New Short Sale Rules

The Treasury Department revealed some new rules this week to help financially distressed homeowners who need to sell but can’t get price high enough to pay off their mortgages. Homeowners will be eligible get $1,500 to help cover their moving costs.
The plan is designed to help homeowners who don’t have the income or debt levels to qualify for a loan modification under the Obama administration’s $75 billion MAHP. The plan establishes timelines, a standard process and documents, and cash incentives for participation.
These known as Short sales a process that would minimize damage to borrower’s credit, save the bank from losing more in a a foreclosure as well as keeping values better in neighborhoods.   Foreclosures are more distressed and in time their value is a lot more below market value then a ready to be moved into home that is using the Short sale.
About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, says the National Association of Realtors.
The new rules are being put into motion to help home owners, realtors and lenders get on the same page and expedite the sale.  All to often Short sales are everything but short- Time lines for a short sale often is 4-8 months with many buyer’s not willing to wait.
There are some pitfalls to the Treasury Departments plan.
Mortgage companies will have the option to wait until April 5th2010 before starting this program and that leaves many deals that are on the table now stuck in the mud. Program is also voluntary to companies that have more than one note on the home i.e.- a second mortgage, equity line of credit etc. It has been tracked by the Treasury and about 1/2 of the homes have more than one note.
A secondary debt holder will be eligible for up to $3,000 dollars to settle and release all liens allowing the property to be sold in a Short sale. The downside is that if a secondary lien holder has much more owed they may choose to not release and try and go after home owner for deficiencies.
New rules should streamline the process with less documentation required along with clear hardship for owners trying to get modifications and Short sales. A problem that is not going away anytime is still looking for solutions.
Mortgage companies will receive $1,000 to cover administrative costs.