Short Sales May Be Accelerated

On Monday, the government launched a new effort to speed up the time-consuming often frustrating process of someone selling their home if they owe more than it is worth.

The federal government will give $3,000 for moving expenses to homeowners who complete such a sale – known as a short sale – or agree to turn over the deed of the property to the lender.  It is designed for homeowners who are in financial trouble but who do not qualify for the administration’s $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure does not hurt a borrower’s credit score for as much time as a foreclosure.  For lenders, a home usually brings more money in a short sale than a foreclosure.  The bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure.

Along with the financial incentives, the new government program makes another key change.  Mortgage companies will have to set their minimum bid before the house is listed.  If the offer is above that, the lender must accept it.  That is a big change from current practice.  Lenders generally do not calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.

Under the new process, Buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months.  If that happens as planned, it would be a big improvement.  Real estate agents across the country have complained that lenders are often difficult to reach, sometimes only communicating by e-mail and infrequently at that.

The Treasury Department outlined the plan last November, but doubled the original $1,500 in relocation money after realizing that many homeowners need more cash to move out.  That is because landlords usually want large deposits from people whose credit records have gone sour after missing mortgage payments.

But there are plenty of restrictions.  To qualify, the home needs to be a borrower’s primary residence.  In addition, homeowners either have to be behind on their mortgages or on the verge of becoming delinquent.

Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac, though the two government-controlled companies will soon follow suit.