New Short Sale guidelines going into effect

New federal guidelines for Short Sales go in to effect on April 5, 2010. As I understand it, the goal is to streamline the process so that once an approved home is listed and receives an offer, the loan servicer will be required to respond yea or nay on the offer within a brief time period. This is a welcome change as I have had clients wait for over 6 months to receive approval. (Thankfully he was patient and received a great home at a great price.)

The Homes Affordable Foreclosure Alternative (HAFA) short sale process employs standard form documents and defined performance timeframes to facilitate clear communication between the parties to the listing and sale transaction. Servicers must adhere to the following guidelines in connection with the issuance of an SSA (Short Sale Agreement).

1. The rules do not apply to loans that are backed by Freddie Mac or Fannie Mae. Ask your agent to find out from the sellers agent who is holding the note. This may be different than who is servicing the loan. Banks are often servicers, not note holders (investor).
2. Allows borrowers (current sellers) to receive pre-approved short sales terms before listing the property
3. Requires each servicer to have a written policy, consistent with investor guidelines, that describes the basis on which the minimum net will be determined.
4. The minimum net proceeds must be equal to or less than the list price minus the sum of allowable costs that may be deducted from the gross sales price.
5. This amount must be documented in the seller’s file and may not be increased until the initial SSA termination date is reached (not less than 120 days).
6. Upon successful closing, the borrower will be entitled to a relocation incentive of $3,000 which will be deducted from the gross sales price at closing.
7. The amount of the monthly mortgage payment the borrower will be required to to pay during the term of the SSA – not to exceed 31% of the borrower’s gross monthly income.
8. Requires borrowers to be fully released from future liability for the first mortgage debt and if the second receives an incentive under HAFA, that debt will also be released.
9. There are other requirements for the borrower in regards to executing the SSA agreement and listing the home
10. Takes effect April 5, 2010 and sunsets December 31, 2012.

Key Timeframes:

• Notification from the servicer (bank)
  • If the borrower doesn’t qualify for HAMP (Homes Affordable Modification Program) the bank must consider borrower within 30 days after one of the following has been met:
    • Doesn’t qualify for trial period plan
    • Doesn’t successfully complete a HAMP trial period plan
    • Misses at least 2 consecutive payments
    • or Requests a short sale
• Borrower has 14 calendar days from the date of the short sale agreement to sign and return it to the bank.
  • The bank must give the borrower 120 days to sell the house (extensions permitted up to 12 months).
• Within 3 business days of receiving a fully executed offer from a purchaser the Agent/Borrower must submit a complete Request Approval of Short Sale to the bank.
• Ten business days after the bank has received the complete RASS they must approve or deny the request.
• The first mortgage lien must release the lien within 10 business days or earlier after receipt of sale. The investor (lender) must waive rights to see deficiency judgments and not require a promissory note for the deficiency.

If you have ever wondered whether a Short Sale is a possibility for you, give me a call and we can confidentially review the situation and procedures. If you are interested in purchasing a short sale, we can help there too.

Thanks to Amy Cesario for her great post on the subject

Thinking about buying a short sale in Naperville?

Short sales – different views for different folks but a common theme is the vision of getting a property under market value and with a few fix-up dollars thrown at it, instant equity! If you have patience, and understand the process ahead of time, you may be able to navigate the waters with a little more sanity and on a more even keel. Please understand, this post does not constitute legal advice – talk to an attorney familiar with the process early in the game and save yourself some aggravation. There are also numerous resources available on the web discuss short sales.

• After finding a property that you want to offer, work with your Realtor to prepare an agreement to purchase, taking into account, potentially extended closing dates, finance approval dates, inspections, etc. Are you going to include a Short Sale Rider in your agreement?
• Negotiate the agreement with the seller and their agent. Usually, until there is written agreement between buyer and seller, with earnest money exchanged, there is nothing to present to the mortgage holder (bank).
• Understand that mortgage holder agreement to take less than mortgage value for the property (short sale) is a contingency to the negotiated purchase agreement between buyer and seller.
• The mortgage holder will then determine the market value of the property and what they are willing to take in order to sell the property. Some institutions do this ahead of time, others wait until they have a negotiated agreement in front of them. Once this is determined, it is not unusual to enter into negotiations to agree on a new price.
• Once agreement is reached here, the process can move towards closing.

Again, be prepared for a lengthy process, but hope for a quick one. Understanding the process and patience can lead to a rewarding purchase.