In a short sale, the lender agrees to discount the loan balance due from the borrower. Typically, banks incur less financial loss than with foreclosure and it does less damage to a borrower’s credit than a foreclosure.
Don’t let the name fool you. The time for the process is never short and it does not always end in a sale.
So what’s new in 2010 about the process? Here are some of the items in the Home Affordable Modification Program (HAMP) “guidelines” which the servicer must provide:
- the property is to be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
- the amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds
- the amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction.
- notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing
- An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
- An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $1,500, which will be deducted from the gross sale proceeds at closing.
- Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
- Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.
- An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
- each servicer must develop a written guideline to determine the minimum acceptable net that the investor will accept. This policy must be “consistently applied for all loans serviced for that investor.
Within ten business days of receipt of the Request for Approval of Short Sale (RASS) and all required attachments, the servicer must indicate its approval or disapproval of the proposed sale.
The servicer must approve a RASS if the net sale proceeds available for payment to the servicer equal or exceed the minimum net determined by the servicer prior to the execution or extension of the SSA and all other sales terms and conditions in the SSA have been met. Additionally, the servicer may not require, as a condition of approving a short sale, a reduction in the real estate commission below the commission stated in the SSA.
You can read the entire Directive at the site for Help for America’s Homeowners.