In today's real estate market, the influx of houses for sale continues to keep house prices down. Borrowers are struggling to pay mortgages and foreclosures continue to rise. Lenders and sellers have been negotiating short sales, a hot topic in today's real estate world.
Short Sales Are A Means To Avoid Foreclosure
A short sale occurs when a borrower can no longer afford to keep paying a mortgage and the amount owed on the property is more than the house is worth. Some lenders will forgive the amount left after the house is sold while others will create a repayment plan with the borrower, depending on the level of hardship a borrower is exhibiting.
The lender requires extensive paperwork from the borrower in order to approve a home for a short sale. Once a short sale has been initiated, the homeowner has 90 days of foreclosure forbearance in order to secure an approved short sale.
When you see a home advertised for a very low amount of money, be sure that this is a technique used by sellers to get you in the door. Short sales are offered at very low prices to start the bidding process, but a lender must approve the sale amount to make the sale final. Although you will get more for your money on a short sale, you have to be realistic in your expectations.
The Short Sale Process Begins to Standardize
Traditionally short sales have been tedious and complicated. Short sales were lender specific, home value assessments were unrealistic, and both lenders and buyers frustrated with the process often walked away.
In May 2009, the Foreclosure Alternatives Program was announced by the Obama administration. This program is designed to streamline the short sale process and establish financial incentives for loan servicers, home sellers and second lien holders.
Previously, the short sale process was difficult to negotiate. Home sellers would often not hear back from lenders and there were no timelines in place to protect the rights of both parties involved in the sale.
The Foreclosure Alternatives Program requires that the realtor establish reasonable and customary commission costs to be deducted from the sale price and this can't be negotiated once an offer is received. Loan servicers were in the practice of reducing real estate commissions prior to the establishment of the FAP, creating reduced profits for real estate professionals.
Standardized documents such as short sale agreements and offer acceptance letters have helped streamline the short sale process. With standardized documentation, realtors are more equipped with the knowledge of what paperwork a lender requires in order to approve a short sale.
According to realtor.org, a professional site for the education of realtors, the HAFA (Home Affordable Foreclosure Alternatives) program will be in place by April 15 2010 to simplify the short sale process. Loan providers can begin following the guidelines early.
The HAFA program requires that all lenders have 30 days to contact the borrower requesting a short sale. Borrowers must respond to the lender within 14 days. All foreclosure proceedings are suspended during this time frame and the lender is unable to reduce commissions as written in the listing agreement.
Short sales are beneficial to the home seller because when a short sale is approved, the home seller will avoid foreclosure. Short sales are less detrimental to credit ratings and in the long run cost both the lender and borrower less money than foreclosure proceedings.
Prior to the HAFA program inception, no guidelines were in place to establish short sale negotiations, making the process complicated and time consuming. With HAFA in place, realtors are better equipped to deal with short sales and the process should begin to streamline in the near future.
More information about the short sale process can be found at www.realtor.org/realtors/basics_short_sales.
Melissa Nykorchuk - Melissa Nykorchuk has been a professional writer and investigator for the past 8 years. Melissa earned a Bachelor's Degree in English ...
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