Patty Manzi's Tri-Valley Real Estate Blog

A short sale is a process where a financial institution (bank) allows a borrower (home owner) to sell their property for less than is owed on the mortgage.   This can be a very confusing, tedious, long and frustrating process for all parties involved. 

If you are in a situation where you can no longer afford your mortgage payment, consult with a licensed real estate professional who is certified or experienced in foreclosure alternatives for the homeowner.  Don’t wait until you are so behind on your payments that you have received a notice of default and are facing foreclosure.  The banks are willing to work with you before you are delinquent if you can prove you have a hardship.  It is the ultimate goal of the government and financial institutions to keep people in their homes.  If we all work together, we can figure out a way to either keep you in your home, or sell your home to prevent a foreclosure.

Under the new government HAMP program (www.Makinghomeaffordable.gov), participating financial institutions have to allow you to apply for a loan modification first.  Depending on your qualifications and your hardship, you may or not be awarded a modification.  In either case, you can still choose a short sale of your home under HAFA (Home Affordable Foreclosure Alternatives) and the bank has to allow you 120 days to do so, during which time they may not issue a foreclosure date.

Here is the HAFA program summary:

After all home retention options have been explored; HAFA provides standardized processes, documents, time lines and incentive to servicers, borrowers, and investors to enable short sales and deeds-in-lieu of foreclosure.

• Effective April 5, 2010 to December 31, 2012
• Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. This policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
• Requires that HAMP eligible borrowers unable to complete HAMP be considered for HAFA options before foreclosure
• Allows borrowers to receive pre-approved short sales terms before listing their property for sale with the help of a licensed real estate professional (including minimum acceptable net proceeds or listing price)
• Eligibility criteria are similar to those for HAMP: 1.Property must be borrowers primary residence, 2. Mortgage loan is a first lien mortgage originated before January 1, 2009, 3. The mortgage is delinquent or default is reasonably foreseeable, 4. The current unpaid principal balance is equal to or less than $729,950 for one unit properties, 5. The borrowers total monthly mortgage payments exceeds 31% of the borrowers gross income.
• Uses borrower financial and hardship information already collected under HAMP
• Requires borrower to be fully released from future liability for the first mortgage debt, and if the subordinate lien holder receives a payment from the first lien holder to enable the transaction, that debit as well.
• Prohibits the servicer from equiring a reduction in the real estate commission agreed upon in the listing agreement (max 6%)
• Uses a standard process, documents, and time frames
• Provides financial incentives:  $3,000 for borrower relocation assistance; $1,500 for servicer to cover administrative and processing costs; and up to $2,000 reimbursement for first lien inventor for allowing a total of 6% unpaid principal balance up to a $6,000 cap in short sale proceeds to be distributed to subordinate lien holders
• Requires that borrowers provide clear and marketable title, and maintain the property in good condition for the duration of the Short Sale Agreement (minimum of 120 days)
• Short sale transaction must be ‘arms length’
• Debt forgiven under HAFA could have tax and credit rating impact for the borrowers.  They are advised to get financial and tax advice
• New buyers may not sell the property within 90 days of purchase