Yesterday, the government announced an additional program under the Making Home Affordable Plan. In light of the fact that some homeowners still can’t afford their homes after a loan modification, the government is now creating a program that would encourage banks to accept a short sale or deed-in-lieu rather than foreclosing.

Why Avoid Foreclosure?
The simple fact is that foreclosed homes lose value fast. They also decline in condition after the foreclosure because no one is maintaining them. Unfortunately, short sales take longer to process because of all the paperwork involved, and many lenders are resistant to short sales. They’d rather foreclose and just have it be done with. That’s not good for homeowners or communities.

Details of the New Program
Details of the new program are still coming out, but basically the government will offer banks cash incentives for accepting short sales and deed-in-lieu agreements instead of foreclosing. They will also lay out a streamlined process to help short sales close faster. Right now it can take at least 2 months to close a short sale. 4-6 months is typical.

Who Will Qualify
The qualifications for Making Home Affordable still apply. You must be eligible for a loan modification under the current plan, but unable to meet the new payments. This is common because many borrowers have seen payments stay the same or even go up after fees and past due balances are tacked onto the loan balance.

Under the original plan, you must be the owner-occupant of the home and be current on your payments. The original plan only modified loans up to 105% of the original loan amount. It’s unclear whether the new plan would include homes that have lost significantly more value, which is typically the reason for the short sale in the first place.

I Support This Plan
I don’t support many of the new programs, but I do support this one. Although foreclosures result in lower home prices, buyers have many fewer protections and more costs. In a traditional sale, the seller discloses everything they know about the property, including defects. They also usually pay for a termite inspection and may make repairs to the property. In a foreclosure, the bank discloses what it knows, but that usually isn’t much. The buyer is responsible for all inspections and the bank will rarely agree to repair anything. In a short sale, the owner offers the same disclosures as a traditional sale and may pay for the pest inspection to help move the process along. Although most aren’t required to make repairs, some sellers will be willing to. Most of all, the home is generally occupied during the process, so you don’t have to worry about vandals or thieves stripping out wires, plumbing, or fixtures.

With so many foreclosed homes still waiting to come to market, it doesn’t make sense to add more to the pool when banks stand to lose less money by agreeing to short sales.

Comments

17 Responses to “New Government Short Sale Program”

  1. Diane M. LePera on April 1st, 2010 6:04 am

    As a Foreclosure Realtor, I must say I disagree. First off many short sale homes are empty and the Seler is willing to let it go, however, the listing agent delays the process in an attemp to get a commission. While that process is undergoing the owners often leave the home and stop paying the utilities. The home often ends up with water in the basements as the sump pumps do not function, mold grows and the pipe freeze and burst. Obviously this reduces the value of the home.
    During this period the Realtor is marketing the property but not doing any property management and everyone, including the neighbors, are losing money. The listing agent will often convience the bank to continue to list the property for sale rather than foreclose again in attempts to gain a commission.
    This process can continue for a few years with the property continuly being degraded and the neighborhoods home values continue to drop.
    If the Bank is going to allow short sales it should be through the normal channel of Realtors who maintain the properties, insure uilities and taxes are paid. Not just a Realtor who wants a listing as they do not have the skills or contacts to guarentee the property is maintained.
    The issues of property preservation, staying foreclosures, and personal property on site are very complex and can lead to lawsuits if not handle properly. Infact I would expect to see many lawsuits on Realtors for failure to stop a foreclosure with a short sale. These short sales could be time bombs for the realtor if not handle properly.
    I know of one foreclosure that had a full offer the day of the Sheriff Sale but the agent did not have he knoweledge nor contacts at the bank to stay the foreclosure. The prior owner of the home is now looking to possibliy sue the realtor for non delevery.
    Word of caution Realtors, be careful.

