Due to current economic conditions, the number of short sale properties on the market is rising.  The increasing number of short sales on the market presents challenges for REALTORS.  Below you'll find more information on: short sales and their challenges, the government's efforts to address these challenges and the tools to help you navigate the short sale process.


Home Affordable Foreclosure Alternatives Program (HAFA)


To help homeowners who are unable to keep their homes under the Home Affordable Modification Program, the HAFA program may make a short sale or a deed-in-lieu of foreclosure a viable option to help them avoid foreclosure.  The HAFA Program, which will take effect April 5, 2010, provides servicer, seller and junior lien holder incentives for these transactions and is designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure.


HAFA Forms Updated


The HAFA forms and guidelines (Supplemental Directive 09-09) have been updated as of March 12, 2010.


What is a short sale?


A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner.  In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.


Why is the number of short sales rising?


Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the numberof short sales is increasing.  Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses. 


A short sale can also be the best option for homeowners who are "upside down" on mortgages because a short sale may not hurt their credit history as much as a foreclosure.  As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.


What challenges have short sales presented for REALTORS?


The rapid increase in the number of short sales, and the short sale process itself present a number of challenges for REALTORS.  Major challenges include:


1. Limited experience.


Many REALTORS are new to the short sale process; a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales.  Even if the REALTORS are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult.


2. Absence of a uniform process and application. 


Currenlty, both short-sale documents and processes are lender-specific, making it difficult and time-consuming for REALTORS to become knowledgeable and efficient in facilitating these transactions.


3. Multiple offers.


When more than one lender is involved, the negotiations are much more difficult.  Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing.


As a result of these challenges our members have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away.


What is being done to address or eliminate these challenges?


On May 14, 2009, the Obama Administration announced its upcoming ForeclosureAlternatives Program.  Among other things, the new program:


- Establishes financial incentives for servicers, sellers, and second lien holders to encourage the completion of short-sale transactions.


- Requires that a timeline, of no fewer than 90 days, be set to allow a homeowner to sell a home, without threat of foreclosure action.


- Requires the short sale agreement to specify reasonable and customary real estate commissions and costs to be deducted from the sales prices. (The servicer must agree not to negotiate a lower commission after receiving an offer.)


- Will provide standardized documents, including short-sale agreements and offer acceptance letters.


National Association of Realtors. Realtors. The Basics: Short Sales. Realtor.org. National Association of Realtors. Web. 29 Mar. 2010. http://www.realtor.org/realtors/basics_short_sales.