‘Short Sale’ Updates

**UPDATE** There is a new tab on top of your screen named “Short Sales.”  Any latest information on the new Short Sale process can be found here.

The Treasury department has released new rules to help simplify the ‘short sale’ process. For months, we have been preparing our followers for this great announcement. It should mean we will have less foreclosures in 2010. The sellers will be able to leave the property with dignity and on a timetable. Our neighborhoods will have less vacant houses. The negative impact on real estate values will not be as severe.

We at KCM will do our best to keep you informed of the lastest news and commentary on this extremely important issue.

As of now, these seem to be the key points:

• Mortgage servicers have 10 days to accept or deny a short sale request. After a sale is completed, the borrower could be completely released from debt.
• Borrowers are eligible to receive a $1,500 moving allowance, if they sell their home through a short sale.
• Mortgage servicers will receive $1,000 for each completed short sale.
• Investors who hold first mortgages can get as much as $1,000 for allowing second lienholders to release their liens.
• Second lienholders can get only as much as $3,000 in proceeds from short sale to release their liens.
• The property must be the homeowner’s principal residence.
• The homeowner is delinquent on the mortgage or default looks likely.
• The loan was made before Jan. 1 this year and is less than $729,750
• The borrowers’ total monthly mortgage payment exceeds 31 percent of their before-tax income.

Re/Max Chairman Dave Liniger said it best:

“Until now, the short sale process has been cumbersome for all involved, and took upwards of eight to 10 months for a transaction to close. … But with new guidelines issued Monday, short sale transactions will increase dramatically, which means less vacant and vandalized properties in neighborhoods across the country.”

From Marty Stone, Senior Vice President of Industry Relations, Corporate Counsel, Prommis:

“In the housing market today, short sales are becoming more commonplace as servicers are more inclined to work with homeowners to avoid the high costs of foreclosure. It is also well accepted in the industry that the costs and/or losses incurred by the servicer if the property reverts back to them in REO are usually greater than any reduction in payoff they may incur in a short sale. The latter remains an arms length transaction between a motivated seller and buyer and also allows the borrower to avoid foreclosure while preserving the dignity of the homeowner.

While short sales are becoming more and more prevalent, many homebuyers or Realtors may be wary of them. Unlike a traditional residential closing where lien holders receive full payoff, there is a negotiation component to short sales that may delay the process. The valuation process may return conflicting information that must be verified. However, as servicers and their partners become more familiar with the process these sorts of delays should be reduced.

In 2010, short sales will become an important option for borrowers with financial difficulties. Of course as with any real estate transaction, borrowers facing these challenges should carefully research all possible options available to them to ensure the best possible outcome.”

Articles on the subject:

UPI

Associated Press

Steve’s blog on why short sales are so important!

If you want to read the entire 43 page Supplemental Directive 90-90, you can download it here.