Making Home Affordable Plan Expanded – Adminstration Pushes Short SalesThe Obama administration is encouraging troubled borrowers who don’t qualify for loan modifications or can’t keep up payments on a modified loan to pursue a short sale in order to avoid foreclosure.
While the main thrust of the administration’s Making Home Affordableinitiative remains loan modifications and refinancings, these measures have proven highly ineffective with few permanent modifications being awarded. In response the program is being updated to provide incentives for borrowers and loan servicers to engage in short sales.
Borrowers — who must meet the minimum eligibility requirements for a Home Affordable modification — will receive up to $1,500 to assist with their relocation expenses when they agree to a short sale. Loan servicers will earn up to $1,000 for successfully completing a short sale.
In addition to incentives, the program establishes a standard process, minimum performance time-frames and standard documentation for short sales.
Loan servicers must allow borrowers at least 90 days and up to a year to market and sell their property, depending on local market conditions. The property must be listed with a licensed Realtor experienced in selling (short sale) properties in the neighborhood, the Treasury Department said in a fact sheet explaining the new short-sale initiative. “Reasonable and customary real estate commissions and selling costs” may be deducted from the sales price if they are spelled out in a short-sale agreement, the guidelines said, and loan servicers must agree not to negotiate a lower sales commission once an offer has been received (the bank covers all of the costs associated with the sale including Realtor commissions).
It will be up to the loan servicer to establish both property value and the minimum acceptable net return. Loan servicers will instruct borrowers regarding the list price and any permissible price reductions. The price may be determined based on either an appraisal or one or more broker price opinions (BPOs) dated within 120 days of the short-sale agreement.
If the borrower is unable to sell his or her home within the agreed-upon time frame, loan servicers may then consider a deed-in-lieu of foreclosure, in which the borrower voluntarily transfers ownership of the property to the servicer.
A short sale or deed-in-lieu “usually provides a better outcome for borrowers (less damage to their credit and they will be able to purchase another home within 2 years, as opposed to 5 or more years on foreclosures), investors (they usually net more from the sale as the homes sell for more and they avoid paying attorney fees on the foreclosure action) and communities (your neighbors will appreciate the fact that your home sold for more and have help to protect the value of their own homes),” the Treasury Department said, but loan servicers typically pursue foreclosure instead because most homeowners fail to realize they have other options and simply abandon their homes leaving the bank with no other alternative.
Another factor that can complicate a short sale is the presence of a “piggyback” second loan. Under the new initiative, the Treasury will help pay off junior lien holders, providing $1 in matching funds for every $2 paid by investors, up to $1,000.
If you, or someone you know is facing foreclosure Columbus, Ohio and are interested in attempting a loan modification or a short sale, please contact The Opland Group. We offer professional real estate advice and look forward to helping you!
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