The Treasury Department released a 43-page document in November 2009 that outlines a proposal for streamlining Short Sales across the banking industry and is supposed to take effect April 5, 2010.  This document is being touted as the next best thing since sliced bread and the answer to all of America’s Short Sale problems.  Not only has the National Association of REALTORS(R) been blowing the horn of victory, REALTORS(R) all over are being trained that this document will be the savior of the real estate market and that the banks are going to start playing nice, and rainbows and kittens will fall from the sky, and we will all reap riches from the bounty of this document.  I hate to be a Debbie-Downer, but when’s the last time our government proposed guidelines that were actually effective when it came to the banking industry.  Ahhhh, that’s right, after the S&L scandals.  Didn’t that take years to recover from?  Well, it will take years to recover from predatory lending and a pretty little 43-page document can not fix 7 years of bad lending decisions. 

So, let’s disect the document so that a layman can understand what it says.  This will be a 3 part blog post.  I’ll be sure to link back to each section at the bottom of each post.  This post will concentrate on which properties qualify for the proposed program and how the bank handling the short sale will determine if the borrower (seller) is eligible for the program.  Part 2 will focus on the process of approving the short sale once a contract is received.  Part 3 will address the problems in implementing this document across the lending and real estate industries.  (Yes, Part 3 is when I deflate all the balloons and tell you that you do in fact look awful in those jeans.  In other words, I will be realistic about the effectiveness of this document and the changes it can create). 

Qualifying Properties

1.  The property requesting the short sale must be a principle residence.

2.  The first lien must have originated on or before January 1, 2009.

3.  The borrower must be delinquent or default is reasonably foreseeable. 

4.  The unpaid balance on the first lien is less than or equal to $729,750. 

5.  The total monthly mortgage payment must be more than 31% of the borrower’s gross monthly income. 

Process of Approving the Borrower (Seller) for a Short Sale

1.  Bank will notify borrower in writing of the HomeAffordable Foreclosure Alternatives (HAFA) option and allow the borrower 14 days to contact the loan servicer to request consideration for the program. 

2.  The loan servicer should perform a financial analysis to determine if a Short Sale is in the best interest of the investor. 

3.  The loan servicer may request updated borrower financial information.  The loan servicer must also obtain a signed Hardship Affidavit and verify the borrower’s financial information prior to approving the borrower for the program.

4.  The loan servicer must assess the current value of the property in accordance with investor guidelines that are applied to all of the investor’s assets.  The borrower can be charged for this assessment if the Short Sale is not completed. 

5.  The property’s title is reviewed to verify all liens on the property and the ability to transfer clear title to a purchaser.  The borrower can be charged for this if the Short Sale is not completed. 

6.  The borrower is served notice of approval or disapproval.  The servicer must communicate in writing to the borrower why the Short Sale can not be offered and provide a toll free phone number to call and discuss the decision. 

If you’ve been reading any of my posts on Short Sales, you should be able to pinpoint some problems with the document already.  Again, I’ll address my issues with the document in Part 3.  Want to read the entire document?  Home Affordable Foreclosure Alternative