New short sale rules are impacting homebuyers as well as sellers and lenders.
Recently, the federal government instituted the Home Affordable Foreclosure Alternatives program, or HAFA, which is intended to streamline the short sale process, at least for transactions in which the home sellers have mortgages owned or guaranteed by Fannie Mae or Freddie Mac.
“Buyers of short sales have had to wait months and months and still not always have their offer approved for a short sale,” says Lisa Matykiewicz, a Realtor and Certified Distressed Property Expert in Gilbert, Ariz. “Now there will be defined parameters as to what the lenders will accept and a timeline for when the contract needs to be approved or denied.”
While most HAFA rules affect only the home sellers and their lender, a few of the streamlined rules impact buyers. They include:
- Buyers must present documentation of funds or a preapproval letter from a lender with their offer for a short sale; sellers need to present this to their lender within three days of receiving the offer.
- Lenders must approve or deny the offer for the home within 10 business days of receiving the offer.
- Settlement must take place within a reasonable period of time after the offer is made, but the lender cannot require a closing earlier than 45 days from the date of the sales contract unless the home seller agrees.
- Buyers cannot sell the property again for 90 days. This is meant to prevent investors from “flipping” homes by purchasing at a low price and selling at a quickly inflated price.
- Short sale transactions through HAFA must take place at “arm’s length,” meaning the home sellers cannot sell the property to a relative or anyone else with whom they have a closer personal or business relationship.
Matykiewicz anticipates fewer foreclosures in 2010 and more short sales due to the streamlined short sales rules.
“I think more short sales will be available in 2010 than in 2009 because everyone is cooperating to avoid adding more foreclosures to the market, from the government to the lenders to the homeowners,” says Matt Martin, CEO of Matt Martin Real Estate Management in Vienna, Va.
Homebuyers may find that short sales are not necessarily opportunities for bargain hunting.
“In reality, short sale properties are priced at what the market will bear because the bank wants to recoup as much as possible of the loan value,” says David Liniger, Re/Max International chairman and co-founder.
Still, shoppers may find a short sale a better bet than buying a foreclosure, he says.
“Short sales are usually in much better condition than a foreclosure because they have an actively involved seller who is living in the property,” Liniger says. “Most people would prefer to buy a home in good condition at a reasonable price as opposed to a property in bad condition which will require considerable time and money to make livable.”
Not all short sales fall under the HAFA program. Homeowners with loans owned by lenders other than Fannie Mae or Freddie Mac will need to negotiate short sales on an individual basis.
“One problem that will continue even with the streamlined short sale process is that homebuyers do not know where the homeowner stands in terms of approval for the short sale,” says Martin. “Some real estate agents go ahead and list a home as a short sale even before the lender has approved one.”
If, on the other hand, the home sellers have been preapproved by HAFA for a short sale, “the process should work better,” Martin says.