U.S. Treasury Coming Out With New Rules For Short Sales

Posted by: Chris Palmeri on October 2, 2009

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A story in this week’s magazine follows up on our blog posting from two weeks ago about banks getting tougher on folks looking to sell their homes for less than what they owe and get the lender to eat the difference—a process known as a short sale.

We mentioned in the magazine article that the U.S. Treasury is expected to issue rules soon aimed at streamlining the short sale process. Housing industry consultant John Burns tips us off to some of the new rules. The Treasury Dept. will offer subsidies, $1,000 to the mortgage servicer and $1,500 to home sellers to encourage short sales. The fees, he notes, are designed to incentivize the servicer for the extra work and get the seller to leave the house quickly and in good condition.

Of course, servicers and sellers aren’t the real reason short sales take so long and often fall apart. The problem lies with the lenders or mortgage investors who, justifiably, don’t want to take the kind of hit that is often necessary to sell a house in today’s market.

Government incentives or not, short sales are likely to be a big factor in the real estate business going forward. That’s because the pool of bank-owned homes is shrinking and many of the people selling today are in distress and trying to get out from under a mountain of mortgage debt.

Short sales were about 12% of all sales in August, versus 18% for bank-owned homes, according to the National Association of Realtors. But that ratio has changed since earlier this year. At their peak in March, bank-owned sales were 31% of the market vs. 18% for short sales. “We’ve gone through the subprime foreclosures,” says Thomas Popik, director of research at survey firm Campbell Communications. “The next wave is short sales by people who lost their jobs.”

Reader Comments

Ann Griffin

October 2, 2009 7:57 PM

I'm a Realtor in Kirkland WA. Anyone who's ever been involved in a short sale knows what a nightmare they can be from a lot of different perspectives, but possibly the worst aspect of them is their insecurity for the buyer. Until the sale actually closes, the lienholders (seller's bank/s) may cancel the sale at any moment. For example, another agent in my office has written 26 offers on short sale properties this year. Of those, 5 were accepted by the lienholder, but only 1 closed. This is very typical. Frankly I have strongly advised my buyer clients against writing offers on short sale properties for this reason, and until there is a bit more reassurance for buyers, short sales will continue to be a log-jam in real estate recovery process. Curiously, one reason short sales fail is the bank decides instead to foreclose on the home, despite the difficulties selling the foreclosed property at auction, and despite the usually still lower price they'll get if they sell it as bank-owned. Call me dense, but it seems something is missing in the bank's logic.

carlos martinez

October 3, 2009 3:10 AM

I an a Chicago Broker who has been negotiating short sales for the past two years. A short sale will net the bank more money than a foreclosure hands down; specially when it is being processed in the early stages of default. Just three months ago I had one that was foreclosed and was sold to an investor for $85,000. Meanwhile we waited for more than 4 months for the lender to finally reject a solid offer of $160,000 I had presented them. I've had other listings where we presented 4-5 offers at the start of the preforeclosure stage to only get rejected time and time again. I believe that most of these company's that are managing these portfolios get paid for the time they are managing vs a flat fee. Thus have no incentive to move them. The longer they hold on to them the more they can charge service fees to the investors.

Justin king

October 3, 2009 7:14 AM

The duration of a short sale negatively impacts the first time homebuyer's willingness to enter into SS negotiations. The FTHB runs the risk of foregoing the tax credit they might receive because the process to get the banks approval is 3-4 weeks depending on the bank handling the SS. As a real estate agent, this puts pressure on us to try and push things along when we have little or no say yet we are the ones who will penalized for it. In addition to legislative changes we also need to push some sort of mandation with regards to duration. I have noticed that some banks have moved quickly (30-45 days) while others take easily 120 days just for approval or rejection of initial offer.

Von Smith

October 3, 2009 9:14 AM

How would it be if the homeowners could remain in their homes at a cost within their budget? What if the mortgage owners could still receive a return on their investments? What if the costs and stigma of foreclosure and its aftermath could be reduced? What if the costs to the taxpayer could be reduced or eliminated?

Consider this: A new agreement between the homeowner and the mortgage holder: a “Mortgage Conversion Contract.” The homeowner gives up ownership of the home in exchange for relief from the mortgage and an affordable lease of 2-3 years with an option to buy the home after that.

• The homeowner remains in the home, without the problems of bankruptcy and with the possibility of becoming a homeowner again.
• The mortgage holder becomes a landlord with rental income and time for the market value to recover, once the current crisis passes.
• The Federal government could subsidize creation and implementation of a model “Mortgage Conversion Contract” to speed the process and assure fairness.
• If the homeowners qualify, they could receive rent subsidies under existing government housing programs.

This concept could ease the stress and costs on millions of American homeowners and the holders of their mortgages. How does that sound to you?

