New alternative to foreclosures unveiled
- The loan servicer can use the financial information and hardship letter that the homeowner submitted for a loan modification, or request updated information to evaluate the homeowner's eligibility.
- The loan servicer must assess the current value of the home. If the short sale or DIL isn't completed, the servicer can add the cost of this assessment (e.g., an appraisal) to the loan balance.
- The homeowner must sign a Short Sale Agreement or DIL Agreement on or before Dec. 31, 2012.
- The home must be listed for sale with a licensed local-area real estate professional. (This requirement doesn't apply to DIL.)
- The homeowner must cooperate with the real estate professional's efforts to sell the home and maintain the interior and exterior of the home.
- The servicer and homeowner must meet a number of time frames.
- The lender may require the homeowner to make full or partial payments on the mortgage, up to 31 percent of the homeowner's income, subject to the lender's written policies.
- The homeowner cannot have a close business or personal relationship with the real estate agent or buyer and cannot have an expectation of buying back or renting the home after the short sale or DIL closes.
- The lender can initiate or continue, but not complete a foreclosure sale while the homeowner is involved in the program.
- Homeowners should discuss the income tax consequences of debt forgiveness with a qualified tax professional.
- The servicer will report the short sale or DIL to the credit bureaus. That will hurt the homeowner's credit score, although not as severely as a foreclosure.
- The buyer in a short sale can't resell the home within 90 days of the purchase.
- The program is scheduled to launch April 5, 2010, and sunset Dec. 31, 2012. Servicers may elect to implement the program sooner than the official effective date.
- Homeowners are encouraged to contact their loan servicers to find out whether they are eligible for the program or call the HOPE hot line at (888) 995-4673 to speak to a government-certified mortgage counselor. More than 100 servicers have signed up for the program. These servicers are required to participate and write their own policies subject to investor guidelines.