    Now as to Deed in-lieu of Foreclosure, this should have been happening from the begining. Why are not the Banks taking the deeds back if the home owner wants to give it back and cannot pay the bills? It is a win win for everyone. The bank is able to maintain the property, the bank does not hae incure all the legal fees of a foreclosure, and the prior owner can begin the process of rebuilding ther lives. Yet the process of Deed in-lieu of foreclosure is not being offered as an option to persons in default.
    Could it be hat the banks are just waiting to see How Much More Payouts from the goverment they can get?
    It is time to let the chips fall where they may and let the banks run their business. Things will change quickly if the goverment stops providing incentives. Then the banks will do what they must rather than hold waiting for pay outs.
    In conclusion, Realtors, be careful of the short sale. I foresee you, even though not the guilty party, getting sued. The prior homeowner needs money and cannot go after anyone except you the listing agent and the brokage. I wonder if our E & O insurance covers this types of lawsuits?

  2. Motoko Kusinagi on April 5th, 2010 1:54 pm

    I actually like the idea. I tried to get a loan modification when those first hit and was told I didn’t qualify as I was still paying on my loan. It didn’t matter that my job had been transferred and I now work 300 miles away from where my house is. Never mind that I bought the house years ago for 145K, I owe 140K and the market value on my home according to the 5 agents I engaged was between 60K and 75K. I cannot pay for the house/utilities/taxes and afford a new place near where I work. I asked for a loan modification again. Again I was told “no”. I asked for a short sale. I was told I could not. I, at that point purposely missed two payments. I immediately started getting letters and offers for both a short sale and loan modifications. As the market value of the house is less than half what I owe I opted to try for a short sale. I figured it would be in my and my bank’s best interest to at least get something out the house and not completely tank my credit.

    Now here I am two years later. I’m still paying a mortgage/utilities/taxes on a house I can’t use. I can’t afford another home/apartment at the new location. The market value of the house is still going down and other hoses in the area are now selling for 55K to 60K for about the same home. I finally get a buyer that’s willing to meet the secret terms of my bank and we’ve been working towards closing since December 15th of 2009.

    About the dumbest thing I’ve had to deal with other than the information black whole that is my bank, is the secret price my bank will accept for my house. They set a magic number and don’t tell anyone what it is. I put the house on the market for at the time was the top end of the market valuation. I was almost 10K short of their secret number. How the heck is that supposed to help anyone?

  3. Barbara on July 4th, 2010 7:35 am

    Do the banks recieve money from the government for short sales & if so what would be there incentive to straighten out things quicker.

  4. Aryn on July 6th, 2010 3:16 pm

    There is or was a program to encourage banks to close short sales faster, but it wasn’t a huge sum and I’m not sure if it’s still active.

  5. cassie on July 8th, 2010 8:16 am

    We are in the same situation as you with the modification. since we are still paying our mortgage..we almost exausted all of our savings..I have heard that they wont listen to you unless you are 60 or 90 days late on payment…Go figure? We cant afford Aug payment.and we tried to settle with our bank and also used NACA…with no help.

  6. Doyle on August 18th, 2010 10:33 pm

    When we fell behind on our mortgage due to unemployment our loan company sent us a letter and ask if we would like to have a loan modification. We replied in the affirmative. We then were given instructions to procede which was completing a series of payments over several months and completing some questions about income and expenses. After we had paid in over $10,000 we were told the investor who held our note would not do a loan modification. We asked for a short sale or deed in lieu and were told the investor would not do either of those. We then found out about the Home Affordable Plan and asked if we would qualify for that and were told the investor would not cooperate on that program also. So we were coerced into a program and lost over $10,000 in the process and then told our house was scheduled to be sold in 8 days after we were denied the modification. I complained vehemently with the mortgage company about not being fair to give us time to find a place to move and they were gracious enough to give us 30 days. “WOW” We had to file for bankruptcy to keep our house from being sold out from under us and being put out in the street. The bank we were dealing with was Wells Fargo. If anyone knows if there was wrong doing on the part of the bank and we have some recourse we could use some advice and information.

