Posted on Thursday, May 5, 2011
WPTV April 28 2011 8 PM EST
Short Sale Homeowner sells home for less than what is owed to bank for mortgage. Bank agrees to accept less than what is owed to satisfy the mortgage.
Reasons for Doing: Bank avoids costly foreclosure, home maintenance and resale (usually for a lower price than borrower can get). Borrower avoids costly credit destroying foreclosure and is able to relocate to more affordable housing quicker.
List property for sale. Get offer. Provide offer, listing contract, borrower financial hardship documents and property valuation proof to lender (BPO or BVO) with request for lender to approve short sale.
Lender reviews and approves or denies (takes a long time)
“Crises” Short Sale Programs Viewers Should Know About
“HAFA” (Home Affordable Foreclosure Alternatives). Regulates short sale payoffs of first mortgage liens not owned or guaranteed by FNMA or Freddie Mac (non GSE mortgages). Provides $$$ incentives to servicers, borrowers, investors and junior lien holders. Related to HAMP (The Presidents now infamous Home Affordable Modification Program that was supposed to help millions but did not and recently lost funding). Both under Making Home Affordable.
• Live in home
• Payment exceeds 31% of income
• Evaluate for HAMP first. Use same financial information
• Documented financial hardship
• Not purchased new home in last 12 months
• Mortgage less than &729,750
• Got mortgage before Jan 2009
• No felony, etc past 10 years
• $3000 relocation assistance
• No deficiency
• Requires servicers to follow certain process, meet timelines (120 days average)
Servicers also have their own programs: example, Bank of America “Cooperative Short Sale Program” is a “pre-offer program” (upfront approval for list price, investor agreement –each has specific guidelines for approving short sales, short sale specialist assigned early in process)
Currently foreclosures on hold due to robo-signing. Gives leverage to do short sale.
Realtors certified by NAR.
If don’t qualify, will take 1 to 7 years before off credit report. Deficiency judgement. After short sale, Chapter 7 bankruptcy can remove or discharge it.
Even is deal doesn’t close, establish value – hold lender to mitigating damages.
More difficult if more than one loan.
Beware of Scams: fee in advance, pressure to sign immediately, sign over deed, make mortgage payment only to bank
• Your mortgage servicer
• A HUD Credit Counselor 888 995 HOPE (4673)
• Or me by emailing email@example.com
March 2009; Treasury launched HAMP
November 2009; created HAFA; policies, procedures, forms. For borrowers who don’t qualify for HAMP, can’t complete HAMP modification, or don’t accept a HAMP modification.
January 2010; some second lien lenders accused of short sale fraud - demanding kickbacks off the HUD (RESPA violation) from buyer or Realtor.
March 26, 2010; HAFA revised to increase incentive payments, address loophole complained about (servicers using real estate commission to pay vendors who work for them).
April 5, 2010; deadline for servicers to implement HAFA
June 2010: FNMA and Freddie issued their own HAFA guidelines – generally the same.
December 2010; Eliminated some of the rules that were holding back short sales ( to get more second lien holders on board-changed way pay out by eliminating 6% rule/still $6K cap. Also directed servicers to grant borrower HAFA short sale request in no later than 30 days).
January 2011; Bank of America “Cooperative Short Sale Program.” Also offers financial incentives for borrower. As of March 2011, still improving the technology to be more efficient.
February 2011; Treasury report on HAFA shows servicers started 10,488 short sale approvals and finished 4,488 since April 2010
April 2011; Bank of America “pre-offer program’ allows request for short sale approval to get the process going before a contract offer is received.
April 2011; Bill introduced in House of Representatives requiring mortgage servicers to respond to short sale request within 45 days.
HAFA expires December 12, 2012 unless extended.