Short Sales are getting Approved!

ONE avenue for escaping foreclosure may be getting a little easier to navigate: the so-called short sale, through which distressed owners sell their homes for less than the mortgage amount and are forgiven the remaining loan balance.


More Mortgage Columns As the credit crisis deepened, short sales became harder to complete. Among other things, people who had second mortgages, including home equity lines of credit, found that the second lien holders often balked, fearing they would be left with nothing, or close to nothing, after the holder of the first mortgage was paid off.

Homeowners in these situations would typically stand by while lenders argued about how to divide the proceeds from a sale, and the impasse would frequently result in a foreclosure.

But mortgage executives say they are now working more cooperatively on short sales, and proposed changes in the industry could increase the number of these transactions.

“Without a doubt, lenders are more willing to work through short sales,” said Andre L. Mitchell, the executive vice president of the Lynx Mortgage Bank in Westbury, N.Y. “In this marketplace if the lenders can negotiate in any way to get rid of a bad loan, they’re going to do it.”

The Treasury Department said last week that it would increase incentives for lenders to work out short sales when borrowers fail to keep pace with their loan payments. The department did not release details about those incentives.

Lenders have been eager for direction from the government, especially when more than one loan is involved. “To be able to systematize the negotiation would be a big plus,” said David Sunlin, Bank of America’s real estate management executive.

In the meantime, Mr. Sunlin said, Bank of America has shifted its own policy to encourage more short sales.

In the past, the bank followed the recommendation of Fannie Mae, the government-sponsored mortgage finance business, and gave second lien holders about 10 percent of the second mortgage balance in a short sale where Bank of America held the first lien. When Bank of America held the second lien, it also required first lien holders to forfeit that amount in a short sale.

Now, when it holds the second lien, Bank of America will accept 5 percent of the net proceeds of the short sale, Mr. Sunlin said. When it is the first lien holder, it will offer the same to holders of the second lien.

Banks encourage short sales because they lose less money on such transactions than they do in foreclosures, where they must sometimes carry the house for months before selling it.

Homeowners who are considering short sales can often make the process smoother by involving the bank early in the process.

For instance, if a home is worth $375,000, but has a first mortgage of $390,000 and a second mortgage of $20,000, the borrower might contact his or her first mortgage holder and raise the possibility of a short sale. If that lender knows it can negotiate successfully with the second lien holder, it can start those negotiations and put the borrower in touch with a real estate agent with experience in short sales.

The borrower would then list the home for its appraised value, and the agent, after conferring with the lender, usually accepts any offer close to that amount. After the house sells, the bank pays the agent’s commission of around 6 percent, and pays the second lien holder a portion of the proceeds. Both lenders then forgive the remaining debt.

The borrower is not off the hook completely, since after the short sale his or her credit score is likely to fall. But even then, the credit score would probably be far better than it would be after a foreclosure.

Mr. Sunlin said that homeowners who are considering short sales do not necessarily need to involve the bank early on. He said they can contact the bank within five days of getting an offer on the house and still expect good results.

That is especially true, he added, if documents are presented showing that the offer is in line with others in the local market, as well as pay stubs and other paperwork demonstrating the borrower’s financial hardship.

Mr. Mitchell of Lynx says short sales are often the best approach, even for homeowners considering a new loan to save the home.

“It’s gotten to the point where people understand that sometimes you have to start over,” he said. “A loan modification might help you in the short term, but sometimes what people need to do is get out completely.”
Published by NY Times

I am so glad that lenders are starting to work smarter! Holding off isn't going to help anyone in a short sale situation. On the other hand handling Michael Jacksons estate may be a thriller? RIP MJ you are a lengend, and your music will live on forever! My past client and freind will be at the funeral services tomorrow check out John Hooper on CNN.

Angel Lynn