Short Sales - Encouraged by Treasury

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Short Sales - Encouraged by Treasury

Ted Akers
Centennial, CO · Member since 2009 · 758 posts · 251 votes

The US Treasury Department on November 30th announced plans on how to streamline Short Sales. Most agree, although the administration continues to spin it as a success, that the Making Home Affordable program has been less than optimum. Over 650,000 temporary loan modifications have been approved yet much fewer have been approved for permanent modification status, and stories abound of homeowners in the temporary modification status being foreclosed upon with no explanation. Here is a summary recap of the changes that have been enacted:

Qualification:
- Must be the homeowner’s principal residence.
- The mortgage must be less than $729,750
- Homeowner is delinquent on the mortgage or “default looks likelyâ€.
- Homeowners mortgage payment exceeds 31% DTI based on gross income.
- The Loan must have closed before 1/1/09.

The qualification of “or default looks likely†seems to indicate that the borrower does not have to be in default in order to qualify for a short sale, just that a default looks likely. It will be interesting to see mortgage servicer responses, and Treasury’s enforcement, to short sale requests when a default “looks likely†but the borrower is not yet late.

Changes enacted:
- $1000 to lenders.
- $1500 to sellers for closing costs or moving expenses.
- Up to $3000 to junior lien holders for release of their lien.
- A minimum of 90 days and up to 1 year to market and sell the property.
- No foreclosure may commence during the marketing period allowed above.
- Servicers may not lower agent commissions after an offer is received.
- Standardized paperwork
- Servicers may not charge borrowers fees to participate.
- the Short Sale Must Fully Discharge the borrower !!!!
- A Short Sale request is to be approved or denied within 10 days

This is positive news for short sale investors as it shifts emphasis toward short sales, allows a defined marketing time without risk of foreclosure to the borrower, prevents reductions in realtor commissions, drastically shortens time frames, fully discharges borrowers, and apparently allows for submission prior to being in default.

Links for related articles from:
Reuters: http://tinyurl.com/yk64mbs
Yahoo News: http://tinyurl.com/ydm43yg
API: http://tinyurl.com/yj35shj

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  • Anthony E Russell
    Real Estate Investor · Los Angeles, CA · Member since 2008 · 148 posts · 22 votes
    16y

    Ted,

    Great post.

    Question:

    Is it safe to say that a deficiency judgment on a seven figure short must still be negotiated away?

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  • Jim Wineinger
    Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
    16y

    In his post it says 650,000 in loan modifications have been approved so it would be safe to say that a 7 figure loan modification has not been done and probably will not be done.

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  • Ted Akers
    OP
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    16y

    Anthony,
    Thanks - I appreciate that. I say yes, you do need to negotiate full release for 7-figure deals because the qualification is for deals under $729,750. I still suggest for deals under the $729,750 to submit a similiar short sale package as before with cover letters stipulating a full release of the homeowner. One reason is it seems like it may be interesting following these changes and how the banks actually adhere to them, and more specifically how Treasury enforces them. Do not get me wrong. I think these are very welcome changes with the intent definately to push short sales as opposed to allowing the property to get all the way to REO status. One interesting provision to follow though will be the acceptance or denial requirement of within 10 days. Many banks are not staffed now to get responses inside 60-90 days. How are they going to comply with a ten day requirement? Again, these are very welcome changes we will want to monitor to see their effect. I think it is important for investors to be aware of them; as we mey need to remind banks of these new parameters, especially early in the game. Bottom line - these changes are very good news. Reality (especially regarding time frames) - we will have to see. Having knowledge of the changes when dealing with the banks - should prove valuable versus less informed short sale shops. I suspect knowing of the changes could result in us reminding the bank of the new rules.

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  • Account Closed
    Real Estate Investor · Sentenhart, Wald · Member since 2009 · 110 posts · 75 votes
    16y

    Why does this mean anything? The Banks are not forced to do this, so isn't this just more noise amounting to not a damn thing?

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  • Ted Akers
    OP
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    16y

    Lucia,
    My read from several articles did raise the same question, in that most articles do describe Treasuries actions as "Guidance". However, these are reported as rules to become effective 4/5/2010. Beginning next week Treasury has stated they will publish results of banks not following the program guidance. I know that few of us think that "shaming" banks into action is likely to have material impact. While none of the articles discussed penalties, I presume that at a minimum the financial incentives from Treasury would be withheld. Some high paid official somewhere figured out that short sales actually cost less than proceeding through foreclosure with legal fees and another 4-12 months of holding the property without recieving payments. While not a cure-all, and like many government programs without real teeth, it is at least a public move to encourage short sales. As to banks cooperation for now, or compliance after 4/2/2010, or Treasury Dept. enforcement we will have to see.

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  • Jim Wineinger
    Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
    16y

    Ted, I would bet that there are no teeth in this because the admin (not treasury) wants people to utilize the new loan modification program, which would mean that the banks should drag their feet in order to have these people go from temporary status to a permanent loan modification.

    It is not a true powerplay, but a middle of the road thing to be able to say the each different program has helped out, even though one program is actually diametrically opposed to the other.

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  • Ted Akers
    OP
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    16y

    Jawsette,
    Even though they are spinning the Loan Mod program as a success, I think they are realizing it is not the cure-all they had hoped. There seem to be many complaints including serious delays in processing and borrowers being routed into foreclosure after being approved and paying on their temporary "approved" modification. The most telling number is that only 1,700 homeowners have completed the temporary modification and moved into a permanent modification status.

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