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Short Sale Legislation To Take Effect in April 2010

short sale


“A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the loan. It usually happens when a seller cannot pay the mortgage on their property, but the lender decides that selling the property at a loss is better than foreclosure. Both parties then consent to the short sale process, because it allows them to avoid foreclosure, which usually involves high fees for the bank and a poor credit report rating for the borrowers. This agreement, however, does not always release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.”

As a Realtor you know there is nothing short about a short sale. In fact, its not uncommon for a short sale to take over 6 months to finally close, that’s IF it’s approved.  A lender will sometimes authorize a short sale if:

  • The Mortgage Value has dropped
  • The Mortgage is in or near default
  • The seller is experiencing a Hardship (Unemployment, Divorce, Bankruptcy, Illness)

Because there is sometimes no rhyme or reason to a short sale, there are many scenarios where the seller offers their home for short sale, a ready, willing and able buyer is found but while waiting for bank approval, the home is lost to foreclosure. This problem will only be exacerbated by the number of Adjustable Rate Mortgages adjusting in 2010. Any Realtor experienced in short sales will tell you a lenders’ tendency to not respond to short sale purchase offers as the biggest reason for failed short sale property sale closings which often lead to foreclosure.

But wait..whats that? Is it a bird? Is it a plane? NO it’s HAFA!  HAFA is not a new superhero although some distressed sellers and Realtors may believe it is. HAFA stands for the federal Home Affordable Foreclosure Alternatives Act and will become effective on April 5th, 2010. Among other things, HAFA:

  • Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). This is HUGE!
  • Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
  • Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
  • Uses standard processes, documents, and time frames/deadlines
  • Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

In order to qualify for HAFA, sellers will first need to attempt a loan modification through the Home Affordable Modification Program (HAMP). Qualifications to be eligible are:

  • The property must be the borrower’s principal residence
  • The mortgage loan is a first lien mortgage originated on or before January 1, 2009
  • The mortgage is delinquent or default is reasonably foreseeable
  • The current unpaid principal balance is equal to or less than $729,750 (for single-family home…higher amounts for 2 to 4 unit dwellings)
  • The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.

As a Realtor, HAFA is your friend.  HAFA should remove some of the challenges you have experienced with working short sales.  This new legislation also provides for an amazing marketing opportunity.

If you are an Arizona Realtor and would like assistance with starting a short sale marketing program please call or email me.

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Hi I'm Stephen Garner, I'm just a guy in the title industry {in Phoenix} trying to change how real estate agents market themselves and their services. To that end, I teach my clients HOW TO leverage sales technologies like WordPress, Content, Video, Camtasia, Final Cut X, iMovie and indexable IDX solutions to convey value and help your ideal client find you online when they are most interested in learning about you and your services. I work for escrows. Hire me!

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  • Audry Wolff

    Great article Stephen. I am looking forward to some semblance of standardization for short sales throughout the industry. I think it will be a win/win for borrower,lender and Realtor. Go HAFA!

    • Stephen

      Audry, so and I….So am I. Lets get this behind us as soon as possible. Please let me know if I can help you with anything.

  • Kelly Judy

    GREAT! I have a couple I need help with.



    • Stephen

      Kelly, Have you checked out our Short Sale Origination Service? I think I can help you.



    • Stephen

      Thanks for your comment Judy. I cant tell you that part yet. The details of the program will be rolled out in the coming months. I will keep you posted.


    Another question, if price/terms are approved by bank prior to lisiting, HOW LONG will it take the bank to approve it. The borrower has already sent in all his info for modification; the bank would use that, correct. Time is the issue.
    Thanks, Judy

  • Gino Lindorf

    Hello there – just a little note to say thank you for this article. Very informative.

  • Burton Haynes

    Found your blog on Bing. We’re definitely going through uncertain times with real estate right now. It’s so true what you said about foreclosure.

  • Pam

    Hi My Title Guy. Question – I’ve been working a certain HAFA short sale for the past five months. I have full approval and satisfaction of debt from the 2nd for the sum of $3,000 – pretty standard. Under the 1st mortgage holders interpretation of the HAFA guidelines, they are offering the 2nd mortgage holder a total of $2,868.25 which is 6% of the unpaid balance of the loan. THEY REFUSE to allow an additional $131.75 be debited from the HAFA Seller Incentive and applied to the 2nd mortgage to bring them up to $3,000. Am I missing something here? It’s their “opinion” that ALL the funds can only be used towards borrower relocation. Am I missing something here? Do you know where I can find the exact legislation you spoke of in your article? Any help is appreciated. I can not fathom that we’ve all come this far for the deal to explode over the cost of dinner!