Due to current economic conditions, the number of short sale properties on the market is rising. Rather than face foreclosure, some distressed homeowners are opting to sell their home through a short sale.
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt. A short sale might also be an option for homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure.
The Obama Administration’s Home Affordable Foreclosure Alternatives Program (HAFA) offers incentives for borrowers and lenders who use short sales or deed-in-lieu of foreclosure. The Treasury Department recently released guidelines and forms for streamlining the process. At 43 pages, the guidelines and forms aren’t exactly short, but they do offer guidance on how the program will work.
Some highlights from the National Association of REALTORS®:
- HAFA applies to borrowers who are eligible under the Home Affordable Modification Program (HAMP) but who are still unable to keep their home.
- Loans owned or guaranteed by Fannie Mae or Freddie Mac are not eligible. Fannie and Freddie are expected to issue their own versions of HAFA in coming weeks.
- Borrowers can receive pre-approved short sales terms before listing the property.
- Servicers are prohibited from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent.)
- Requires borrowers to be fully released from future liability for the first mortgage debt.
- Standard processes, documents, timeframes and deadlines are to be used.
- There are varying financial incentives – ranging from $1,000 to $1,500 – for those involved in the short sale process.
- The program doesn’t take effect until April 5, 2010, but servicers can implement sooner if they meet certain requirements. The program ends Dec. 31, 2012.