Short Sale–The Basics
Selling a home in a Buyers market is a tough proposition…even more so when you are upside down on the mortgage–in other words your house is worth less than you owe on the mortgage. One of the options available to homeowners in this position is a short sale. In a short sale situation a homeowner will, due to falling market values, sell a house for less than they owe on the mortgage. Of course this can’t be accomplished without approval from the lender.
If you are in a position where you need to consider a short sale, take a few moments to review this video to better understand the impact it will have on your credit score and future ability to purchase another home down the road.
Short Sale & The Home Affordable Foreclosure Alternative Program – HAFA
Fannie Mae, Freddie Mac Announce HAFA Short Sale Guidelines
Fannie Mae and Freddie Mac have issued guidelines to facilitate Short Sales for homeowners who are at risk of foreclosure.
Fannie Mae and Freddie Mac are Government Sponsored Enterprises (GSEs) – privately held corporations created by the U.S. Congress to help reduce the cost of borrowing for homeowners. The newly announced plans apply to mortgages owned or guaranteed by the corporations that originated on or before Jan. 1, 2009. Together, the two corporations own or guarantee more than three-quarters of U.S. home mortgages.
In a Short Sale, a mortgage servicer agrees to the sale of a home for less than the borrowers owe on the mortgage. It’s considered a better option than foreclosure because the effect on the homeowner’s credit may be less, and lenders realize a smaller loss than in a foreclosure.
The newly issued guidelines are similar to, but vary in some particulars from, the streamlined Short Sale guidelines issued by the Treasury Department. They include time limits for lenders to approve Short Sales and incentives for lenders and homeowners for completing a short Sale or deed-in-lieu transaction, in which the homeowners simply turn over the title to the property to the loan servicer.
Treasury announced its plan – HAFA (Home Affordable Foreclosure Alternatives) – in November 2009. It went into effect in April 2010.
Loan servicers must institute the Fannie Mae and Freddie Mac Short Sale guidelines by Aug. 1, 2010, though they can do so at any time. The programs sunset on Dec. 31, 2012.
The Fannie Mae and Freddie Mac guidelines differ slightly. But under both plans, mortgage servicers must first evaluate a distressed homeowner for a loan modification under the HAMP (Home Affordable Modification Program), and conduct other home retention options, before considering a borrower for HAFA.
If a Short Sale doesn’t close within the specified marketing period, the mortgage servicer may offer the borrower a deed-in-lieu.
Both GSEs are offering $3,000 incentives to borrowers for completing a successful Short Sale or DIL. Mortgage servicers get smaller incentives.
Under each plan, borrowers who complete a Short Sale or DIL are fully released from future liability for the primary mortgage debt.
If you or somebody you know is in danger of foreclosure, you should contact the loan servicer for assistance.