If you’re wanting to purchase your next home at a great deal and have more homes to pick from, a short sale shouldn’t be ignored. With the housing crisis destroying seller equity in most areas of the country, countless homeowners were left owing more than their property is worth. For a seller that needs to move or cannot afford the property, most sellers face the tough choice of allowing the home to go to foreclose and return to the lender (REO) or work with a local Realtor in selling their home in a Short Sale.

A short sale involves the bank agreeing to allow the seller to sell and transfer title to the property for less than the amount owed. There are reasons sellers and banks can benefit selling this way. The bank has an interested party that is in the property maintaining it during the process, possibly still making payments and the bank avoids the expensive foreclosure costs. Homeowner’s benefit doing short sales by avoiding the embaressment of a foreclosure, possibly staying in the house during the process, negotiating move timing and the short sale’s effect on the homeowner’s credit rating is not as tragic as a foreclosure.

For a buyer considering short sale properties there are things to consider: there is no guarantee the bank will approve the sale ( most banks are becoming more agreeable ), the bank could come back and counter for more money, the seller could lose their home during the short sale transaction and the transaction time for most short sale transactions are longer than the traditional real estate transaction.

The government seems to roll out new programs almost daily in an effort to ease the housing crisis effects on the banks and homeowners. The governments demands on the banks to streamline the process and respond sooner to loan modifications and short sale requests seems to be working in 2010.

Whether we like the short sale housing scenario or not, short sales are a driving force in the market and don’t appear to be going away any time soon.

These 2 federal programs are to assist struggling homeowners who may be at risk of foreclosure, are out of work, or have home values that are “under water” (value of home is less than current mortgage owed). Due to these factors, each homeowner’s situation is different. It is important to remember that many homeowners tried to refinance, but were unable to in the past, due to no or little equity in the home. (“LTV” or loan to value) This was caused by the crashing fall of market values throughout the country. These programs will bring many homeowners the relief they need. The lender will be given incentives by HAFA and HAMP to write down principal on these mortgages. This will help homeowner regain the equity that was previously lost.

In order to qualify, you need to speak with your current lender. Lenders are not required to participate, but many are, due to the incentives named in the programs. One main purpose of these programs is to keep people in their homes and making payments.Lenders will use a formula that will lower the monthly payment if it is 31% greater than the homeowner’s monthly gross income. This can be done permanently or on a trial basis, for instance, if homeowner lost a job. If the lender finds that even with a loan modification, the homeowner is not able to make payments work in their budget, for whatever reason, a short sale or deed in lieu of foreclosure will be offered. HAFA also can help the homeowner, despite losing their home. The homeowner is given $1500, by HAFA, to assist in moving costs. The homeowner would have less damage on credit report with a short sale versus a foreclosure.

The HAFA and HAMP programs officially begin April 5th, 2010, however, many lenders have already begun to use them. Fact sheets are available on both these programs at www.makinghomeaffordable.gov. This upcoming week will be a busy time for homeowners trying to apply for these programs. Staff has been increased to cover higher volume of program requests and hours of help have been extended.

The program targets borrowers who owe more than 120 percent of their home’s worth.

BofA is also expected to reduce principal balances on “payment option” ARM’s with negative amortization to as low as 95 percent of property’s value.

Beginning in May, BofA is expected to identify and notify homeowners it believes are eligible for these adjustments.

Source: Reuters News, David Lawder (03/24/2010)

With a short sale, a struggling homeowner is given the opportunity to start over. This can be a great opportunity for the buyer and seller, if in fact the sale ever closes. Over half are said to never close and the ones that actually do, take many months.

Banks state that the process of a short sale is just taking too long because both employees of the banks and real estate agents are having to learn the process as they go. Taking four to six weeks is very common and three months is not very uncommon. There is no typical buyer who is able to wait that long to receive a response from a buyer.

The federal government is trying to speed up the process of short sales and a new rule has been issued by the Treasury requiring lenders to respond to a short sale offer within just 10 days. By April 5, this rule will apply to 83 loan servicers who are currently participating in the Home Affordable Modification Program created by the President, including Wells Fargo, Bank of America and JPMorgan Chase. It is very hopeful that the entire lending industry will adopt this 10-day rule for all of their short sales.

The plan to quicken the process will also include incentives that will be given to the lender as well as a $1,500 moving allowance to the borrower of the loan. People who are holding a second lien will be given up to $1,000 to give up their claims. Wells Fargo has been able to cut their turnaround time for short sales from 90 days to 30 days by putting together a guide from real estate agents and adding procedures that will help handle requests of short sales.

For a homeowner to be successful in the purchase or sell of a short sale, he or she must find a real estate agent who is experienced in this area and has a proven record in closing on these particular types of transactions quickly.

If you or anyone you know might be facing a financial challenge please do not hesitate to get some answers to your questions. Contact me anytime directly and we can privately discuss your situation.