no recourse. So of course agents are not eager to get involved with these high risk/low reward transactions.

Since August 1, the U.S. Treasury has made Home Affordable Foreclosure Alternatives (HAFA) short sales available to borrowers whose loans are owned by Fannie Mae and Freddie Mac. Borrowers with FHA and VA loans are still not eligible.

Here are the enlightened advantages of the HAFA short sale:
1) The seller has at least 120 days to market the house, during which time foreclosure is postponed.
2) The seller's lender sets a sale price that they will accept, preferably before the house is on the market.
3) If a buyer submits an offer that meets the the terms of the seller's lender, the lender must accept the offer within 10 business days.
4) Seller is released from all liability on all loans. No deficiency judgements, and no surprise repayment notes appear in the closing documents.
5) U.S. Treasury pays up to $6,000 to subordinate lien holders. This is a big deal, because typically the holder of the second mortgage is offered $3,000 by the first lien holder, and the second lien holder can refuse to accept this settlement, so the short sale can not occur.
6) Seller receives $3,000 cash from the U.S. Treasury at closing for moving expenses.

How can the U.S. Treasury get lenders to agree to streamline the short sale process? They give cooperating lenders $1,500. So the downside of all this is that the taxpayers are again on the hook for the mortgage industry meltdown.

I just took a class on the HAFA short sale process, and I would be glad to discuss this option with you if it seems like something that would be helpful to you.

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