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You are here: Home » Short Sales » Archive by category "Incentives to do a short sale"

NEW SHORT SALE RULES

Short sales have gone from being the bulk of our market to being somewhat rare. However, there are still some homeowners out there that may be considering a short sale. Not all short sales are the same. Each lender will have their own guidelines and rules. If your lender participates in the government HAFA program, there are some new rules that are very interesting.

 

When HAFA first started they would pay $6,000 to the 2nd lender. Then they upped it to $8,500. Under their new rules they will pay up to $12,000 to a 2nd lender. This should help many short sales that are “stuck” because the 2nd lender wants more than the first lender would give them.

 

The next issue is in regards to the homeowner getting money at close of escrow as an incentive and/or for relocation expenses. At first almost no lenders would allow short sale homeowners to receive any funds at closing. But then some homeowners figured out that they may be better off to just sit in the home and live rent-free for months and months and maybe even have the lender pay them “cash for keys” after foreclosure. HAFA came out with a $3,000 relocation incentive to the homeowner for a while to solve this problem. Under their new rules they’ve increased that to where the occupant (whether the homeowner or tenant) could be eligible for up to $10,000 in relocation expenses. I just got a short sale approved where the homeowner is getting $10,000 for relocation and $5,000 as a further incentive to do the short sale. (Please note that I’m not advocating whether this is a “good” or “bad” use of our tax dollars or whether this is the “right” thing to do for some borrowers. Just passing on the info so you are aware.)

Another Short Sale Benefit

If you are faced with losing your home, it’s generally considered more beneficial to do a short sale versus a foreclosure. Most of the time the hit to your credit score is usually less, and you can buy another home sooner after a short sale than a foreclosure. The other big benefit is that after a short sale, it appears that California law now forbids lenders from pursuing you for the amount of the deficiency, where in a foreclosure they may be able to. There is also an argument to be made that a short sale could have better tax implications for some borrowers than a foreclosure, although I don’t have room to go into those details here.

But recently another benefit has come to my attention that I wanted to let you know about. If your loan is an FHA or VA loan, it’s possible that the FHA or VA may be able to pursue you for the deficiency after a short sale or a foreclosure. Note that they are the ones insuring your loan, so they are separate from your lender, who may be forbidden by California law from pursuing you. So this could be a big problem for many people who thought they were all done with their lender after the short sale or foreclosure.

However, the good news is that I was just reading through some major fine print on a FHA short sale, and I saw a small comment that if the borrower at least attempts a short sale, then the FHA may not pursue them for the deficiency, whether it winds up foreclosing or if the short sale is successful. I couldn’t verify if VA has a similar policy or not. But if you have an FHA or VA loan, this would be something to consider before you let a property foreclose. It may be worth making a good-faith effort at a short sale first.

I AM NOT AN ATTORNEY. PLEASE CONSULT YOUR OWN TAX EXPERT FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

HAFA Update

HAFA is a very popular type of government short sale program. Since it was introduced a few years ago it has been changed multiple times. The most recent change are effective June 1, 2012 and I’ll describe them below.

Most importantly, the program was extended to Dec. 31, 2013. It had been set to expire at the end of 2012.

The next change is in regards to occupancy of the property. Prior to this, the owner must have resided in the home within the last 12 months. That requirement has now been removed. However, the property must have still have been the owner’s principal residence for at least two out of the last five years. In addition, they cannot have purchased another property within the previous 12 months.

They are still offering $3,000 as relocation assistance, however, the money will only be paid to the occupant of the property (owner or tenant) at the time the short sale is approved. This is probably the biggest change for some homeowners as the $3,000 incentive was the main reason they were pursuing the HAFA short sale. If they’ve already moved out, or put a tenant in the property, they may now be less interested in doing a HAFA short sale. There are other benefits to a short sale vs. a foreclosure, of course. But some people focus mostly on the relocation assistance money they may get as a primary motivator.

The other major change is that they are increasing the amount that can be paid to the second lender from $6,000 up to $8,500. This last change is the most welcome for me as it could help get more short sales approved if the second demands more than the $6,000.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

$30K to do a short sale?

Bank of America recently made a MAJOR announcement in regards to their short sale program. They may pay a short sale seller from
$2,500 to $30,000 at the successful completion of a short sale. This is NOT for all BofA short sales, so the details are important. This is only for BofA’s “pro-active” short sale program, which means the borrower and/or their agent must approach BofA PRIOR to receiving an offer. You must start this process by 12/31/12 and close escrow by 9/26/13. I asked BofA if this was just for first mortgage loans and the rep on the phone said they thought so, but couldn’t confirm that 100%. The exact amount the homeowner will receive is determined by a calculation involving the value of the house, the mortgage balance and several other factors.

Not all BofA loans will qualify for this program. If you don’t already have a relationship with a real estate agent, give me a call and I can start the ball rolling for you with BofA to find out if you qualify. I’ve closed many of their pro-active short sales so I’m very familiar with the process. In their pro-active program, you don’t even put your home on the market until they have approved the short sale ahead of time. This means when
you do go on the market it is as a “pre-approved” short sale and the response times are much faster this way.

