Looking for a great deal on a home? Buying through a short sale may soon become a lot faster and easier to do, thanks to a new federal program.
New rules for the Home Affordable Foreclosure Alternatives Program (HAFA), which take effect April 5, 2010 are designed to standardize the short sale process. The rules require that a market value be established in advance of listing any home to be sold under the program and set a limit of 10 days for participating lenders to approve or reject purchase offers.
The new rules are intended to help homeowners who can't pay their mortgages to get out of their homes without actually having to go through foreclosure, and to help stabilize the housing market as well. But it's also a potential boon for home buyers as well, offering them a way to complete a short sale quickly and get clear title to the property without having to cope with lengthy delays while waiting for a lender to approve the sale.
A short sale occurs when a bank allows a property to be sold for less than the balance due on the mortgage. It offers homeowners who cannot keep up with their house payments a way to get out of the mortgage without actually going through foreclosure. For the lender, it offers a way to minimize its losses, since a short sale typically commands more than the same property would bring in foreclosure and the foreclosure process itself is expensive.
Sale approval in 10 days
Under the new rules, lenders who agree to have a property put up for a short sale will first have an appraisal done to establish the property's current home value. The lender will then list a price it is willing to accept when the property is listed. A potential buyer may still make an offer below that price, but the lender must accept or reject that offer in 10 days.
This part of the program addresses one of the major problems that have traditionally plagued short sales - lengthy delays in waiting for a lender to approve the sale. Up until now, the typical process has been for a prospective buyer to make an offer first - and only then does the bank begin the process of evaluating the property's current value and determining whether a short sale is in its best interest. It's not uncommon for a drawn-out negotiation process to ensue between the bank and buyer, sometimes taking three to six months or even longer.
Easier to find suitable properties
Another advantage for buyers over the traditional short sale process is that having a price established that the bank will accept makes it easier to identify suitable properties and to line up financing in advance. Also, because the process requires that all liens be extinguished through the short sale, it provides the buyer with clear title to the property.
The program is available to homeowners who are at risk of foreclosure and have been unable to qualify for a permanent loan modification under the Home Affordable Modification Program (HAMP). It offers financial incentives to both the homeowners and lenders for doing a short sale instead of allowing the property to go to foreclosure.
Given that lenders must still evaluate seller's applications and come up with a current market value for the property before listing it as a short sale, there will likely be a lag time between the program's April 5 start date and when significant numbers of short sale properties begin to come on the market. But it's well worth looking for them in advance so you're ready to act when they do become available.
The HAFA program is slated to continue through Dec. 31, 2012.