Here’s an article on short sales that was published in February this year. We were optimistic that procedural changes would shorten timelines and make short sales easier for all parties involved. What’s your experience been since these changes came into practice?
One of the biggest real estate stories last year was the explosive growth in short sales. Short sales accounted for somewhere between 20-25% of all home sales in 2012 – approximately 1 million homes sold for less than the amount due on their mortgages.
Short sales helped the market in a number of ways. They reduced the number of foreclosure actions. They helped rapidly clear out distressed inventory. They helped stabilize home prices. And with another 3-4 million seriously delinquent loans and millions of homeowners underwater on their mortgages, we can expect to see short sales volume increase over the next year.
While the number of short sales set a new record, the term “short sale” was still a bit of an oxymoron. For the most part, short sales were anything but “short.” They required more paperwork, extensive – often contentious – negotiations between the seller, buyer and lender (or, in some cases, multiple lenders), and far more time than a traditional real estate transaction.
But the process showed signs of improvement in 2012. Sales which previously might have taken 6-9 months to complete, now took as little as 60-90 days. Lenders improved their processes and added qualified staff, while real estate agents and brokers developed expertise in the short sale process.
More good news is on the horizon. Effective February 1st, new guidelines for the government’s HAFA (Home Affordable Foreclosure Alternatives) program should make short sale efforts even easier.
The changes to the program are designed to help expedite the process by removing some of the hurdles that existed – removing some of the burdens on the participants in the transaction, and standardizing both the paperwork and the approach for all short sales on all loans held by the GSEs (Fannie Mae and Freddie Mac).
Among the more notable changes to the program:
- The time frame for making a decision to offer a short sale has been reduced from 45 to 30 days.
- The amount of reimbursement for second lien holders has been increased from $1 for every $3 owed, to $2 for every $3 owed, with a cap of $5,000. This is a potential increase of $3,000 to help solve one of the biggest problems in getting short sales approved.
- Resale prohibitions have been relaxed. Previously, a home bought via short sale couldn’t be sold for 90 days. Now the hold period is only 30 days, or 90 days if the sales price is greater than 120% of the short sale price.
- The GSEs have aligned their programs and formalized a number of items, including the encouragement of pre-approved sales, defined timelines, prohibition against foreclosures if there is a short sale approval or pending transaction, the release of liability for borrowers with a hardship, and relocation assistance.
- Three Treasury Department forms are being replaced with a new, simpler short sale notice (SSN) form that doesn’t require borrower or agent signatures.
- GSE pre-determined hardship standards (90+ days delinquent and a FICO score below 620) are being adopted across the board, and borrowers with this status can simply sign their hardship affidavit at closing.
All of these changes promise to help accelerate the number of short sales in 2013, so make sure you’re prepared to participate in this growing part of the market!
Note: The article originally appeared in RIS Media Real Estate Magazine, Feb 2013 edition page 35 and later appeared online at : http://rismedia.com/2013-02-28/shortening-the-path-to-more-successful-short-sales/