John

October 4, 2009 2:49 AM

Ron

October 5, 2009 3:21 AM

I enjoy reading your blog. Very informative.check my blog if u want http://blog.privocorp.com/

Michele

October 13, 2009 4:32 PM

I am in a short sale now and the selling realtor got the contract signed by the owner and then still hasn't even submitted it to the bank yet. It has been two weeks now and I talked to the realtor today and he still hasn't submitted it to the bank for approval. What can I do about that, isn't that against some timely manner?

Thelma

October 15, 2009 10:53 AM

I really enjoy reading all your postings, but very special your comments and suggestions Von Smith. I hope some decision makers read it and do something about this disaster. If the housing market is fixed all the other aspects of the crisis will recover. Housing is KEY in any part of the world. People need stability to be relax so they can think and be productives. Homewoners and small home investors both deserve the consideration and respect from mortagages companies and thier investors. They must be "human" and understand that they are destroying people life when they continue to bill people for an asset that is fully depreciatted. How many people will have "good credit"?. It doesn't matter that you pay your bills as agree anymore, what matters is debt ratio which is not in taxpayer control in the current situation.

Thanks for reading.

Diane Warden

October 26, 2009 4:01 PM

Yes! Von Smith you should be talking to legislaors or your Congress person. You have a some great ideas that may produce solutions to individuals, communities and our national economy.

I am a Realtor in Southern California, currently working with a bank on a short sale listing. It is quite challenging to keep everyone moving forward with no real communication from the bank, only frustrating know nothing responses.

Diane Warden

October 26, 2009 4:01 PM

Yes! Von Smith you should be talking to legislaors or your Congress person. You have a some great ideas that may produce solutions to individuals, communities and our national economy.

I am a Realtor in Southern California, currently working with a bank on a short sale listing. It is quite challenging to keep everyone moving forward with no real communication from the bank, only frustrating know nothing responses.

Ken

November 20, 2009 11:49 PM

The short sale process has been a nightmare for me. I have been waiting for a response from JP Morgan for 6 months now on a house I am trying to buy. The banks has done two BPOs, an appraisal and even pushed off the foreclosure date, but still no response. At least come back to me with a "yes" or "no, but $X would work", instead I get nothing. The poor sellers are hung out to dry trying to solve their problem, I am left waiting, and the bank which received taxpayer money sits and twiddles its thumbs....there is a deal on the table to solve a bad loan and they can't be bothered??? Anybody know where to turn with JP Morgan Chase?

Norma

February 6, 2010 11:05 AM

rs ago, and just recently her husband passed away,leaving her with no income and no insurance. I have been making the mortgage payment out of my social security. I do not know how long I can do this, and the lender has not been any help. I am considering a short sale.

Norma

February 6, 2010 11:05 AM

rs ago, and just recently her husband passed away,leaving her with no income and no insurance. I have been making the mortgage payment out of my social security. I do not know how long I can do this, and the lender has not been any help. I am considering a short sale.

Norma

February 6, 2010 11:06 AM

rs ago, and just recently her husband passed away,leaving her with no income and no insurance. I have been making the mortgage payment out of my social security. I do not know how long I can do this, and the lender has not been any help. I am considering a short sale.

Nick

February 28, 2010 7:08 PM

2 offers on a home, short selling it for about 30k under and the bank wanted nothing to do with it. People stayed in the house the wife is not on the mortgage so her credit will be good for buying next new home (already approved) They have saved over 36k ecxtra and had 15k to put down from the beginning. I have no idea what the banks are waiting for but the housing market will continue to declaine. Eventally banks will have to write-off the loss and the gamble for a smaller write-off will have been miscalculated.

Eileen

March 3, 2010 1:25 PM


Can anyone verify the following changes coming in April, 2010 to short sales that I have seen quoted by a local realtor in a California newspaper article:

NO MORE 1099'S
A HARDSHIP LETTER IS NO LONGER NEEDED

TROUBLED HOMEOWNERS MAY RECEIVE UP TO $1500 FOR RELOCATION EXPENSES

OWNERS WILL BE FULLY RELEASED FROM FUTURE LIABILITY

If these short sale guideline changes are true, can someone provide me with a government web sight or document stating these changes?

Thank You

Pat Zumbrun

March 27, 2010 2:07 PM

I too would like to know the web or document to find out about the new rules going into effect April 2010. In particular regarding real estate commissions.

krista

April 7, 2010 4:17 AM

i have put a offer in to the bank for a short sale and it has been over 2 moths and still nothing,how long should it take to here something they will not call back or tell us any thing.what is takeing them so long this house has been on the market for all most 2 yrs is was to go to sheff sale and they can it so i dont know if they will take are offer but it was what the house was woth on the sheff sale.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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