By: Lance T. Denha, Esq.
In an effort to stem losses from foreclosures, Fannie Mae and Freddie Mac recently announced policy changes regarding short sales. A short sale allows a homeowner to sell their home for an amount less than the value of the existing mortgage. While Fannie Mae and Freddie Mac incur losses in a short sale, these losses are significantly lower than the costs of foreclosure. As a result, the short sale is quickly becoming a preferred foreclosure alternative for both Fannie Mae and Freddie Mac.
Bank of America recently provided the following key changes for all parties involved in a short sale. These changes apply to all Fannie Mae and Freddie Mac short sales, regardless of whether an offer is made.
Title Transfer requirement change:
o The buyer is prohibited from selling the property for any sales price for a period of 30 days from the date of the deed. This means that any time a homeowner acquires property through a deed that is recorded, the buyer cannot turn around and flip/sell the property immediately thereafter within the 30 day period of acquisition.
o After a 30 day period, and until 90 days from the date of the deed, the buyer is further prohibited from selling the property for a sales price greater than 120% of the short sale price. This essentially prevents investors from eying a deal that may not have been properly assessed at the current value at the time of acquiring and turning around and making a profit greater than 120%.
Below is an example on how to calculate the 120%:
o Purchase Price is $100,000.00
o 120% of the purchase price would be $100,000.00 X 1.2 = $120,000.00.
o The borrower may be entitled to an incentive payment of $3,000 from Fannie Mae/Freddie Mac to assist with relocation expenses following successful completion of a short sale unless circumstances dictate borrower being required to contribute to the short sale as the bank determines they need to recoup some money from the deficiency balance, certain government relocation assistance programs prohibit further relocation assistance incentives to borrower or, the lender/servicer has knowledge that the borrower is currently receiving relocation assistance from an outside third party.
If the borrower receives relocation assistance from a source other than Fannie Mae / Freddie Mac or the Servicer, the difference in the relocation assistance amount up to the $3,000 incentive maximum may be provided. If the borrower will receive relocation assistance from a source other than Fannie Mae / Freddie Mac or the Servicer and the amount is equal to or greater than $3,000, no relocation incentive will be provided.
In addition to this change, Fannie Mae and Freddie Mac previously announced they will allow short sales for underwater borrowers who have never missed a mortgage payment. Fannie and Freddie previously had allowed only homeowners who had missed payments to qualify for a short sale. The new rules, which took effect November 1, 2012, will allow eligible homeowners to show a hardship to qualify for a short sale. Hardships may include unemployment or death of a spouse.
If you are one considering short sale options, please take the time to understand these changes and consult with a real estate professional moving forward as this process, while becoming streamlined, still can remain a frustrating process due to timelines constraints as well as documents gathering and preparation.