Short Sale Explained
In the Myrtle Beach area, as a Realtor, I have not seen the benefits of HAFA since it went into effect. A short-sale purchase remains a long process with the end result questionable.
In the beginning of the short-sale frenzy people thought that just because they did not want their real estate or it had lost value to a point less then their mortgage they could sell the property as a short-sale. They also thought that when they accepted an offer to purchase their real estate they could present that contract to their lender and basically say, "take it or leave it" because they did not plan to make any more payments on their mortgage. Even at that point sellers were unaware that they had to prove that they were incapable of making their mortgage payments to even be considered for a short-sale by their lender.
A short-sale means that the Seller is trying to get their mortgage company (bank) to agree to accept less money then is owed on the mortgage and release the property owner from further obligation or let them sell the property and either workout a payment plan for the balance due to the mortgage company or have the seller liquidate other assets and bring cash to the closing table to pay the balance that has been worked out. Short sales could mean waiting months for a response from the Bank / Mortgage Lender. In 2010 the process for the seller and buyer of a short sale property has changed so everyone needs to find a qualified source of information.
Many of those who face the loss of their mortgaged real estate are looking for a way to get out from under the payments, taxes, and other expenses. If you know someone in trouble tell them to contact me, Sandy Keller, after they have had a conversation with a tax accountant or tax attorney about a short sale or deed-in-lieu of foreclosure (the lender is willing to accept the signing over of the deed to them). A short sale lowers a credit score by about 50 points and stays on a credit history for about two years while a foreclosure lowers a credit score by about 200 points and stays on a credit history for about seven years.
New HAFA Guidelines for Short Sales Should Help Sellers and Buyers
April, 2010 the federal government's Home Affordable Foreclosure Alternative Program (HAFA) went into effect. The program provides short sale guidelines for loans, not owned or guaranteed by Fannie Mae or Freddie Mac, that were the "risky" loans issued during the housing boom such as 0-down loans, option ARMs, and Alt-A mortgages.
For the Sellers loan to be eligible for HAFA:
The property is the borrower's principal residence.
The mortgage loan is the first lien mortgage obtained on or before January 1, 2009.
The mortgage is delinquent or default is reasonably foreseeable.
The current unpaid principal balance is no more than $729,750.
The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.
HAFA guidelines are voluntary but major banks and dozens of smaller lenders are expected to participate.
Benefits of HAFA for Sellers:
Financial incentive for lenders to get things moving. Servicers get $1,000 to cover their costs, and subordinate (2nd mortgage, home equity) get up to $3,000 through a matching arrangement in exchange for relinquishing their lien on the home.
Borrowers will receive $1,500 to help with moving costs but the major benefit to borrowers is that they are fully released from future liability for the debt. That will be the rule even in the states that are recourse states.
Benefits of HAFA for Buyers:
The guidelines include standardized forms, procedures, and timelines, but best of all the allow the seller to receive preapproved short sale terms prior to the property being offered for sale. Since the preapproval should eliminate the months of waiting to hear back from the lender the short sale process will be a reasonable time frame for the buyer.
