In a move that could win the It’s About Time Award the government has once again stepped in to provide guidelines and incentives to lenders to get short sales closed in a more timely fashion. The new guidelines of the Home Affordable Foreclosure Alternative (HAMP) for completing short sales or deed-in-lieu of foreclosure deals include:
Borrowers would receive $1,500 from the government in relocation expenses.
Servicers receive $1,000 from the government per transaction.
Second liens holders can receive up to $3,000 of the sales proceeds for releasing their liens.
First lien investors can receive $1,000 from the government for signing off on payments to subordinate lien holders.
Borrowers must be fully released from any further liability.
One of the biggest holdups with completing a short sale is the second lien holder. The new guidance caps the proceeds to subordinate lien holders at $3,000.
I’ve been involved in deals where the second lien holder refused $5000 and insisted they get 10% of the total amount of the loan or a large promissory note which ended up sending a home into foreclosure.
When a home ends up in foreclosure the second lien holder ends up with nothing. For second lien holders the phrase “Greed is Good” doesn’t work. Take that Gordon Gecko!
One of the new guidelines prohibits servicing companies from reducing real estate commissions on a short sale. I’ve just put two new short sale listings on the market in Woodbridge (Belmont Bay) so it will be interesting to see if there is any noticeable difference in dealing with the lenders and whether at the 11th hour the lender says cut your commission or the deal is dead still happens.
Hopefully the new guidelines will allow borrowers to submit an offer on a short sale and expect a response in less than 4 months.