Federal Short Sale Guidelines or HAFA are getting closer!

Most of us dread April 15th, but this year, April has a whole new meaning. That's because on April 5th. the New Federal Short Sale Guidelines will take affect.

Ask most REALTORS about a Short Sale and unless they are experts at it, they will run from it. Why? Well let's take a look at the current process.

1. Sellers Agent lists the home at the current Market Value and adjusts the price as needed until an offer comes in.
2. Buyers Agent submits an offer on the buyers behalf.
3. Buyer and Seller enter into a contract of sale and offer is then sent to the bank.
4. Entire contract is then submitted to the Sellers Bank.

At this point the seller and buyer are bound by contract and this is where everything goes horribly wrong. Unlike a traditional sale, there is a third and sometimes fourth party involved and that is the Seller's bank(s) Currently there are no guidelines are standards of practice. Some short sales go quick, but most drag on for many months.

It is during this time where no one quite knows what is happening, what the procedure is and what the outcome might be. See the bank can eventually Accept the Deal, Counter the Offer or Reject the deal. This decision can come 1-2 months after the contract is submitted or 6 months afterwords.

Can you imagine yourself in the buyers shoes? You are bound by contract so you can not put in offers on other homes, you have no idea how long it will take to get an answer and meanwhile the market is or can be in a consistent decline. The buyer still needs the house to appraise out at the purchase value and if prices are declining, there is a chance it may no.

If all goes well, the ban will accept the terms and at this point the buyer needs to scramble and get the deal to close in 30 days, even if it took the bank 6 months to issue their decision. Most contracts stipulate that if the buyer can not close the transaction in 30 days, a fine of sorts will be assessed per day.

Of course the bank could also counter the offer, technically taking the deal back to the negotiation table. When this happens, the buyer can walk away or negotiate.

Finally, the bank can simply reject the deal.

The typical time that passes can be upward of 4-6 months. That is a long time to wait for an answer while being locked into the deal and the seller is not off the hook. During this entire process, the seller faces Foreclosure.

So what is changing? For the last two years REALTORS have been pressuring Congress for guidelines, timetables and fairness as no two deals were ever handled the same and we never knew how long it would take. Well in late 2009, rules were established for banks working with the Homes Affordable Modification Program or HAMP requiring them to adapt these guidelines for the Home Affordable  Foreclosure Alternatives Program or HAFA.

HAFA stipulates some key terms to the process.

1. Sellers will submit paperwork for a short sale and receive approvals up front
2. Banks will have to set the allowable price ahead of time.
3. Once an Acceptable Offer comes in, they will have 3 days to submit the offer to the Servicer (Bank)
4. The Bank will then have 10 days to either a) Approve the deal b) offer the seller a work out to keep them in the home c) reject the deal.

There are some good incentives for both the Bank and the Seller as well. To start with, the seller is eligible for  $1,500 to assist in moving costs. The Primary Bank is offered $1,000 to help offset processing costs and another $1,000 if they offer the Secondary Mortgage holder incentives up to $3,000. This last part would help resolve the recent reports of Secondary Banks holding the Short Sale deal hostage for a bigger payout or worse, cash under the table.

If this is successful in its early days, it will help to move those homes most at risk for bringing down neighborhood property values. Help stabilize the declining market and speed up a currently lengthy and complicated process.

ref:

Home Affordable Foreclosure Alternatives Program

Making Home Affordable

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