Types of Short Sale Programs

Repost – Types of Short Sale Programs by Jonathan Katz

Types of Short sale programsThere are different types of short sale programs from which you can choose best suited for you. Choosing a short sale program is really critical because selection of wrong program will not only cause the rejection of short sale, but also will waste your time money and resource. There are a number of short sale programs, but keep in mind that you may not be able to choose the specific programs. The selection of program may depend upon the type of loan and investor.

Different Types of Short Sale Programs:

Some of the most common short sale programs are given here to provide you an understanding of the options available to you.

Traditional Short Sale

A traditional short sale is the most common type of short sale program. Some short sale sellers don’t want the delay that can be inherent in government programs, so even though they might qualify for a Bank of America HAFA short sale, they opt for traditional short sale program just to avoid the delayed processing. For traditional short sale you will need to provide the hardship letter along tax returns and other documents. More and more banks will say, “Yes” to a short sale and “No” to a foreclosure.

VA Short Sale and FHA Short Sale

If your current loan is secured by the VA, then you have VA loan and if it is insured by FHA, you have an FHA loan. The best way to know about your loan plan whether it is VA or FHA, is looking at the percentage of original sale price. In the form of VA, your loan balance is 100% of the original sale price. If the original balance was closed to 97% of the sale price then it is probably an FHA loan.

The main things to know about a VA short sale and FHA short sale:

  • Neither type of loan will qualify for the HAFA short sale program, but you can receive a relocation incentive.
  • Due to the additional layer to the approval, your proposal will take more than the normal time required to close the short sale.
  • The government will pay for a full-blown appraisal (no BPO) and expect market value.

HAFA Short Sale Program

In case you have two or more than two lenders then you will need the participation of all lenders in HAFA short sale program to qualify for HAFA short sale. The HAFA is government short sale program that with few limitations can pay you or your bank up to $3,000 to do the short sale. In the starting of HAFA program guidelines were very strict, but with the passage of time these have been made relaxed. You can do a HAFA short sale on investment property now as well. The biggest benefit of HAFA short sale is that your bank has to release you from the personal liability and you don’t have to face deficiency judgment.

Freddie Mac Short Sale

Freddie Mac is also a government sponsored entity. If the Freddie Mac is an investor, then you will need to do a Freddie Mac short sale. This will be adding an extra layer to the approval of the short sale. Freddie Mac will need a long affidavit to be signed. In the case of Freddie Mac home will be sold at “as is” condition. Unlike many short sale investors, Freddie Mac will allow the seller to rent back for a few months.

Fannie Mae Short Sale

Fannie Mae is a government-sponsored entity. If Fannie Mae is the investor, then you will need to do a Fannie Mae short sale and this will be adding and additional layer of approval to the short sale process.

You might have a problem in that short sale if you have a second loan and that second lender demands more money than Fannie Mae would allow you. It may require dealing with second lender before opening the short sale at Fannie Mae. Fannie Mae normally does not postpone auctions. If you are closer to the trustee’s auction than you are to closing the short sale, Fannie Mae may opt to choose the foreclosure.

Fannie Mae HAFA Short Sale

Fannie Mae HAFA short sale program is considered the most complex short sale program. The government has been trying to make the processing of this program easy. It is possible that short sale would be delayed if your Fannie Mae short sale is through the Bank of America. You may have some relaxation if you are the principal resident of your home, but Fannie Mae no longer requires occupancy as a condition of the short sale. It is also no longer a requirement that your loan be delinquent.

Freddie Mac HAFA Short Sale

A Freddie Mac HAFA short sale needs to be preapproved in advance. This is also one of the complex short sale programs. The preapproval in advance itself is a biggest problem for some banks. Every bank does not seem to understand this preapproval requirement for a Freddie Mac HAFA short sale, but if your short sale program is approved by Freddie Mac and your servicer, it moves really quickly. You can expect to get approval within 30 to 60 days.

