Afraid To Buy Or Sell A Home In A Short Sale? It Just Got Easier!

We’ve been seeing more and more short sales these days in the Maplewood and South Orange real estate markets. For those of you who are not familiar with what a short sale is, it’s simply this:  the owner owes more to the bank on their mortgage than the market will bear on their house.  So if they want to sell their home, it becomes a negotiation with the bank to take a “short” – accept less as a payoff than what they owe.

The short-sale process can be excruciating for both Buyers and Sellers!  I myself had a short sale listing for over a year.  This particular home had 3 liens against it with three different banks.  It finally sold, but more than 4 sets of buyers dropped out because they got tired of waiting for an approval from the banks.  The Sellers got equally frustrated having to wait and produce endless documentation to the lender.

Buyers and Sellers, however, don’t be discouraged.  There’s good news!  As of  April of this year, the federal government has standardized short sales, as a part of their new Home Affordable Foreclosure Alternative Program, known as HAFA, a supplement to President Obama’s Making Home Affordable Modification Program launched in early 2009. The concept behind it is that lenders are now making an effort to help borrowers who can’t afford to stay in their homes,  keep them from going into foreclosure by establishing a pre-approval short sale process.

These new guidelines include standardized forms, procedures and timelines, and they also allow Sellers to receive pre-approved short sale terms prior to the property listing.  This could save Buyers months of agonizing and waiting to see if their offer will even be accepted.  The program also relieves Sellers from being liable for any future debt.  In addition, it enables the pre-approval process to begin once the home is put on the market, but before an offer comes in.  Up until now, banks wouldn’t even look at any short sale packages until there was an offer on the home.

To date, the drop out rate for short sales has been as high as 70%, according to the Senior Vice President of Bank of America’s Home Loans department.  Now, his hope is that that number will drop to between 10-15%.

Most of the big lenders are participating in the HAFA program, but it is voluntary.  If you’re considering purchasing a Maplewood or South Orange home in short sale,  find out if the bank  handling the short sale has opted in to the Making Home Affordable Modification Program.

This is good news all around for both Buyers and Sellers, making short sales definitely worth the effort of pursuing.

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