Government program working to streamline short sales
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Earlier this month I had the opportunity to attend the National Association of REALTORS® Conference and Expo, one of the top forums for REALTORS® to learn about emerging trends in the real estate industry. Along with sessions about the economy and new technology, one of the most prominent topics at the conference was short sales.
Virtually unheard of during the boom days of real estate, a short sale occurs when a borrower owes more on a home than it is worth, a situation created by a decline in home prices. Rather than let the property go into foreclosure, the homeowner asks the bank to allow the house to be sold for less than the mortgage amount. The goal is to save the bank money while hopefully giving the borrower a less severe hit on his or her credit score.
Despite their benefits, short sales are anything but short. They are notoriously long and burdensome, with some sales taking six months or longer to complete.
That's why the U.S. Treasury Department implemented Home Affordable Foreclosure Alternatives,a program designed to speed up short sales, earlier this year, with mortgage giants Fannie Mae and Freddie Mac following suit a few months later.
The HAFA program aims to eliminate many of the common short sale frustrations and delays by streamlining the process with uniform documents and timelines, and by providing financial incentives to banks.
HAFA short sales are designed for borrowers who are unable to keep their homes through a loan modification and are looking for a graceful exit. The qualification requirements are nearly identical to those of the government's Home Affordable Modification Program.
Although requirements will vary depending on the loan's owner and servicer, borrowers must meet the following threshold qualifications to participate: The property must be the borrower's principal residence; the primary mortgage must have been originated before 2009; the mortgage is delinquent or default is reasonably foreseeable; the unpaid principal balance is no more than $729,750; and the borrower's total monthly payment exceeds 31 percent of his or her gross income.
Borrowers who are unable to keep their homes but qualify for HAFA should seriously consider participation. Not only will the sales process likely be faster and less stressful, but banks must forgive the difference between the borrower's mortgage amount and the home sales price. This is a key feature because it prevents the bank from seeking repayment of the funds at a later date.
Another benefit to the home seller is the fact that HAFA provides $3,000 upon closing to help with relocation costs.
For home buyers who are looking at the possibility of purchasing a short sale, it is worth considering a HAFA-approved property. Unlike a traditional short sale, the asking price on a HAFA short sale has already been pre-approved, and the buyer can expect to have their offer accepted or rejected within about 10 business days. With a traditional sale, the buyer could expect to wait for months before knowing whether or not the bank approved the offer.
HAFA buyers are also given at least 45 days to close, a significant advantage considering buyers of traditional short sales often have only two weeks to get their mortgage in order and finalize the transaction.
While HAFA will not solve all the problems associated with short sales and not all homes will qualify to be sold through HAFA, hopefully the program will continue to improve and make the process easier for both buyers and sellers.
To learn more about avoiding foreclosure, selling your home as a short sale or buying a pre-foreclosure property, contact a local REALTOR® experienced in short sales.
By Lerron Little, CRS, GRI
Appeared in the Salt Lake Tribune and Deseret News November 27, 2010
December 15, 2010 | Share: