Updates About Short Sales
(Portions of this column have been reprinted from a Sun Sentinel article. The information sheds light on the Short Sale crisis.) Homeowners stuck while banks consider whether to approve short sales could benefit from new federal guidelines that give lenders a 10-day limit to respond to offers. The rules from the U.S. Treasury, which also allow for financial incentives to sellers and lenders, likely will figure prominently in South Florida as the housing slump meanders into a fifth year. “The cloud could be lifted and this could bring us back to some normalcy.” Still, questions linger. Some real estate agents doubt the guidelines will be enforced, while bankers wonder whether 10 business days is enough time to reply to offers. In a short sale, the homeowner sells the property for less than what is owed on the mortgage, and the lender forgives the difference. Hundreds of Thousands of mortgage holders in Palm Beach, Broward and Miami-Dade counties are “under water,” meaning they owe more than their homes are worth. Many due to refinancing when the market shot up. While short sales have been considered an ideal solution for banks and for “under water” homeowners on the verge of foreclosure, the deals often drag on as lenders take weeks or months to decide what to do. Frustrated buyers walk away during the delays. Aside from imposing a 10-day deadline, the Treasury rules call for sellers to receive $1,500 moving allowances, and the sellers will not have to repay any of the debt. Also, lenders will get $1,000 to cover processing costs. The 83 loan companies participating in the Obama Administration’s Home Affordable Modification Program, including Bank of America and JP Morgan Chase, are required to follow these guidelines for all borrowers who request short sales or who did not complete loan modifications. The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac. The two government-run mortgage companies are working to finalize their own guidelines. The Treasury plan, which must be implemented by lenders no later than April, is meant to help sellers who have been waiting for their lenders to approve short sale offers. The guidelines are meant to make short sales “a more usable tool.” These rules provide standardized paperwork for all short sales and give buyers and sellers a more reasonable time frame for whether or not the sales will happen. Time will tell if the Government will have to increase the financial incentives” The incentives would be a great program if all these mortgages had only one lien holder. Meanwhile, some local real estate agents remain skeptical of the guidelines. Many think “the banks will still play their little games with people and make life difficult for everyone.” A spokeswoman for the Treasury says it will hand down “substantial” penalties to lenders that don’t comply. The agency said it can fine lenders, withhold or reduce incentive payments and require improperly rejected loans to be modified. Lenders have blamed short sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don’t submit proper paperwork in a timely manner.
by
Susan Koslovsky