By: Lance T. Denha, Esq.
In the past, anyone who has been involved in the process of seeking approval and finalizing a short sale will more than likely tell you first hand that it has been a tall order. Since the housing meltdown began, short-sale offers have often taken months to get a response from overwhelmed lenders. Even then, there have been no clear guidelines about what kinds of offers are acceptable or about how to handle second mortgages that can easily derail the process.
Industry experts estimate that less than half of short-sale offers have been accepted, and many real-estate agents have avoided showing these properties altogether.
Under the new Home Affordable Foreclosure Alternatives program, which has taken effect as of April 5, 2010, lenders and mortgage investors will have even more incentive to offer troubled borrowers short sales instead of foreclosing. This new federal program encourages banks to accept short sales by offering them financial incentives to do so. It offers sellers incentives, too.
Homeowners win because:
- They won’t get stuck with a deficiency judgment. Under the program, homeowners are released from all obligations.
- They can receive $3,000 in relocation expenses.
- They can’t be charged any fees to participate.
- These sales are better for distressed homeowners/borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale
Creditors win, too, because they don’t inherit a vacant home to maintain. As big as the losses in short sales can be, the losses from foreclosures can be even bigger. Secondary lenders, who often stand to get nothing in foreclosures, can receive up to $6,000.
You may qualify for the foreclosure-alternatives program if:
- You have tried unsuccessfully to get a mortgage modification through the Home Affordable Modification Program.
- The property is your principal residence.
- You received your first mortgage loan before Jan.1, 2009, and it is guaranteed by Fannie Mae or Freddie Mac.
- You are behind on your mortgage or will be in the foreseeable future.
- You owe no more than $729,750.
- Your total monthly mortgage payment is more than 31% of your income before taxes.
Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bona fide offers, they have to be accepted within 10 days. These new changes will allow the Short Sale to start before a purchase contract offer has been created. The idea behind this law is to create a time-line that is fair for the homeowner and their agent to find a buyer and sell the property.
Lance T. Denha, of Denha & Associates, PLLC, works in the areas of business transactional law, foreclosure/pre-foreclosure workouts and bankruptcy law. In the business area, he specializes in general corporate law with a concentration in business and commercial transactions, property tax appeals, health care, and liquor licensing matters. In the foreclosure/pre-foreclosure workouts legal arena, Mr. Denha represents borrowers against lenders in seeking out residential loan workouts for purposes of avoiding foreclosure, or in the alternative, Mr. Denha will represent borrowers in foreclosure defense cases against lenders. Lastly, in the bankruptcy area, Mr. Denha’s focus is on bankruptcy law matters, specializing in debtor representation, creditor relations, and related litigation.
Mr. Denha is a member of the State Bar of Michigan and State Bar of Florida where he is licensed to practice law in Michigan and Florida.