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Taylor
McKenzie, 5-14-09
Financial Incentives
and Uniform Process for Short Sales
Announced
Good news from
Washington, D.C., today (5-14-09). The Obama
administration announced new details under its
Foreclosure Alternatives Program (FAP) enabling
servicers and borrowers to pursue short sales
and deeds-in-lieu (DIL) of foreclosure in cases
where the borrower is generally eligible for a
Making Home Affordable modification but does
not qualify or is unable to successfully
complete the three month trial period. The
program, effective through 2012, requires that
prior to proceeding with a foreclosure,
servicers must determine if a short sale is
appropriate.
We’re gratified
that the administration has recognized the need
to streamline the short sale and deeds-in-lieu
processes, and has provided viable options to
homeowners who have fallen behind on their
mortgages but owe more than their homes would
sell for in today’s challenging
market.
Incentives For The Foreclosure
Alternatives
Plan
Incentives in the
FAP program include $1,000 for servicers for
successful completion of a short sale or
deed-in-lieu of foreclosure; $1,500 for
borrowers/homeowners to help with relocation
expenses; and up to $1,000 toward the cost of
paying junior lien holders to release their
liens ($1 from the government for every $2 paid
by the investors to the second lien
holders).
The FAP includes
streamlined and standardized documents,
including a Short Sale Agreement and an Offer
Acceptance Letter to minimize complexity and
increase use of the short sale option.
Servicers will independently establish both
property value and minimum acceptable net
return, in accordance with investor
requirements, based on an appraisal or one or
more broker price opinions, issued no more than
120 days before the date of the short sale
agreement.
In the Short Sale
Agreement, servicers must give
borrowers/homeowners at least 90 days to market
and sell the property, or up to one year,
depending on market conditions. The property
also must be listed with a licensed real estate
professional with experience in the
neighborhood, and no foreclosure may take place
during the marketing period, of at least 90
days, as specified in the Short Sale
Agreement.
No Fees Can Be Charged To
Homeowners
The Short Sale
Agreement also must specify the reasonable and
customary real estate commissions and costs
that may be deducted from the sales price. The
servicer must agree not to negotiate a lower
commission after an offer has been
received.
Servicers may not
charge fees to borrowers/homeowners for
participating in the program.
Servicers have
the option to require the borrower/homeowner to
agree to deed the property to the servicer in
exchange for a release from the debt if the
property does not sell within the time allowed
in the Short Sale Agreement, plus any
extensions.
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