Short Sales Can Take A Long Time
Short sales are real estate transactions in which homeowners sell off their property
for less than what they owe on their mortgage in order to avoid going into foreclosure. This would also mean taking a loss on the part of the mortgage lender. The U.S. Treasury Department has defined some guidelines for short sales earlier this October. Mortgage and real estate industry experts were expecting an increase in short sales as a result. But it seems that dealing with short sales prove to be much more complicated.
The major problem is that lenders holding liens for second mortgages or home equity credit lines are often not in agreement with mortgage lenders on what they receive from the short sale. The guidelines for short sale transactions, specifically on the repayment of second mortgage lien holders proposed by the Treasury Department early in April this year, won't go into effect until April of next year. For now, homeowners will still have to undergo a long and grueling period of negotiations for the short sale. If an agreement cannot be made, they will still face foreclosure.
Bank of America's real estate management executive David Sunlin said that the bank's main prerogative has been on mortgage retention through modifying loans and other foreclosure-avoiding measures. This is the preferred alternative over short sales.
Because of the increase in the number of buyers interested in short sales, the bank is flooded with applications that will take some time to process. Real estate lawyers and mortgage executives estimate that it can take up to 9 months before a short sale transaction goes through.
Like Bank of America, most mortgage lenders would rather do loan modifications than accept a short sale. However, given the option of a short sale over a foreclosure, a short sale would be more beneficial for the bank. Foreclosures for lenders can mean putting up a house on the market for months before it gets sold.
Mr. Sunlin also added that a short sale will be noted on a homeowner's credit history, affecting his or her ability to take on a new mortgage.
However, they are welcomed to apply for new mortgages after two years.
Though it is more likely that they will have to wait about five years before borrowers can get a mortgage from a lender because of their history.
According to the new Treasury Department guidelines, it is suggested that second lien holders be given $3000 from the proceeds of the short sale. The government will reimburse lenders up to $1000 for the payout.
It is also recommended that homeowners enter a discussion with lenders on a fair price range for the property early on, instead of waiting till they get an offer from a potential buyer. As for the owners, they will also receive $1500 from the government to compensate for relocation costs.
Not everyone agrees with the guidelines. The Loan Resolution Corporation in Scottsdale, Arizona represents investors in short sale transactions.
Its chief operating officer Travis Hamel Olsen believes that these guidelines will not encourage second mortgage lenders to agree to a short sale, since it is not necessarily in their advantage to do so. In states such as Connecticut, New York and New Jersey, second lien holders can still go after homeowners for unpaid loans after the completion of a short sale, particularly if they believe that the homeowners have other assets that can be sold. Unfortunately, it is often these same homeowners facing foreclosure who have second liens, exhausting all their resources. On top of all this, there is a limited timeframe for negotiations to take place before the deal falls through.
Director of program quality and impact of Neighborhood Housing Services of New York Susannah Gillette, has witnessed a property in the Bronx lose three interested buyers through the process. Even with one lien on the property, a short sale can still take a long time.
by: kelsheikh
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