Last week a friend of mine gave me an article by Peter G. Miller, Realty Track, which I found very interesting and wanted to share with anybody that was interested.  The below is information is provided by Peter G. Miller who is syndicated to more than 100 newspapers and operates the consumer real estate site, OurBroker.com.

On April 5th the Government instituted these new guidelines that should make the process of buying short sales easier and faster. The goal of the new rules is to reduce the numbers of Foreclosure Inventory by getting the Lenders to unravel the current short sale process that now can take months to close if they close at all.

The statistic from THE MORTGAGE BANKERS ASSOCIATION says that at the end of 2009 the overall foreclosure level was 10 times greater than traditional levels and to make matters worse , we have six states which represent  60% of the foreclosures nation wide according to RealtyTrac- California,Florida,Michigan,Illinois, Arizona and Texas.

 Until now everyone that was encouraged to make short sales offers, found the process long, tiresome and sometimes never got resolved or approved.

Under the government‘s newly minted HAFA: Home Affordable Alternatives Program, the process of buying short sales will be much faster and easier.

What HAFA says is this: When a home is headed for foreclosure lender must get an independent valuation, usually a BPO-Broker‘s Price Opinion. The lender does not have to price the property at the estimated market value, however a sale price must be established and the price must be revealed to the property owner. If a buyer matches or exceeds the stated sale price the Lender must agree to a sale within 10 days.

“With the new HAFA plan the guessing game for short sales prices is gone and so are endless delays , says James Saccacio , Realty Trac’s chief executive officer.” The new system should keep a lot of homes out of the foreclosure process, help Lenders get realistic market prices and allow buyers to make logical and practical offers.

Seller Requirement:

HAFA is designed for borrowers who can’t get a loan modification under the government’s Making Home Affordable plan or who want out of their mortgage with a short sale or a deed in lieu of foreclosure. The catch is that not all properties or owners will qualify for help under HAFA.

• The property must be the borrower’s principal residence and not investment real estate or second home.

• The mortgage must be a first lien originated before January 2, 2009

• The mortgage must be delinquent or default must be a reasonably foreseeable.

• The unpaid balance must be no more than $ 729,750

 • The borrower’s total monthly mortgage payment must exceed 31% of gross income.

Rules for investors

 Not only are there rules for distressed borrowers, there are also rules for would-be purchasers. Deals must be arm’s length transaction and –here is a bigger objection for some investors-the property cannot be re-sold within 90 calendars days of closing.

Follow the money

What makes HAFA attractive for the lender is that they might get more through HAFA than foreclosures. If they get a bid they will have 10 days to find a better bid. The good news for lenders, buyers and owners, is that 10 days after a qualifying bid is received the deal is done and the property is sold.

 In addition, financial incentives are built into the HAFA plan. There is   $1,500 for borrowers at closing, something which may help them move. There is $ 1,000 for services to help them off – set processing costs.

How second lien holders will be treated is fuzzy. The HAFA rules say the “service will allow a portion of gross sale proceeds to be paid to subordinated lien holders in exchange for release and full satisfaction of their liens” – but the exact proportion is a matter of negotiation and no doubt in some cases negotiation will not be possible.

Subordinate lien holders say folks holding the second loan from a home purchased with piggy back financing – can get up to $ 3,000 from the first lenders, and lenders can get up to $ 1,000 from the government to offset such payment. Whether $ 3,000 will be enough to get second loan owners to give up their claim is unknown, but $ 3,000 maybe a lot better than a foreclosure where second lien holders get nothing. In addition to the  $1,500 at closing, HAFA rules, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower”. Translation: Deficiency judgments won’t be an issue with HAFA deals, an advantage for distressed homeowners in the states which now allows all such awards.

Many loan owners will dislike the HAFA rules because by delaying the sale of distressed properties they have been able to hide losses. Now distressed property sales will be faster, meaning the lender books will show losses more quickly.

It is likely that the new rules will evolve into a lending standard for virtually all properties. The reason? Lenders and services won’t want to spend time or money figuring out which properties qualify under HAFA and which don’t it will be easier to just throw them all into one HAFA friendly process.

For specifics you can go to https://www.hmpadmin.com/portal/docs/hamp-servicer/sd0909

What is a Short Sale?

 A short sale is when the lender/bank will agree to sell the property for less than the mortgage amount that the seller owes to the lender. There are 2 different points of view on a short sale: Perspectives from the seller and the buyer. (We could actually say 3 and include the lender’s perspective!)

Seller

Desperate sellers are looking more and more at short sales as a solution to avoid foreclosure. A short sale will affect the sellers’ credit scores but will have less of an impact than a foreclosure in regards to the negative impact on your future credit. Financial hardship by the seller has to be proven to the lender to begin a short sale. As a seller, if you are behind on your payment and your financial condition has drastically changed, the lender may be more willing to agree to a short sale. Please be aware that lenders can and will opt for foreclosure if they can recuperate money from the mortgage insurer (even if the seller can get an able and qualified buyer to purchase their home at reduced sales price). In the current real estate market, be aware that if you are “upside down” between the current value of your home and what is owed on the mortgage, but you are still making regular payments, the lender will have no incentive to approve a  short sale, and if for any reason you have to sell, the lender will expect you to come up with the difference. If you are considering a short sale, make sure you list the home with a Realtor  who is a Certified Short Sale Specialist. The Realtor will know all the requirements and be able to help you get to the finish line, the closing!!

Buyer

As a buyer, when you are looking at a short sale, the first thing to understand in this process is that the lender is in the driver seat. Flexibility, patience and time are what you need as a buyer to go through the process of getting approval of the sale from the lender. Understand that the contract will have provisions that protect the seller/lender. One provision will state seller to have lender and any lien holder approve the sale and purchase agreement. Some lenders may require that the seller can entertain other offers that are presented to him even after the home is under contract. Remember the lender wants to make sure that he recovers the maximum amount of the outstanding loan.

 How do you make sure all these issues are addressed up front? Engage a  Realtor  who is certified in short sales! The Realtor will make sure that certain necessary language is incorporated in the contract language, such as: Buyer has the first right of refusal or a clause that stipulates no other offers will be considered by the lender. A Certified Short Sale Realtor will make sure that, when listing to promote a short sale or submitting an offer to the lender, the following items are included in the package:

a) Lender contact  who approved the short sale or at least can confirm receipt of short sale package

 b) Contact information for the Attorney who is engaged to do a preliminary HUD to be submitted to lender

c) Results of the title search, which is performed to make sure that no other liens are on the property that will affect the HUD Statement and bottom line of the lender

d) Current Property taxes , HOA Dues and information about who is the Declarant of the HOA

e) Handwritten Hardship Letter from the  seller

f) Complete financial disclosure of the buyer

g) Purchase Contract

h) Preliminary HUD

i) Proof of income for the last 2 years

j) 2 years tax returns

k) Copies of last 2 bank statements

 l) 3rd party authorization form

SO, what is next in the process? Sit back and have patience after an offer is made on a short sale!

For more information about purchasing a short sale, visit: http://www.cbbankowned.com