Short Sale Changes – HAFA Efffective April 2010 (Hopefully)

Per the information below, the Feds are stepping in AGAIN, perhaps to the advantage of everyone…homeowners, buyers and the entire Saint Paul real estate community in an effort to curtail some of the foreclosures.

Short Sales and Deed in Lieu of Foreclosure (commonly referred to as Cash for Keys) have received major attention on the Hill.  In an effort to curtail foreclosures, the Feds have introduced HAFA.  HAFA stands for Home Affordable Foreclosure Alternatives and it goes into effect in April of 2010.  This is a big push to get banks to approve and move expeditiously on allowing homeowners to short sale their homes or possibly turn in their keys WITHOUT deficiency recourse.  Up until now, foreclosures have outnumbered short sales and loan modifications 20:1.  Banks have been very non-responsive to short sales…or they take “a month of Sundays” to even respond to an inquiry.  Homeowners, buyers and agents may see some relief around the horizon.  With HAFA, banks will be required to streamline and simplify the process of short sales or DILs.

Here are the highlights:

• Allows homeowner to receive preapproved short sale terms before property listing
• Prohibits servicer from reducing real estate commissions as a condition of approving the short sale. Great news for the agents!
• Homeowners are fully released from future liability for the debt…No more deficiency judgments!
• Servicer must respond within 30 days of the homeowner requesting a short sale. Yes…an established time frame!
• $1,500 relocation incentive to the homeowner
• The bank MUST respond within 10 business days of receiving an executed purchase agreement, its decision on approval or denial.  You read it right…TEN DAYS!
• The servicer (bank) may not charge the homeowner administrative processing fees…the servicer must pay all out of pocket expenses

Short Sale Basics

Short Sale

If you cannot bring your loan current, afford to make payments moving forward, or are unable to sell the property for the full amount of the loan, your lender may accept less than the amount owed as full payment.

PRO: Under the terms of a short sale, your lender may forgive your mortgage debt in its entirety according to the terms outlined in The Mortgage Debt Relief Act of 2007. Fannie Mae has announced a reduced mandatory waiting period to establish credit history to 2 years after the completion of a short sale. This mandatory waiting period after a short sale is lower than the required 5 – 7 years following a foreclosure.

CON: You must sell your home.

Deed in Lieu of Foreclosure

PRO: By voluntarilytransferring the deed,you save your lender tens of housands of dollars in foreclosure proceeedings.  If you are willing to do this , Fannie May has reduced the mandatory waiting period to establish credit history to a minimum of 4 years.  This mandatory waiting period after a deed-in-lieu of foreclosure is lower than the required 5 – 7 years following a foreclosure.

CON: Although a deed-in-lieu of foreclosure may have less impact than an actual foreclosure on your ability to establish homeownership in the future, if you are going to cooperate with your lender and take a proactive approach, a short sale is generally the better option.