The Treasury Department has just announced the incentives for lenders to accept short sales. Here is the excerpt from the updated Making Home Affordable plan that may help the Destin real estate market and Emerald Coast short sale properties sell better and perhaps faster:
Limiting the Impact of Foreclosure When Modification Doesn’t Work:
Servicers will receive incentives to take alternatives to foreclosures, like short sales or taking of deeds in lieu of foreclosure. For those borrowers unable to maintain homeownership, even under the affordable terms offered, the plan will provide incentives to encourage families and servicers to avoid the costly foreclosure process and minimize the damage that foreclosure imposes on financial institutions, borrowers and communities alike. Servicers will be eligible for a payment of $500 and can make reimbursable payments up to $1000 to extinguish other liens, and borrowers are eligible for a payment of $1500 in relocation expenses in order to effectuate short sales and deeds-in-lieu of foreclosure. Such methods reduce vacancy, neighborhood decline, and overall costs for financial institutions, borrowers, and affected communities alike.
Summary and Analysis:
1. The plan may aid in disposing junior liens by a $1000 reimbursement to first mortgage holders. This may make it easier to sell short sale properties with more than one mortgage. There should be a dollar amount that is set to pay second mortage, such as $3000, with adjusted criteria for seller’s financial situation. If a seller meets certain criteria, they might pay a promissory note or do a cash contribution. This would help stem rejections by junior lienholders asking for outrageous amounts to release their liens.
2. It adds a very minimal incentive of $500 to offset some of the lenders expenses for approving a short sale. Add up the 150,000 short sales currently in process at Countrywide, though, that would total $75,000,000. Not bad.
3. The borrower will receive a $1500 in relocation expenses. $1500 is an overpayment in my estimation and/or unnecessary. Many short sale sellers are already out of their properties, and relocated for new employment purposes. Or the properties might be investment properties. In addition, short sale sellers usually have six months to two years “notice” they are moving, and have been “saving” by not making mortgage payments for that time period. The money could be used instead as a “bonus” for short sale lender approval in a timely manner, such as 30 days. Or added to pay the second. Or paid to the Realtor. (Fannie Mae just changed guidelines to allow real estate agents to receive their pre-negotiated commission of 6% or less, instead of cutting it, which is long overdue).
The short sale process is lengthy, and depresses prices beyond the normal economic cycle. Recognizing and correcting deficiencies in the process will help stabilize the Destin real estate market and decrease the foreclosure rate.