Obama Administration Continues to Encourage Short Sales; However . . .
I’ve always said that Short Sales are good for the economy and good for the country. The Administration continues to agree. The Treasury promulgated final guidelines to urge servicers to follow through with short sales as an alternative to foreclosure for those homeowners that don’t qualify for a modification.
To encourage servicers to accept a short sale, the Treasury is offering incentive payments of $1,000 per completed short sale. Seconds (and other junior lien holders) will be paid to release their liens, up to $3,000 of the short sale proceeds as long as the primary investor agrees to share the earnings, and for this the government will pay the first up to $1,000.
In the program, the Seller/Homeowners will get up to $1,500 to help with relocation, and must be fully released from any future liability. The Treasury’s program – called “Home Affordable Foreclosure Alternatives Program” or HAFA was initially announced back in May but it has taken several months to announce the final plan that was just released.
Prior to moving forward with a foreclosure, the borrower must be considered for the HAFA short sale program which requires the servicer to obtain an independent value of the property and requires that the lender respond to a Short Sale offer within 10 days!
There is more good news for real estate agents (no surprise – as they are a very well organized lobby) – the program prevents services from forcing agents and brokerages to reduce their commissions as a prerequisite for approving the short sale and requires that properties be listed prior to short sale approval.
The BIG HOWEVER . . . some “bad news” for real estate investors. A Short Sale Agreement under HAFA must contain a restriction that a purchaser may not sell the property within 90 calendar days of closing. Is this the end for short sale investors? It will certainly be a big topic inside the RE$ource Vault, but in short, remember, the HAFA guidelines do not apply to all short sales and lenders have been and will continue to do short sales outside of HAFA.
I’ve always said that if a house can “solve its own problem” by simply being listed with a competent agent and the investor is not adding any value to the transaction, the investor should not be involved anyway. HAFA appears that it may streamline the process for those short sales that can and should be approved directly from a borrower to an end user purchaser when a real estate agent can handle everything themselves. This will be a good thing for the overall economy and therefore the future of real estate investing and our country.
However, there will continue to be millions of potential short sales that do not fit the guidelines and/or will not be able to “fix themselves” without the involvement of a competent investor (a move back to the days of “ugly, weird, haunted, or high-end”). Where an investor can add value, contribute, and construct deals that would not happen without them, there will continue to be an abundance of opportunity.
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