The Treasury Department announced new Short Sale guidelines a few days ago. The new rules go into effect on April 10,2010 and are set to ‘sunset’ on Dec. 31, 2010. There is lots of confusion about the new program, so here is my short, bulleted list of its provisions:
- Borrowers must be HAMP (Home Affordable Modification Program) eligible*
- Lenders must provide a short sale pre-approval, including minimum acceptable net proceeds, prior to listing
- Lenders have 10 days to approve or disapprove a short sale
- Borrowers are fully released of liability: no cash contribution, promissory note or deficiency judgment
- Servicers are prohibited from reducing real estate commissions specified in the Listing Agreement (up to 6%)
- Secondary lien holders may receive a maximum of $3,000 of short sale proceeds to satisfy their liens
- Borrowers receive $1,500 in relocation assistance
- Servicers receive $1,000 to cover administrative costs
- Primary lien holders receive $1,000 for releasing some short sale proceeds to secondary lein holders (up to $3,000)
- The guidelines standardize processes, paperwork, time lines and deadlines in the short sale process
*To be HAMP eligible, the following conditions must be met:
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The property is the borrower’s principal residence;
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The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
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The mortgage is delinquent or default is reasonably foreseeable;
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The current unpaid principal balance is equal to or less than $729,7501; and
- The borrower’s total monthly mortgage payment exceeds 31% of the borrower’s gross income
So, I gather that Joe Schmoe who has a stable job and good income, who wants to sell but finds himself upside down may not qualify for the new program. And I guess that’s the problem: this is a program for distressed homeowners, not a new set of regulations and procedures for the industry. However, that part is still unclear to me and I expect clarity to come as we get closer to April 10. As I learn more I’ll pass it on to you.
If you’d like to read the full document from the Treasury Department, you can access it here. It’s actually a pretty good piece and includes some of the paperwork that would be required in this program.