Government unveils new short-sale rules
By J.W. Elphinstone
THE ASSOCIATED PRESS
Tucson, Arizona | Published: 12.03.2009


The Treasury Department unveiled sweeping rules this week to help financially troubled homeowners who need to sell but can't get a price high enough to pay off their mortgages. Homeowners will even get $1,500 to help cover their moving costs. The plan is designed to help homeowners who don't have the income or debt levels to qualify for a loan modification under the Obama administration's $75 billion Making Home Affordable program. The plan establishes timelines, a standard process and documents, and cash incentives for participation.

Short sales, as these deals are known, reduce the damage to the borrowers' credit record and save the lenders the cost of foreclosure. Short sales also help neighboring property values because the sales price is usually higher than the house would fetch in a foreclosure auction. About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, says the National Association of Realtors.

The plan is designed to accelerate the necessary agreements between lenders, real estate agents, buyers and sellers. Too often short sales are anything but quick. But the Treasury Department's plan for short sales has some short comings. Mortgage companies don't have to launch the program until April 5, 2010, which is no relief for home buyers, sellers and real estate agents mired in deals now. The program is also voluntary for lenders who hold second mortgages, such as home equity loans or piggy-back loans. Treasury estimates about half of homeowners in default have more than one loan.
While those other secondary debt holders can receive up to $3,000 to release their claims on the property, that may not be enough for larger creditors who would rather go after the borrower.
Nevertheless, the new guidelines should reduce paperwork by requiring mortgage companies to use the financial and hardship documents submitted by borrowers seeking a loan modification. Mortgage companies will have to approve short sale terms, including the minimum listing price, before the house is put on the market, which should speed up the approval process. Mortgage companies will receive $1,000 to cover administrative costs.