For home owners whose mortgages are at risk of going into foreclosure and don't qualify for a loan modification good news may be on the way. In the next several months the Obama administration will introduce a standardized short-sale plan.
At the beginning of the month the Treasury Department outlined this new short sale program which is aimed at streamlining a very time-consuming process which requires lenders to use nationally uniform documents, financial incentives as well as timelines.
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. It usually occurs when a borrower can't pay the mortgage loan on the property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor. If both parties agree to the short sale process, this will prevent the property from going into foreclosure which usually involves large fees for the bank and a bad credit report for the borrower.
Despite the fact that the process sounds fairly straightforward, sadly that's not always the case.
First and foremost, the bank will need to be convinced that a short sale would produce more money at the bottom line compared to a foreclosure.
The borrower will then need to bring in a real estate agent who understands what is involved with a short sale and they will need to pull together the key information that the bank needs which includes local market trends, recent comparables on closed sales in the area and the likely selling price of the property.
Secondly, there needs to be a buyer for the property who will have to pay a price that is acceptable to the bank and who also has financing in order to purchase the home.
If there is a second mortgage or home equity credit line on the property, then that will need to be negotiated on how much that lender will receive from the final sale price.
In a depressed real estate market this kind of sale is often full of pitfalls and can take months to complete. Discussing this process with a realtor can often help the borrower understand the process and should help them navigate through the necessary paperwork involved with a short sale.
Now that you have a better understanding of what is typically involved with a short sale, enter the Obama administration's new streamlining plan. The plan provides financial incentives for all the key players and will require the lenders and servicers to use uniform documentation, pre-approved short-sale terms and accelerated turnaround times.
Here are some key points about this new plan:
- To defray relocation costs, homeowners who successfully complete a short sale under the new program will receive $1,500.
- Mortgage servicers may receive $1,000 per case.
- Investors may get $1,000.
- Second-lien holders may also receive up to $3,000 from the short sale proceeds.
There is even good news for the real estate agent as well because they will also get something out of the short sale. The rules for the Obama plan prevent banks from making agents eliminate their commissions from the listing agreement as part of the final deal.
A win-win for everyone. Well, maybe. We will not know the full extent of the program for several months, and even now most of the major lenders are currently still studying the fine print on this new program. However, so far big banks appear to be positive towards this plan.
"We're very pleased. We welcome any effort to reach standardization for all parties involved in short sales." said by Dave Sunlin, a senior vice president for Bank of America Corp.
Homeowners who feel that they might benefit from this program should talk with their servicer to see if they plan to participate and borrowers will need to decide if the forthcoming standardized Obama plan for short sales might work for them.
This article is for informational purposes only. Individuals should consult with qualified professionals on each individual's particular situation. This article should not be construed as legal advice.