New Short Sale Rules Start April 5th, 2010
Posted by Rob Allen on Thursday, March 18th, 2010 at 10:22am.
New Short Sales Rules
New Treasury Department rules geared towards expediting short sales will go into effect April 5th. Incentive payments included in the Home Affordable Foreclosure Alternatives Program are designed to help offset the financial burden banks experience when they approve a sale for less than they are owed on a home loan and wide sweeping changes are included to speed up the entire short sale approval process and make it more tolerable for all of those involved.
Some of the new Short Sale Rules Include:
· The seller must first be unqualified for a loan modification under the Home Affordable Mortgage Program.
· The bank is supposed to set an acceptable home value upfront . This will be determined by a third party appraisal or broker’s price opinion (BPO). This has been a huge issue with short sales as the banks would normally only perform a BPO after a contract was received. Often times the list price is far lower than the fair market value and when the lender gets a contract at that low price they are reluctant to accept. In many cases the banks either hold the contract and wait for a better one to come in, or they counter the contract at a much higher sales price.
· Banks must approve or deny a contract within 10 days of it being submitted. According to NAR, mortgage servicers currently take 90 to 120 days on average to approve short sales. This would be a huge change to the short sale industry, but I’m really skeptical that banks will be able to really meet this 10 day rule.
· Standardized paper work to help expedite the process.
· Sellers will be allowed 120 days to market the home for sale with no risk of foreclosure during that time.
· Upon short sale approval, sellers may stop paying all related mortgage payments and the entire unpaid mortgage debt will be forgiven.
· At closing sellers will be entitled to a $1,500 cash incentive to help for relocation costs.
· To help entice the mortgage servicers to participate in this new program the servicers may receive up to $1,000 for each successfully completed short sale. The Treasury will also pay $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
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