Short Sale Alert - New Rules Will Help Home Buyers and Sellers
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What is the MHA?
Making Homes Affordable Program
On Feb.18th the Obama Administration announced the Making Home Affordable (MHA) Program, a comprehensive plan to stabilize the US housing market and offer assistance to up to 7 to 9 million homeowners by reducing mortgage payments to affordable levels and preventing avoidable foreclosures.
The MHA program is managed by the US Treasury and us intended to standardize and simplify the short sale process. It includes a set of rules and standard paperwork. MHA guidelines apply to all loans underwritten by the government including loans owned or guaranteed by Fannie Mae and Freddie.
Update - May 1,2010 - The HAFA program was implemented on April 6 with over 70 lenders participating. These are the guidelines and process for home owners and lenders to follow which will make the short sale process easier for all parties.
The Current Short Sale Process
What is a Short Sale?
A short sale is:
- The property will sell for less than what the homeowner owes on the mortgage (the homeowner is unable to cover that shortage) therefore the proceeds from the sale will fall short of paying off the mortgage.
- The lender must agree to accept less than what they are owed on the mortgage in order for the home to be sold.
The current process has proven to be ineffective as the listing price and lender approval has not been obtained prior to the listing of the property. Buyers submit their offers, are accepted by the Seller and then wait for bank approval. This process can take between 3 and 6 months with many potential Buyers withdrawing their offers in frustration.
The New Streamlined Process
Pre-Listing….
Owner must contact the lender with a request to refinance or modify the existing loan. If the lender is unwilling to do either, the loss mitigator will consider the possibility of a short sale. Only at this point can a short sale be considered and approved, and it will be based solely on whether the lender will net more from a short sale or foreclosure.
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Listing Agreement…
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The owner signs listing contracts but the price and listing term is actually set by the loss mitigator.
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Listing contracts should not be signed without acceptance by both owner and lender.
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The commission rate is negotiated between seller and listing agent; lender can not negotiate/request a reduction unless the percentage exceeds 6%.
The new guidelines will provide Realtors with the necessary incentives to assist Sellers and Buyers in a successful short sale. This will result in fewer foreclosures and save the taxpayer money.
Buyer Beware!
General Buyer Precautions
- Short sales are sold as-is, therefore there is little chance of getting any concessions for problems uncovered during an inspection.
- Lender’s approval does not guarantee a “clear” title. There may be outstanding taxes or other liens filed against the property that may prevent a closing.
- Foreclosure may still move forward even with an accepted offer.
- You may miss out on another property while waiting for the short sale to be approved.
Short sales, foreclosed and bank owned properties may not be the best values in the local real estate market. Consult with your Realtor to assist you in evaluating the entire market. If you are a first-time homebuyer seeking the $8000 tax credit, the deadline for closing on a property is November 30, 2009.
February Update
Mortgage service providers who wanted to participage in the Home Affordable Modification program were required to sign up by December 31, 2009. Over 73 lenders are participating Which include major lenders such as American Home Mortgage Services, Bank of America, GMAC Mortgage LLC, Horizon Bank, J.P. Morgan Chase, National City Bank, Wachovia Mortgage and Wells Fargo Bank. Go to Hope Now to see a complete list of participating lenders and for more information about the program. In addition, all servicers for loans owned by Fannie Mae and Freddie Mac are required to participate.
Lenders are implenting procedures to meet the April target dates and many are processing loan modifications with the new guidelines in mind.
October 2010 Update
Most of the major lenders do not have their systems in place to offer the HAFA option in large scale. The reason appears to be the integration of software. My best advice is for homeowner's to seek the assistance of experienced Realtors and Attorneys that can demonstrate success with negotiating short sales. Communicate with your lender on a regular basis to understand what the current options are.
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I've worked with a few different Buyers on Short Sales. There is absolutely NO guarantee, that after a very long wait, the offer will be accepted & you better hope the listing agent has experience with short sales, or expect to wait even longer :(
I can say, the lenders are getting better with the "short sale" process...but, still seems to me, there's room for improvement :)
It will take some time for lenders to implement the new guidelines, but once they are in place, short sales will be a viable option for patient and buyers that understand the pitfalls.
Short sales are not a good bet when the buyer falls in love with a house. The new procedure may make the process more transparent. However, if asked, I would state a short sale are more applicable for investors than for buyers looking to purchase a home.
Investors can be a good source if they are serious about flipping
Thanks for providing great information on short sales.
Good info. I have had a few shortsales that I have been working on getting through in Florida....
Here in Gainesville, we haven't had nearly as many foreclosures, but we're seeing a rise in short sales, which hasn't affected our economy as much as the foreclosures in south florida.
s the first home buyer credit being extended to 2010 and increasing to 15K?
John P. Wells 2 years ago
I have been steering my clients away from short sales for some time. It is too complex and uncertain and the savings just don't seem to be there. Just not worth it.