Current economic conditions have caused home values to recede in the vast majority of the United States. The little to no money down loans that were originated in the early to mid 2000's have created a scenario that is far from ideal for most Sellers in today's real estate market. With values plummeting up to 50% in some areas of the country many home owners find themselves under water and drowning in excess unexpected debt. Many people bought homes under the pretense that home values always increase. In general this rule of thumb appears to be true, but currently values are going the wrong way. Selling your house when you owe more to the lien holder than your property is worth is called a short sale. Short sales aren't ideal but with 25% of home owners owing more than their properties are worth it's becoming more and more common.
What is a short sale?(Definition courtesy of wikipedia) A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.[1] It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
The biggest problem with successfully executing a short sale is dealing with large banking institutions. Most commonly talked about as BIG BANKS. We hear about them constantly on Fox News and CNN - choose your poison. Dealing with these banks is a logistical nightmare on par with ordering food in foreign country. You hoped for chicken and got squid. The right hand doesn't know what the left hand is doing. This communicative dabacle couldn't be cured by the world finest physician even if we gave him godlike powers. To be successful we need to find a way to entice these banks to make quicker more finite decisions. As part of the Home Affordable Foreclosure Alternatives Program (HAFA) the government has decided to throw money at the problem. If you had to escape prison would you rather have a jackhammer or a spoon? I suppose you get my point, it may not be the best solution but we'll make due.
So what is available to help streamline the Short sale process so that an approval can be had in 10-14 days instead of 60-90. Short sales are backing up the market and creating misleading "pending" sales in the real estate system.
The program: Home Affordable Foreclosure Alternatives Program (HAFA)
Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
Uses borrower financial and hardship information already collected under HAMP.
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).
Uses a standard process, uniform documents, and timeframes/deadlines.
Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders.
Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
Does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements. The program sunsets on December 31, 2012.
Another downfall to the system is the outrageous timelines associated with a short sale. Some of these numbers might look a bit better than what we've traditionally become accustomed to.
Short Sale Agreement- The borrower has 14 calendar days from the date of the Short Sale Agreement (SSA) to sign and return it to the servicer. The SSA must give the borrower an initial period of 120 days to sell the house (extensions permitted up to a total of 12 months).
Purchase Offer- Within 3 business days of receiving an executed purchase offer, the borrower (or agent) must submit a completed Request for Approval of Short Sale (RASS) to the servicer. Within 10 business days after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and advise the borrower.
Closing - The servicer may require the closing to take place within a reasonable period after it approves the RASS, but not sooner than 45 days from the date of the sales contract unless the borrower agrees.
The servicer must release its first mortgage lien within 10 business days (or earlier if required by state or local law) after receipt of sales proceed from a short sale or delivery of the deed in the case of a DIL. Investor must waive rights to seek deficiency judgments and may not require a promissory note for any deficiency.
I know this is a ton of information but it might just be what you need to get a short sale completed. If you own a home in Gettysburg, PA and are under water but need to sell, give me a call I'd be happy to help you evaluate your position.
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