 

Free loan mod/short sale seminar

Updated for 2012. New loan mod/short sale laws and incentives will be discussed along
with the following topics:

  • Who is a good
    candidate for a loan modification vs. a short sale?
  • Can lenders
    pursue you after a short sale, foreclosure or loan modification?
  • Impact on your
    credit score and waiting period to buy another home.
  • Which lenders may
    pay you up to $30,000 to do a short sale.
  • Discussion of the
    “1099 issue” and the two big exceptions to it.
  • How the
    expiration of the Mortgage Forgiveness Act at the end of 2012 affects you.

June 12th at 6 pm or 7:30 pm or June 16th at 10 am or Noon. All will be the same
one-hour presentation including time for Q&A.

Presented by: Brian Sharp, Certified Distressed Property Expert.

««« MUST R.S.V.P. TO RESERVE A SEAT «««

Phone:
925.998.9712  Email:
Brian@SharpHomesOnline.com

 

MORE SHORT SALE INCENTIVES

Last week I mentioned that Citibank has greatly sped up their short sale process, and on top of that, they are offering an average of $12,000 as an incentive to the homeowner to do a short sale. I’m only aware of two other banks that have short sale incentives and that would be Wachovia and Chase. (Please note that I’m not talking about the HAFA $3,000 incentive that is available from most lenders. This would be separate from that, although you can rarely double-dip on these.)

Wachovia will often do a $3,000 payment as “relocation assistance” and sometimes $5,000. Because they are calling it “relocation assistance” they usually reserve it for owner-occupied homes. So it’s usually not for investment property or homes that have been vacant for a long time, although their rules tend to change from time to time and case by case.

Chase has also become quite aggressive in the short sale incentive area. I had a recent transaction where they offered $20,000 to the homeowner, and I’ve had clients bring me letters from Chase where they are offering up to $30,000 to do a short sale.

You may be asking yourself why in the world would lenders be offering this much money as an incentive to do a short sale. My assumption is that they have figured out that they lose much less money after a short sale than with a foreclosure. On top of that, they are very concerned about the legal challenges they are facing with some foreclosures being questioned, and possibly reversed, through the courts. In a short sale, they can mitigate that risk because short sales are initiated by the homeowner voluntarily selling their home to a 3rd party, and the lender is only involved in accepted a reduced payoff. With a foreclosure the lender is taking a much more aggressive role, and therefore they have more legal risks if it wasn’t handled properly, or some sweeping legislation gets enacted in the future which voids large numbers of prior foreclosures on legal grounds.

GOOD NEWS ON CITI SHORT SALES

If you have a Citibank loan, I have some encouraging news for you if you are considering a short sale. Citibank has come a LONG way over the past several years in regards to how they view short sales. They used to be quite difficult to work with, but that is changing rapidly. Like many lenders, they have a new attitude in regards to short sales, and they are staffing up, reaching out to borrowers, and even offering financial incentives. [Warning: Most of the good news I’m about to share with you mostly only applies to loans owned by Citibank. If they are simply servicing the loan for someone else, you may still have a battle on your hands.]

They have staffed up and streamlined their data collection process so they are losing less documents. In 2009, it was taking 120 days on average to close a short sale. But that figure has dropped to 83 days. Part of the change is that in the past the homeowner was the one pushing for the short sale, and Citibank was the one playing coy. Now, they are the ones reaching out to the homeowner to suggest and assist with a short sale if their loan mod attempts are not successful.

Citibank has also started offering incentives to certain homeowners in distress. In 2009 they were averaging about $1,500. In 2010 that rose to about $4,000. And so far in 2011 the average is an eye-popping $12,000! The incentive is on a case-by-case basis and is predicated on the homeowner’s financial situation and other factors.

So if you have a Citibank first or second loan, and a short sale is your next best option, the processing of your short sale should be much improved. And if your loan is a true Citibank loan, meaning they aren’t just servicing the loan, you may have a nice payday at the end of the transaction! Call me if you have a Citibank loan and want to discuss your options.

CHANGES TO HAFA

Over the last few years the government has tried (unsuccessfully) to coerce banks into implementing massive numbers of meaningful loan modifications to keep people in their homes at sensible payments they can afford. Since they couldn’t get banks to modify enough loans, they turned their attention to short sales. They released a program effective April, 2010 called HAFA that was supposed to result in hundreds of thousands more short sales. However, some reports say that less than 1,000 across the nation have actually closed. New changes are about to go into effect on Feb. 1, 2011 that the government hopes will open the floodgates to more HAFA short sales. The two biggest changes are regarding debt ratio and occupancy.

There used to be a requirement that the homeowner’s mortgage payment was more than 31% of their gross income to qualify. This is no longer required by the government HAFA rules (although the individual lender may still do it), and the homeowner still has to prove a hardship. The 31% was a stumbling block for many potential HAFA deals for someone that has overwhelming debt apart from their mortgage.

Under the old rules the property could not be vacant more than 90 days prior to applying for HAFA, and the homeowner had to have been relocated for job reasons more than 100 miles away. Now it can be vacant for up to 12 months prior as long as the homeowner hasn’t bought another residence yet. In addition, there is no minimum distance requirement, and the relocation does not need to be job-related. HAFA still does not cover properties bought for investment use, but now the property CAN have been rented during the 12 months prior to applying for a HAFA short sale.

I think these changes will improve HAFA short sales as it will allow more people to qualify to be considered for them. The bottom line, though, is that while lenders have to consider a homeowner for a HAFA short sale, it’s still optional for them to approve them or not.

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