Buyers and sellers unfamiliar with the short sale process always ask if there is anything that can be done to speed up the short sale process. As I have mentioned before, there are new and improved rules that have just been formed to streamline the short sale process that will go into effect April 5, 2010. First off, the streamlining rules are guidelines, not laws and lender participation in the incentive program is not mandatory but optional. There is no guarantee that lenders will even choose to participate.
Under the new guidelines, the seller will receive the pre-approved short sales terms before listing the property, including the minimum acceptable net proceeds. However, what isn’t clear is how long the minimum net set by the broker price opinion or appraisal will be valid. Currently, many banks won’t order a new appraisal for four to six months. Hopefully, the home isn’t in a declining market. In addition, mortgage servicers will have 10 days to approve or disapprove the request for the short sale. Please remember, this is the REQUEST for a short sale NOT short sale approval.
Lenders will provide a financial incentive of $1,500 to help home sellers move out of their home. There will also be a requirement that borrowers must be fully released from future liability for the first mortgage debt. This means no cash contribution, promissory note, or deficiency judgment will be allowed. This is great news to sellers if lenders actually choose to go along with it. Since the lender’s participation incentive is only $1,000, it is questionable that they would play along with these conditions if they stand to lose too much. They would be more likely to disapprove the request for a short sale or build it into the initial minimum acceptable net proceeds thus driving up the purchase price and making it more difficult to entice buyers.
The investors will be paid a maximum of $1,000 for allowing up to $3,000 in short-sale proceeds to be paid out to subordinate lien holders. Which means subordinate lien holders will be paid up to $3,000 of the short sale proceeds. The Treasury said second lien holders who want more than this will have to pursue a short sale outside of the federal program. Travis Hamel Olsen, COO of Loan Resolution Corporation said “While we are excited about the new measures that the Treasury announced, we believe that subordinate lien holders will have a limited adoption rate of the program. It is a step in the right direction, but there needs to be more incentive to subordinate lien holders.”
‘Streamlining’ may be an exaggerated term. Although these changes will help speed up the process for a select few, it will not be the solution to the majority of ongoing short sale dilemmas. It is still yet to be seen how the loan servicers will choose to embrace the new program. Homeowners with subordinate liens are still likely to face some challenges to reach approvals. It is common for subordinate liens to seek 10% of the balance owed to release the lien. Which may become more difficult than the current market since the participating primary lien holders will now be capped in what they can contribute to the subordinate lien holder. This will be the fly in the ointment and sellers should expect high demands from subordinate liens.
It is still unclear how the new guidelines will affect the Stockton short sales, Lodi short sales, Tracy short-sales, Manteca short sales and Lathrop short sales, but for those considering a short sale hope for the best a prepare for the worst. Work with an agent who is experienced in short sales and stay involved and informed. The transactions with proactive sellers tend to resolve themselves quicker. Consult with your attorney and or CPA before pursuing a short sale and be prepared for any subordinate lien holders to request additional funds or a promissory note in order to close escrow. So buckle up, the ride could be short or it could be long but it will definitely be bumpy!