New Rules Concerning Short Sales

New Rules Concerning Short Sales

Have you been, or will you be, involved with a short sale?

Beginning January 2012, new rules:

Starting January 2012, everyone involved in a short sale will be liable for “negligent or intentional misrepresentations in the transaction” and will have to sign affidavits stating that they are handling the transaction to federal standards.

The addition of the affidavits to the short sale process is designed to help everyone involved in the short sale “identify potential mortgage fraud and have a clearer understanding of the intent of all parties involved in the real estate transaction,” the GSE (government-sponsored enterprise) announced in a public statement.

The move is specifically designed to prevent “flipping” short sales, which occurs when short sale properties are purchased from the bank at a discount, then sold immediately for a higher price. The government agency considers this practice unscrupulous because it involves at least one party having knowledge of another party willing to pay more for the property than the amount for which the bank is settling.

If you are working short sales as an investor or helping an investor buy and sell short sales, you realize that many are being purchased to be resold for profit. Oftentimes, substantial repairs are needed to justify the higher price and I don’t know how arguments will be received when explaining the higher sales price.

This announcement, on the surface, seems a bit ludicrous. Really, US citizens are not supposed to buy and sell for profit?

Also, a Borrower may receive a payment upon the short sale of the Mortgaged Premises only if the payment is offered by the Servicer, approved by Freddie Mac, and reflected on the HUD-1 Settlement Statement.

The government is asking that servicers “implement the change immediately to fight fraud.”

Effective immediately, Freddie Mac announced that borrowers more than 120 days delinquent no longer have to list their home for sale in order to become eligible for a deed-in-lieu transaction. One less step in their process.

Previously, when considering a Borrower for a DIL, the Servicer was required to ensure that the Borrower had listed the Mortgaged Premises for sale with a licensed real estate broker for at least 90 days, at no more than 110% of market value, with all attempts to sell the Mortgaged Premises being unsuccessful. Eliminating the requirement of listing the Mortgaged Premises for sale prior to consideration for a DIL will facilitate a quicker execution of the deed-in-lieu.

This change does not impact the requirements for DILs pursuant to Freddie Mac’s Home Affordable Foreclosure Alternatives (HAFA) initiative, nor does it impact Borrowers who are less than 120 days delinquent at the time the Servicer evaluates the Borrower for an alternative to foreclosure based on a complete Borrower Response Package.

And, Seller/Servicers were reminded that it is both a selling and Servicing obligation to maintain mortgage insurance coverage for Freddie Mac’s benefit. Freddie Mac has seen an increase in mortgage insurer rescissions, cancellations and denials of coverage of Freddie Mac-owned Mortgages. Maintaining mortgage insurance on Freddie Mac Mortgages is required.

Read the details from the Freddie Mac bulletin.

What are your thoughts on the new rules concerning short sales?

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