The federal government has unveiled a new program, known as Home Affordable Foreclosure Alternatives program, which will standardize the short sale process. A short sale is an option to consider if you are having difficulty with paying your mortgage and if you can't get a loan modification from a lender or another organization. The homeowner also needs to owe more money on their loan than what the home is valued at. The new federal government short sale plan was created in an effort to help borrowers that are in this situation.
The new program is an attempt to streamline the long, drawn out contentious, time-consuming short sale process by requiring banks and lenders to use an agreed upon timeframe. It will also create nationally uniform documents, financial incentives for lenders and homeowners, and other standardized terms.
The short sale of a home involves a bank, lender or investor agreeing to collect less than the total outstanding balance owed on a mortgage if a homeowner was to sell the property. Usually a short sale is an option of last resort, and is only considered if a modification or other negotiations didn’t work.
As an example of when a short sale may be the best option, say the homeowner lost their job or had a serious reduction in income. They then proceed to fall behind on their mortgage payments. After the job loss or reduction in their income, with less money available to them to pay on their loan or a reduction in their salary the homeowner will be very unlikely to qualify for a loan modification program. When someone is faced with this type of scenario, oftentimes their best move is to contact the lender to see if they will allow a short sale. The bank or lender will then usually review your situation, and analyze the property. They will need to be convinced that a short sale is in the best benefit of the bank, and that it will “yield” the lender more money on their bottom line than a foreclosure of your home. As a lender needs to ensure this option is in their best interest as well. Currently the short sale approval process can take up to nine months. More on short sales.
You need to convince the bank, and provide them data to help them make the decision to proceed with the sale. It is strongly recommended that you contact a local real estate agent who knows the process and the area, and one who can gather the key information that is needed by the lender or bank. Some of this information may include local market trends, the likely sale price of your home, and recent comparable home sales.
Also, under the new federal government guidelines, homeowners who may be considering a short sale as an option are strongly encouraged to contact their lenders as soon as possible. They need to communicate with their banks and mortgage lenders early in the process about an acceptable sales price for the house. They should not just sit back and wait until a buyer has made an offer.
With that being said, some lenders may in fact require that you have a buyer for the property, and it needs to be someone who will pay a price that is acceptable to the bank. But call the lender to ask them about their requirements for the Home Affordable Foreclosure Alternatives (HAFA) program. If they do require a buyer, the potential buyer also must have financing to close the purchase, so in other words the buyer needs to be legit and have a solid offer. A second mortgage or line of credit may also present challenges, as if you do have a home-equity credit line or second mortgage, then you may also need to negotiate how much that second lender will receive from the sale proceeds, so this may complicate the process.
This second mortgage or loan can present challenges. While it is true that the second mortgage or lien may be worthless in a foreclosure because of lower housing prices, the fact is that the second or third part mortgage holder does have the legal power to block the short sale. This means that they also need to agree to the terms and the sale as well.
The home short sale process is currently complicated, confusing, and challenging. Most mortgage servicers, banks, bond investors, and other lenders have conflicting requirements for documentation. Some may want to earn more money on a short sale than others. The difference in so called financial yields that they require can complicate and drag out the haggling and negotiating process for months, which will often times put the homeowner in a more difficult situation.
The new federal government short sale plan will help tackle these issues. The new program will simplify and streamline the process. Some of the improvements, and key criteria for the program include:
If you think this may be the best option for you, be sure to contact your lender and ask them about the Home Affordable Foreclosure Alternatives program.
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