If you need to sell your home for less than the mortgage, new rules governing short sales are designed to make the process faster and easier.
The rules are part of the Treasury's Home Affordable Foreclosure Alternatives -- HAFA -- program and are aimed at speeding up lenders' decisions on short sales and making life easier for sellers.
"It streamlines and shortens the short-sale process," says Kurt Gleeson, national vice president of sales for Charlotte, N.C.-based RealEstate.com. "Prior to HAFA, the time period for short sales varied greatly among lenders, and it was a very uncertain process."
A short sale, also called a preforeclosure sale, occurs when homeowners can't afford their home mortgage payments and the house is worth less than they owe on it. The lender accepts the proceeds from the sale, even though the price doesn't cover the entire debt.
The knock on short sales is they take too long. A short sale can be done only with the lender's permission, and the lender sometimes takes months to decide whether to accept the buyer's offer. Even when the delayed answer is "yes," the buyer often has given up and bought another house.
Under HAFA, the lender decides upfront the minimum price it will accept. Then, the lender and homeowner have tight deadlines to meet. Finally, the seller gets $3,000 in moving expenses for leaving the house in decent shape.
What borrowers need to knowHAFA is an alternative to the more desirable HAMP -- the Home Affordable Modification Program. Both programs are intended to keep borrowers in their homes and out of foreclosure.
Homeowners are evaluated for a HAFA short sale if they are eligible for HAMP and the following two criteria apply to the borrower:
- Flunks outs of a HAMP modification by missing payments; OR isn't offered a trial modification; OR rejects a loan modification offer.
- Lender doesn't have a non-HAMP loan modification for the homeowner.
Borrowers who qualify for HAFA and request a short sale receive a seven-page document called a "short sale agreement" from their lenders. A borrower has two weeks to respond. After responding, the borrower has four months to sell the house.
At that point, the borrower and the lender operate on parallel tracks:
- The borrower hires a real estate agent. Meanwhile, the lender hires someone to assess the property's value.
- The borrower continues to make mortgage payments, but the payments are reduced to a maximum of 31 percent of monthly income. The lender keeps track of the shortfall between what is owed and what's being paid.
- While the borrower waits for prospective buyers to make offers, the lender decides the "minimum acceptable net proceeds."