The Federal Housing Finance Agency (FHFA) has laid out new rules to speed up the short sales process effective June 1, 2012 for mortgage servicers. The FHFA said the new rules could keep many homes from falling into foreclosure. The FHFA is the regulator and conservator of Fannie Mae, Freddie Mac and the regulator of the 12 federal home loan banks.
In a short sale, the bank or lender that holds the mortgage must agree to accept a lower price for the home than the amount the homeowner owes. The process is cumbersome. Along with the homeowner having to get the lender to agree to accept a sales price less than what they owe, the homeowner has to provide financial documentation showing why they can’t continue making payments. Banks often take longer to review and approve a short sale leading to the deal falling apart and the home being repossessed. Lenders were foreclosing on the homes before a short sale could close.
The FHFA announced last week it was directing the two mortgage giants, Fannie Mae and Freddie Mac to “develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.” It includes a requirement that mortgage servicers review and respond to short sale requests within 30 days and a final decision in 60 days. Another requirement is if the short sale is still under review after 30 days, the lender must provide weekly status updates to the borrower.
For lenders, it may mean saving distressed properties from foreclosure. Foreclosures can take years to unload. Lenders rack up expenses in property taxes, insurance, heating and maintenance costs. Lenders typically get 20% less for a foreclosed home.
In a short sale, homeowners get a one-time hit to their credit score rather than multiple hits associated with a foreclosure. Homeowners need to be aware they can be held liable for the deficiency (difference between selling price and amount homeowner owes), taxes and other items: unless specifically agreed otherwise, the lender may later pursue you for the deficiency. However, also be aware of the reverse: when the lender waives the right to collect the deficiency, you may be subject to taxes on that “income” (waived deficiency).
The bank or lender has many attorneys representing their interests. It’s never a good idea to enter into a short sale without having your own attorney representing your best interests and to ensure you don’t get a “surprise” bill later.
Short sales have been increasing the past few months accounting for 23.9% of all home sales. On the flip side, with more short sales, home prices will continue spiraling downward raising questions of the housing recovery and stability. Short sales have a negative impact for homebuilders, (the construction industry) lenders and insurers.
The city hardest hit with foreclosures is still Las Vegas, Nevada. The next five hardest hit cities are Stockton, California, Modesto, California, Vallego-Fairfield, California, Riverside-San Bernadino, California, and Phoenix, Arizona.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.
This article is not intended as legal advice. The opinions of this article are solely the opinion of the author.