  7. jsavage on October 28th, 2010 8:45 am

    Well, isn’t this a 6 trillion dollar mess where anyone and everyone is trying bank wise, to get monies people don’t have. Personally I’d like to see the Fed and Obama take over all the banks. And I do mean all. js.

  8. Megan on August 12th, 2011 11:35 am

    Same as the others, I have requested for a loan modification from my mortgage company (GMAC)when my husband lost his job but they said no because we were still current. I applied over 4 times for a loan modification and was denied everytime. When we exhausted all our savings, we got behind on our payment. After a few months, we received a letter stating that the loan had been modified but the payment set was still very high which we still cannot afford. Finally, we tried to sell the house ourselves to avoid losing more money on a realtor and got an offer. GMAC said they will review the offer/short sale application but they didn’t until a date was set to foreclose it (two months later). They have been reasoning that they did not review it is because I did not submit all the documents. I have proof that I submitted everything they asked. Plus, nobody contacted me to let me know where I stand or what other documents I need to submit. I kept calling and leaving messages to them but no reply and they changed person working on my case. None of them was helpful. They insisted that I should have had an agent. For what? To give 6% of the purchase price away? Can the bank run after me for the difference of how much the property will be sold after foreclosure and my loan balance? Is there a government program that releases the homeowners who lost their home on foreclosure?

  9. Aryn on August 16th, 2011 10:19 am

    To answer the first question: Agents who specialize in short sales know the tricks to preparing a complete short sale package and how to effectively communicate with the bank officer. In addition, first offers on short sales are notorious for giving up before the sale is approved, so someone with an agent will probably have better luck getting a second offer more quickly. A bank officer likely has 200 files at any one time, so someone with professional representation is more likely to get attention because the pro saves the officer time.

    To answer the second question: It depends on your state and how the mortgage is written. Some states allow recourse mortgages, which means you’re on the hook for the unpaid balance. Other states don’t permit them. You should review your mortgage documents for those terms, or contact a local real estate attorney.

    To answer the third question: There is an IRS program that releases you from tax liability on the unpaid portion of a forgiven debt through 2012. I’m not aware of any programs that forgive the debt in a recourse loan.

  10. Lonnie Billops on October 3rd, 2011 5:22 pm

    Can I receive cash from the Federal
    government if I do a short sale?

  11. Aryn on October 4th, 2011 9:58 am

    No. When you do a short sale, the bank specifically prohibits the seller from receiving any funds from the sale. Any short sale incentives offered by the government are given to the bank to prevent the short sale from becoming a foreclosure.

  12. Dot on November 27th, 2011 9:22 am

    Lonnie, you can apply for a HAFA and get $3000.00 to move.

  13. frine on March 29th, 2012 12:10 pm

    I called my bank to simply request more inforamtion and 3 hours later, 15+ representatives, 5 different departments and 5+ dropped calls on my 4 bar At&t full service phone, their answer was for me to place my home for sale which happens to be in a different state ( im in the military), see if it qualify’s for a shortsale and then see if I qualify under this new program. All I was asking for was for more information since my case would fall under military conditions which would make the conditions a bit different and I got a headache. Good thing is I know which bank not to bank with now. BOA

  14. benjamin ayers on May 9th, 2012 4:53 pm

    will gov help pay for short sale repairs

  15. Aryn on May 10th, 2012 3:06 pm

    In general no, and neither will the bank.

  16. Karen on May 14th, 2013 1:37 pm

    How do I apply for the $3,000 from HAFA? Does the bank help with this? Does the realtor help with this? The short sale attorney? Chase told me I would receive $3,000 at closing when they convinced me to do the short sale but now that we are closer to the sale, they said they have nothing to do with that. They vaguely said that may be a government program. How do I apply?

  17. Aryn on May 17th, 2013 9:40 am

    I would speak to your Realtor or attorney. I don’t know who provides the funds, but your Realtor hopefully knows which forms to file.

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