Is a short sale a good way to go for you the seller?
I received the accompanying article today in my in-box and thought I would share it with you. Please remember that these are "guidelines;" nothing was said about the "teeth" that will compel lenders to comply with these guidelines. If banks do not perceive there is a benefit for them in complying, they may not be willing to change their current mode of operation. Incentives, which have been in place since the beginning of 2009, have not sped up modifications or short sales, so I don't have a lot of faith that they will change anything now.
What exactly is the benefit to the seller going short sale? Is there less of an impact on a consumer's credit score? I spoke with a specialist at First American Credco today.
First American CREDCO is a credit reporting agency and leading provider of specialized credit reports, is in the business of providing the critical data companies need to make credit decisions. Businesses from a wide range of industries rely on the company's premier menu of full-service credit information solutions to make decisions involving billions of dollars annually.
The specialist I spoke to said that a short sale stays on a credit report for seven years, the same as a foreclosure. I asked if the short sale can be "better" or less negative on a consumers credit and she replied that it depends on how it is reported by the lender. I asked, if in her experience, are short sales generally reported in such a way that it would have less of a negative impact on a consumer's credit score than foreclosure and she replied with an emphatic "no. "
I suggest that consumers do their own investigation as to whether a short sale will have less of an impact on their credit than foreclosure. Why? If you have been through a short sale you will know the answer to that question. It can be 4-6 months of stress, worry and aggravation and more than 50% of the time all that stress and aggravation will be for nothing because less than 50% of short sales culminate in the sale of the home.
Sellers contemplating listing their home at a short sale price need a listing agent well versed in this niche of real estate as the listing agent is an important key in getting the escrow to close. The seller should ask the agent what the positive and negative aspects are of a short sale and do their own investigation as to the impact it will have on their credit, taxes, etc. Real estate agents are well versed in real estate, but are not licensed in tax law. The seller needs seek out a professional for advice on the credit and tax ramifications.
If you have questions about listing your home as a short sale in Crescent City/Del Norte County, give me a call.
Treasury sets guidance to simplify "short sales"
By Al Yoon Al Yoon Mon Nov 30, 6:58 pm ET
NEW YORK (Reuters) - The U.S. Treasury on Monday set long-awaited guidance on a plan for mortgage companies to speed "short sales" of homes and other loan modification alternatives to stem a rising tide of foreclosures.
The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed, according to an announcement on the Treasury's website.
Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders.
The incentives, first announced in May, expand on the government's Home Affordable Modification Program, known as HAMP, that has seen limited success in lowering payments for distressed homeowners. The Treasury earlier on Monday stepped up pressure on mortgage companies to make permanent the 650,000 trial modifications they have started.
"While HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is expected that servicers will encounter situations where they are unable to approve" or offer a modification, the Treasury said in its announcement.
Financial incentives for completing short sales or similar deed-in-lieu transactions -- in which the deed is simply transferred to the lender -- include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would receive $1,500 in relocation expenses.
Short sales are favored by real estate agents and community groups over foreclosure because they can preserve the borrower's credit rating and leave the property in better condition than when a homeowner is evicted. While primary lenders typically realize steep losses, their recovery is typically far better than under foreclosure.
But short sales have been frustrating for borrowers and real estate agents, often hung up by negotiations with multiple lien holders and mortgage insurance companies. Real estate agents have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.
Among requirements, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt.
It also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.
In one of the most contentious issues gumming up negotiations between lenders, the guidance caps the aggregate proceeds to subordinate lien holders at $3,000.
Second lien holders in recent months have begun demanding more money from the first lender, seller, buyer or agent in exchange for releasing their claim, agents have said. Because primary lenders would face larger losses in a foreclosure, some subordinate lenders have felt empowered, the agents said.
The largest second-lien holders are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc.
Second lien holders may proceed with a short sale outside of the Treasury program, if they felt the cap was too low, a Treasury official said in October.
"If there was a short sale program that didn't recognize the second lien holder position, it could have pretty damaging consequences for the industry," Sanjiv Das, chief executive officer of CitiMortgage, said in an interview last week.
(Editing by Leslie Adler)
Thank you for stopping by. Your comments on this post are welcomed and appreciated.
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Good details to study, pass along!
That is great information. If only we can get more cooperation from the lenders. Recently I have had some success making a backup offer on a short sale that has an offer the lender is already working with because so often that first offer doesn't wait and part of the wait time has already lapsed.
Good Post. As a negotiator I always attempt to impact the way the short sale is reported on the credit report. One of my clients has just closed on a new smaller and more affordable property only 14 months after her short sale. We can make a difference, we just have to go the extra step.
Just as an aside. The lender, a local servicer, actually asked for a letter from me verifying the lengths to which the buyer went to avoid a foreclosure.
Wow, this is interesting, Fran. I heard from a Short Sale seminar that short sales bruse your credit about 150 points and a foreclosure about 250. I know people who have got in home about a year and a half after a short sale....
I wish there was some guidance on this from the Big 3 credit reporting agencies.
Fran -
This subject is a murky swamp. I don't doubt the anecdotal evidence of small impact on credit mentioned above - but I don't doubt what you were told by the person from First American.
Like prices in this highly variable recession...the impact of a short sale seems to be all over the board.