The Treasury Department has announced sweeping new rules which will help financially troubled homeowners who need to sell but can't get a price high enough to pay off their mortgages (a short sale). 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, and is designed to accelerate the necessary agreements between lenders, real estate agents, buyers and sellers.
Short sales 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 what 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, according to the National Association of Realtors. About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, according to the National Association of Realtors. In areas like Las Vegas, southern Florida and California, the ratio is far higher.
To qualify under the new guidelines:
• The property must be the homeowner's principal residence.
• The homeowner is delinquent on the mortgage or default looks likely.
• The loan was made before Jan. 1 this year and is less than $729,750.
• The borrowers' total monthly mortgage payment exceeds 31 percent of their before-tax income.
Mortgage companies don't have to launch the program until April 5, 2010, which may not help borrowers who are in default now. The program is also voluntary for lenders who hold second mortgages, such as home equity loans or piggyback loans. The Treasury Department has estimated that about half of homeowners in default have more than one loan on their properties.
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.
Even with its drawbacks, the new rules should substantially streamline the process and provide a lifeline to many sellers struggling with mortgage payments. Our Hawaii Kai foreclosure rate is lower than most areas of the island, but we have our share of sellers who do need help.
Contact me if you want to sell and find out how the short sale process works, and what you can reasonably expect for your property. Remember, you do have options to foreclosure.
Barbara Abe, Realtor