Under the Obama Administration’s Making Home Affordable plan, which offers alternatives to foreclosure for homeowners struggling or unable to make their payment but unable to complete a loan modification, the short sale process is expected to be streamlined with incentives for all parties by the Treasury.  As reported in Short Sale Stories:

Sellers who complete a short sale can receive up to $1,500 when the sale closes. They can use this money to pay some of their moving expenses when they finish the short sale. This helps the recurring problem that sellers need funds to be able to relocate when the home sells. This same $1,500 incentive payment applies to borrowers who give their lender a deed in lieu of foreclosure.

In addition to these incentives, this expansion of the Making Home Affordable program creates a standard process to follow in a short sale. It creates timelines for the performance of the short sale, which is a welcome addition as they frequently drag on and on. The program also creates standard documents for use in short sales and deeds in lieu of foreclosure. This standardization will make short sales easier to do, and the performance timelines should speed up the process. Clear time limits for a response from the lender to a proposed short sale contract… could greatly encourage buyers to purchase short sale properties.

The lender has to allow the sellers/borrowers a minimum of 90 days and a maximum of a year to sell their property. The time will vary depending on local market conditions. The property to be sold must be listed with a real estate agent that has experience in selling properties in the neighborhood.

The lender will establish both the property value and the minimum amount that the lender will accept. So, the lender will order an appraisal or a Broker Price Opinion (BPO) and use that to establish a reasonable sales price for the property. The appraisal or BPO will have to be current, as the program requires that they be done within 120 days of the Short Sale Agreement. This appraised value will be the basis for the lender’s decision of how much they will accept as the short payment of the balance due on the loan. Many lenders will accept 80% to 90% of the value established by the appraisal or BPO, which allows buyers to purchase the property at a favorable price.

This procedure of establishing the acceptable value of an offer will be a wonderful improvement to a short sale. This should eliminate the “guess again” feature found in some current short sales, where the lender will occasionally turn down an offer without giving a counter offer or any guidance to the seller. The opposite should happen under the current program, i.e. the lender will instruct the seller concerning the price at which the property should be listed and also provide guidance on price reductions.

One of the biggest problems in short sales comes when the property has a first loan and additional junior liens. For example, many homes have a first loan and a home equity line of credit that is a second loan. There is some assistance from this program because the Treasury will contribute money to help pay off second loans and other junior liens.

If the borrower is unable to sell the home within the time specified in the Short Sale Agreement, the lender may consider a deed in lieu of foreclosure, in which the borrower voluntarily transfers ownership of the property to the lender. However a deed in lieu of foreclosure only works if there is only one loan on the property because the lender will not want to accept the property burdened by the obligation to pay off the junior loans.

This program will be available until 2012.

To read all the details, go to: http://www.treas.gov/press/releases/docs/05142009FactSheet-MakingHomesAffordable.pdf

If you are interested in finding out more about Making Home Affordable, the short sale process, or want to know whether a short sale may be the best move for you or someone you know; or if you have other questions – feel free to comment (by clicking on the title to this blog), email: schristie@cghomes.com, or call: 805.582.9500.

We have had great success in making short sales a viable option for both buyers and sellers alike in this market, and can help you to determine if the short sale scenario is right for you to be included in this successful group.