On November 30th the US Treasury Department laid out new guidelines that are designed to help speed up the short sale process by issuing new rules which should benefit Dakota County homeowners. This should help those homeowners that have had a hardship and are at risk for losing their home due to foreclosure.
What is a short sale?
The National Association of Realtors defines it the following way -
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
What are the new rules?
The best explanation I’ve seen is the following from the NAR Realtor Magazine site -
Government Announces Short Sales Guidelines:
The U.S. Treasury Department announced new guidelines this week designed to make short sales go more smoothly. To qualify under these new guidelines:
- The property must be the home owner’s principal residence.
- The home owner must be delinquent on the mortgage or close to defaulting.
- The loan must have been made before Jan. 1, 2009, and be for less than $729,750.
- The borrowers’ total monthly mortgage payment must exceed 31 percent of their before-tax income.
Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their mortgages. Mortgage-servicing companies will get $1,000 for each completed short sale. Second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgage can collect up to $1,000 from the government for allowing the payments. Borrowers who complete a short sale under the program must be “fully released” from future liability for the debt, according to the guidelines.
Why do they need new rules?
New rules were needed because short sales are taking too long to process, they often are complex negotiations with multiple lenders who are more frequently putting up barriers to success and there continues to be roadblocks to helping consumers through the process when doing a short sale is better for the homeowners long-term credit situation.
Unfortunately, these new rules don’t actually take affect until April 5, 2010. They are scheduled to expire December 31, 2012. Lenders are encouraged to implement it earlier so hopefully the new short sale rules will become a reality for those Dakota County homeowners that need help sooner.
Additional Resources
- This press article does a good job of laying out the new announcement – Treasure sets guidance to simplify “short sales”
- Program details from the US Treasury on the new short sales & deed in lieu of foreclosure program rules – Home Affordable Foreclosure Alternatives
- A previous article I wrote showing how successful short sales were falling behind successful foreclosure sales here in the Twin Cities – Foreclosures Selling Faster Than Short Sales
As I’ve written about before, I’m a Certified Distressed Property Expert and have the processes and knowledge needed to help homeowners avoid foreclosure. If you know of someone facing a hardship contact me via e-mail or cell phone (651-338-0355) for a confidential consultation about the options.
