If a homeowner does not qualify for a home modification, the Home Affordable Foreclosure Alternatives may provide a new option, through a short sale or deed in lieu which will allow them to walk away from the mortgage pursuant to the programs guidelines. Realtors who are pursuing short sales should know and understand this new program and its guidelines.
Short Sale Guidance
One of the most frustrating parts of a short sale transaction is the inability of the lender to timely accept or reject a short sale offer. A homeowner submits an offer to purchase to the lender then the lender cannot determine whether they will accept the offer before the buyer gets frustrated and walks away. Under the new program, the lender would be required to advise the homeowner, up front, what the minimum amount it would need to receive in order to accept the short sale. Other key components of the program are as follows:
- A fixed termination date not less than 120 calendar days from the effective date of the SSA (” Effective Date”). The Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months, in accordance with the requirements of the investor.
- A requirement that the property be listed with a licensed real estate professional who is
- regularly doing business in the community where the property is located.
- Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
- The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
- The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction.
- A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
- Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or
- Notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm’s length transaction that must be included in the sales contract.
- An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
- An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $1,500, which will be deducted from the gross sale proceeds at closing.
- Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
- Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.
- The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s gross monthly income.
- An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
- Terms under which the SSA can be terminated.
Ten Day Decision Period
Under the new program, a lender must approve or decline a short sale offer within ten days of receipt.
The preceeding are just the initial requirements of the program. These requirements will change and they are not scheduled to take affect until April 10, 2010, but some servicers may be implementing them prior to that date. For more information about the program, please contact Matt Weidner at www.mattweidnerlaw.com
