New Cash Incentives on Short Sales

by on May 11, 2010

The government recently launched a program to speed up the time-consuming and often frustrating process of selling your home as a short sale, in other words, for less than the amount of the loan you currently have against the property.

The current administration will give $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender. It’s designed for homeowners who are in financial trouble but don’t qualify for the administration’s $75 billion mortgage modification program.

Unfortunately owners still lose their home, but a short sale or deed in lieu of foreclosure doesn’t hurt a borrower’s credit as much as a foreclosure would.

The reason this benefits theĀ  lender is that a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees and maintenance costs associated with a foreclosure.

“It’s very traumatic and embarrassing and frustrating to go through a foreclosure,” said Laurie Maggiano, policy director of the Treasury Department’s homeownership preservation office. With a short sale, she said, “your financial issues are your own problem and not neighborhood conversation.”

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.

That’s a big change from current practice. Lenders generally don’t calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.

The new program “will give us a degree of efficiency that we have not had in the past,” said Matt Vernon, Bank of America’s executive in charge of short sales and foreclosed properties.

Under the new process, buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months. If that happens as planned, it would be a big improvement. Real estate agents across the country have complained that lenders are often difficult to reach, sometimes only communicating by e-mail and infrequently at that.

The Treasury Department outlined the plan in November, but doubled the original $1,500 in relocation money after realizing that many homeowners need more cash to move out. That’s because landlords usually want large deposits from people whose credit records have gone sour after missing mortgage payments.

However, there are plenty of restrictions. Do your research fully before you make your final adjudication on what do to do.

Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac, though the two government-controlled companies will soon follow suit, said the Treasury’s Maggiano.

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