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The Short Story on Short Sales

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By : Lee Graham    99 or more times read
It has become a fact of life for homeowners, lenders, and real estate professionals, staring us all in the face. Itís the short sale, and this year about 1 in ten home sales fell into this category.

While loan modifications benefit some, there are many homeowners who donít have the income or debt levels to qualify under the Making Home Affordable program. So what comes next? In the past, foreclosure was the most likely option. However, that tide is turning as lenders are allowing more homeowners to opt for the short sale and sell the property at a price below the actual amount owed on the home. While the bank may still incur a loss, it certainly beats having to foreclose. After all, banks arenít in the business of owning property if they can help it.

While there are benefits of a short sale over foreclosure, the process has typically been long and cumbersome for everyone involved. Add to that the length of time to actually close these transactions (some can take as long as 8 to 10 months, but the average is 3 to 6 months), and itís no wonder most people cringe when they hear short sale.

However, there is hope on the horizon. Beginning April, 2010, the Home Affordable Foreclosure Alternatives Program and its recently issued guidelines should help to streamline this process and reduce the backlog that is plaguing lenders now. Not only should the process be shortened dramatically, it will also mean less vacant and vandalized properties, a common problem in neighborhoods everywhere. Closing more short sales will also help neighboring property values, as short sale prices are typically higher than homes that have already foreclosed.

So, without further ado, hereís the short list on the new short sale guidelines.

  • Borrowers will now receive pre-approved short sale terms BEFORE listing the property. These terms will also include the minimum net proceeds that the lender will accept. A great time saver for both the seller and the real estate professional.

  • The mortgage servicer will now have just 10 days to approve or disapprove a short sale request. Paperwork reduction will also end a lot of the current short sale headaches.

  • The new guidelines will now prohibit loan servicers from requiring a reduction in the commission earned by real estate professionals that was agreed on in the listing agreement. Agents no longer have to take a commission cut for all of their hard work.

  • For the homeowner, there will be a $1500 relocation assistance incentive. Helps take some of the sting out of losing a home.

  • Also for the homeowner, the program requires that the borrower is fully released from future liability for the first mortgage debt. Again, a much better option than letting the house foreclose and having it haunt your credit for up to 10 years.

  • Financial incentives will also be in place for the mortgage servicers - $1000 for every completed short sale transaction.

  • Qualifying properties must be the homeownerís principal residence, and the homeowner must be either already delinquent on the mortgage, or show that default is imminent. There are also some other qualifiers regarding debt to income ratios; consult with a mortgage professional for the complete list.

Keep in mind that the Home Affordable Foreclosure Alternatives Program applies to loans that are not owned or guaranteed by Fannie Mae or Freddie Mac. But, Fannie and Freddie, which currently cover over half of the mortgages in the US, are already working on a similar program. Details of their guidelines should be released in the coming weeks.

Will the new guidelines turn the tide for short sales overnight? Not likely. However, as we move into 2010, we will certainly see more short sales and foreclosures and this program will certainly help smooth out the process and move these homes much more quickly. And that is good news for everyone!
Lorena OíConnor is the Team Manager for The Graham Group, a premier team of real estate professionals specializing in Atlanta Real Estate. She works under the direction of Broker/Owner Lee Graham, and their areas of expertise include Residential, Foreclosures, and Short-Sales. View more information at

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