Obama’s Short-Sale Plan One More Way To Avoid Foreclosure
December 14th, 2009 categories: Economic Recovery, For Homeowners, For Sellers, Foreclosures, Housing Market
If you’re struggling to make your mortgage payments each month, and you can’t qualify for a loan modification, it might be time to consider a short sale. It’s not an ideal situation, but it is better than losing a home to foreclosure.
And in a bit of good news for homeowners, the Obama administration is hoping to make the short-sale process, which is quite a cumbersome and stressful one now, easier. Real estate writer Kenneth Harney, in a column in Sunday’s Chicago Tribune, explained that the new short-sale plan will force mortgage lenders to use uniform documents and work on a set timeline. Both moves will make short sales proceed more smoothly.
In case you don’t know, in a short sale a lender or investor agrees to take less than the amount owed on a mortgage debt when a house is sold. Usually, these sales are the last option for homeowners and banks outside of foreclosure.
Harney writes in his column that short sales have historically been difficult to close. The banks, Harney writes, need to be convinced that the short sale will bring in more money than it would get foreclosing. Homeowners are wise to bring in a skilled REALTOR® to present their case. As Harney writes, this usually involves showing recent comparables on closed housing sales, analyzing the local market and determining what the selling price of your home would be.
Homeowners also need to have a buyer ready. This buyer has to pay a price that the bank approves, and the buyer also must have the proper financing to close the deal.
As you can see, it’s not the easiest process. But it is a better solution than foreclosure.
The hope, though, is that the Obama administration’s short-sale plan – which was presented by the Treasury Department Dec. 1 and will go into effect early in 2010 – will not only make the process easier, but will make it more common, too.
In addition to requiring lenders and loan servicers to use standardized documents and quicker turnaround times (10 days versus the more common 3-6 months), the Obama plan also offers financial incentives to the people involved in a short sale.
Homeowners who complete a short sale will receive $1,500 to help them cover relocation costs. Mortgage lenders can receive $1,000 for every short sale they complete. Investors will also get $1,000. Second-lien holders get up to $3,000 from the proceeds of the short sale.
No one knows yet if the Obama plan will encourage more short sales. Personally, I hope it does. Foreclosures help no one. Banks don’t want to sell these homes. Neighborhoods suffer when foreclosures pop up in the community. And foreclosures can lower the asking prices of other homes. Anything that prevents foreclosures, including short sales, is worth trying.
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