Cash for Short Sale Programs

Getting the cash for sale is the wish of every short seller, but there are rare chances that debt is forgiven and sellers are released from the personal liability. Consulting your bank is the better way to find out that if you can get cash for sale or not.  The Bank of America cooperative short sale or the Bank of America HIN Incentive programs are considered the most famous cash for short sale programs. There may be sellers who could qualify for both types of Bank of America programs and get paid.

Types of Short Sale Programs by Jonathan Katz

Common Short Sale Myths Dispelled

Jan 13 2014, 12:59PM

Thanks to key changes in the program, completing a short sale through Freddie Mac is taking less time than ever before.  The company’s Senior Vice President Tracy Mooney, writing in Freddie Mac’s Executive Perspectives Blog, said that despite the improvements and that short sales are an important tool for helping distressed homeowners avoid foreclosure and eliminate their mortgage debt, they remain a mystery to many who might benefit from them.  In her occasional column “Dispelling the Myths” Mooney lays out eight misconceptions about short sales and the facts she says every distressed homeowner should know.

The first myth is that the homeowner will be responsible for the entire amount owed on the mortgage.  Under the company’s Standard Short Sale program, borrowers who complete a short sale in good faith and in compliance with all laws and Freddie Mac policies will not be pursued for the after-sale mortgage balance.  However, if a borrower has the financial ability he/she may be asked to make a one-time payment or sign a promissory note for a portion of that balance.

Many homeowners think a short sale is not possible for an investment property or second home.  Mooney said the important factor is whether the borrower meets the program’s eligibility requirements, not the status of the property itself.

The third myth is that a homeowner must be delinquent on the mortgage to be eligible for a short sale.  A homeowner who is current must meet the general eligibility requirements for the program and have a debt-to-income ratio greater than 55 percent.  In addition, in this case the property must be the homeowner’s primary residence.

Homeowners sometimes presume they won’t qualify because of their servicer’s strict guidelines about short sales.  But Mooney says that Freddie Mac has increased the authority of its servicers to approve short sales for qualifying financial hardships for homeowners who are past due or current on their mortgage.  Servicers also now have independent authority to approve short sales without a separate and potentially time-consuming review by the mortgage insurance company.

Myth #5 is that a short sale will affect a homeowner’s future eligibility for a mortgage.  If the financial difficulties arose from circumstances outside the borrower’s control such as job loss or a health emergency he/she may be eligible for a new Freddie Mac mortgage with a minimum of 24 months acceptable credit after the short sale.  If the short sale was necessitated by personal financial mismanagement the buyer might need 48 months of acceptable credit to obtain a new Freddie Mac loan.  Mooney advises all homeowners to begin discussions with a lender two years after the short sale closes to find out about specific requirements in their individual case.

Many people think that short sales can take a long time but Mooney reiterates that under the new guidelines timelines are shorter than ever.  Servicers now have 30 days to make and communicate a decision once they receive a completed application and, once approved, the sale should take less than 60 days to close.  She says that working with an experienced real estate agent might further speed the process

It is also a mistaken belief that having a second mortgage will make a short sale impossible.  If other eligibility requirements are met a second mortgage is not necessarily a barrier because Freddie’s short sale program can offer second lien holders up to $6,000 to release their lien and extinguish the underlying debt

The final myth is that a short sale will ruin a homeowner’s credit. While only the credit reporting agencies can determine how a credit score will be computed it is possible that a short sale could be less damaging than a foreclosure.  Even if this isn’t the case a short sale can give a homeowner time to arrange other housing and exit homeownership gracefully.

Mooney says a homeowner should consider a short sale if

  • He/she does not qualify for any options to keep the home;
  • Needs to move in order to keep or obtain employment.
  • Doesn’t think the home will sell at a price that will cover the outstanding mortgage amount.

The first step in the process is to determine if Freddie Mac owns the mortgage by using its  Loan Look-up Tool.   If it does the next step is to contact the mortgage servicers.  Contact information, Mooney says, should be listed on the monthly mortgage statement or in the coupon book.