East Lion Reality & Mortgage: Government Announces Short Sales Guidelines

The Obama administration and The U.S. Treasury Department laid out final guidelines on Nov 30th, that will hopefully make it easier for some financially troubled borrowers to sell their homes, and avoid foreclosure.

The guidelines are designed to encourage the use of short sales, transactions in which the borrower with lender approval sells the home for less than what is owed on the loan. The program also makes it easier for borrowers to voluntarily transfer ownership of properties through a "deed in lieu of foreclosure."

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.

Personally, I feel the trouble with short-sales is not on the Homeowner's end, but rather the Banks executing the wave of short-sale files that get submitted on a daily basis.

Offering a credit incentive to Short-Sale, although will be beneficial for struggling homeowners to aide in making a "fresh-start", will only inundate mortgage banks and loan servicing companies, if there isn't a process quickly implemented to handle the flood of applications coming in.

The short-sale system in many institutions, such as Bank Of America is “broken”. It doesn’t work! Talk to any Realtor, and they will go over a list of the problematic structure some banks have when trying to execute a Short-Sale transaction!