Foreclosure Alternatives
The Treasury introduced a new program as part of its Making Home Affordable plan to help homeowners who meet the qualifications of the the
mortgage modification program, but can not afford even the lower modified mortgage payments that will make the new modified loan more valuable than a foreclosure. The program provides incentives for servicers not to foreclose, but rather facilitate short-sales by the homeowners, or if those are not successful to accepts "deeds-in-lieu" (DIL).
How Does the Short-Sale Plan Work?
In a short-sale the servicer allows the homeowner to sell his/her house at the current value, and it agrees to limit the homeowner liability to the value of the sale even if it is lower than the value of the outstanding mortgage. In the short-sale the homeowner actively markets the home at the current market price; if a buyer is found all the proceeds of the sale (after selling costs) go to cover the current value of the mortgage.
- Servicers will verify the eligibility of the homeowner for a mortgage modification;
- Servicers will consider whether a short-sale will provide them with a better outcome than a foreclosure - value of the house, potential time to market, condition of the title, presence of junior liens. If the servicer decides to move forward, they will receive as incentive:
- $1,000 for successful completion of a short-sale (or DIL)
- Treasury will help sharing the costs of paying off the junior lien-holders to have them release their claims - the government will pay $1 for every $2 paid by the servicer, up to a maximum of $1,000.
- Borrowers will receive up-to $1,500 in relocation assistance;
- The Treasury will standarize the documents and process that servicers will follow to implement this program to avoid the current elongated process;
- The servicer will establish the value of the house and any potential reductions to asking price based on:
- an appraisal performed according to USPAP;
- one or more broker price opinions;
- Homeowners will have at least 90 days to complete the sale, and will hire the services of a realtor experienced in the area - the foreclosure process may continue concurrently, but no foreclosure will be finalized during the marketing period (as long as the homeowner is acting in good faith) - the maximum marketing period is 1 year;
- Commissions on the sales will paid to the realtors;
- No fees can be charged by servicers for homeowners to participate in the program;
- Junior liens on the property will have to be extinguished before the short-sale can take place;
- The program expires on December 31, 2012
What If the Short-Sale Is Not Successful? Dead-In-Lieu
At the servicer discretion, the short-sale agreement can include a clause that if after the marketing period the homewner is unable to sell the home, the servicer will accept to receive the deed on the property in exchange to releasing the borrower from his debt. The servicer will receive a $1,000 incentive payment, and the borrower will receive up-to $1,500 to relocate in a period no longer than 30 days.
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