Questions and Answers About the Simplified Short Sale Process
What is a Short Sale?
In a Short Sale, a lender agrees to let a homeowner facing financial hardship sell a home for less than the mortgage owed. A Short Sale is an attractive alternative to foreclosure, typically not pursued until after other efforts to keep the owner in the home have been exhausted. There are potential tax consequences that should be discussed with a tax professional.
Why is a Short Sale better than foreclosure?
Typically, a Short Sale is less damaging to the borrower's credit. The former owner can qualify for a mortgage backed by Fannie Mae or Freddie Mac to buy another home in as few as two years – far sooner than if there had been a foreclosure. Short Sales also help protect other property values in the community by keeping the home out of potential disrepair.
What's been improved in the Short Sale process?
Under the Treasury's Foreclosure Alternatives Program, mortgage servicers have 10 business days to respond to a Short Sale offer. In the past, a lack of timely response has been one of the main reasons for delayed or derailed Short Sales. Also, paperwork and documentation are now standardized. Previously, such procedures varied widely between lenders. Various deadlines in the Short Sale process also have been standardized.
What's improved for the homeowner?
Under the Treasury program, a successful Short Sale will release the borrower fully from the primary mortgage obligation. This lender will not pursue a deficiency judgment. Additionally, homeowners who complete Short Sales are eligible to receive $1,500 to offset the expense of moving from the home.
What's the incentive for a primary lender to approve a Short Sale?
Using program guidelines, lenders will determine a minimum acceptable offer for the property. Typically a lender's loss on a Short Sale is less than the loss it faces should the property go into foreclosure. Through the Treasury program, mortgage servicers receive $1,000 for every Short Sale closed.
How does the program work?
If the owner of a principal residence does not qualify for refinancing and has exhausted Making Home Affordable loan -modification options – or if they make a direct Short Sale request to a lender in the program - the lender determines if a Short Sale is possible. If it is, the borrower is given at least 120 days (up to a year, depending on local market conditions) to sell the home using a real estate agent experienced in the local market. Meanwhile, the foreclosure process can move forward, but it cannot be finalized until after the marketing period has expired. During the marketing period, lenders must respond to a fully completed "request for approval of a Short Sale offer" within 10 business days.
What's the best way to find a real estate agent to handle a Short Sale?
.Identify your market area and then search for an agent with one of the following designations: Certified Distressed Property Expert (CDPE), Five Star Institute (FSP) or Short Sale Foreclosure Resource (SFR). You also can consider agents with the residential sub-specialties of "Foreclosure Property" or "Short Sales."
Does the borrower continue to make primary loan payments during the Short Sale marketing period?
Yes, in some cases. The amount is determined by the loan servicer in accordance with terms of the Treasury guidelines. If there is a payment, it cannot exceed 31 percent of the borrower's gross monthly income.
What if there's a second mortgage, home equity line of credit or other junior lien?
The borrower is responsible for either paying off such debt or negotiating release from the debt and any potential for deficiency judgment. An experienced Short Sale expert can help you with this process. The Treasury program provides some financial incentive for junior lenders and investors who hold such loans to participate in the Short Sale and release the liens.
Are there restrictions on who can make a Short Sale offer?
Yes. Among the program's many restrictions are requirements that the property not be sold to a relative and not be occupied or repurchased by the former owner. The buyer may not receive any funds from the transaction and cannot sell the property for at least 90 days after closing.
Is a Short Sale the only alternative to imminent foreclosure?
If a Short Sale is not successful, the lender can opt to take a "deed in lieu of foreclosure." In this process, the homeowner gives clear title to the property to the lender. Under terms of the Treasury program, the borrower is released from the remaining mortgage obligation and can still receive the $1,500 for relocation expenses. The borrower then has 30 days to vacate the property. In some cases, it's possible to pursue a "deed in lieu of foreclosure" without first pursuing a Short Sale.
When does the program begin?
The official effective date is April 5, 2010, but participating mortgage servicers can begin operating under the terms of the plan as soon as they are ready to meet reporting requirements.
Are Short Sales still possible for borrowers and lenders not covered by the Making Home Affordable Program?
Yes. Short Sales remain possible for borrowers with mortgages not covered by the Treasury program's incentives and guidelines.
Is there an expiration date for the Treasury program?
Borrowers have until Dec. 31, 2012, to enter into a Short Sale or deed-in-lieu agreement with their lender under terms of the Treasury program.