Short Sale Process to Be Governed by New Laws

Help Avoid Foreclosure By Short Selling a House

Jan 3, 2010
Asa Ghaffar

Help Avoid Foreclosure - U.S. Government

From April 2010, a new set of rules will govern second and third charges on your property. If you want to avoid home foreclosure, the new short sale process could help.

The short sale process is a strategy used by homeowners to help avoid foreclosure. Rather than just waiting for your property to be repossessed, it may be possible to reach an arrangement with the bank to sell the house for fair market value. The borrower will then be forgiven for the difference between the value of the secured loan and the eventual sale price. This is considered a win-win situation for both parties as fair price is achieved without the need for the commencement of legal proceedings.

The Problem with Short Selling a House

This approach is more difficult when the homeowner has a lien on the property. This is because the amount that's forgiven reduces the likelihood of a second charge holder receiving any of their money. The probability of this happening increases exponentially when you're in negative equity. Any individual who has a lien against their property is unlikely to be treated favorably as short selling a house is very unlikely to lead to the recovery of their money.

Changes to the Short Sale Process

In order to help prevent second-charge lenders from holding up approval, they'll receive a minimum of $3,000 from the proceeds and a further $1,000 from the government.
Those short selling a house will get $1,500 in financial assistance from the federal government to help with the cost of relocating to a new family home.
Lenders will have 10 days to approve or reject the application.
Borrowers will be given a minimum period of 90 days to sell their home.
Under the new guidelines, struggling homeowners are advised to make contact with the lender as early as possible to determine what they deem to be a fair selling price.

Will the New Process Lead to Short Sale Approval?

Travis Hamel Olsen - of the Loan Resolution Corporation in Arizona - stated that, although short selling a house will help avoid foreclosure, the revised procedure will do little to encourage those with a second charge to become more agreeable. This is because states, such as Connecticut, New Jersey and New York allow those with a second lien to pursue the borrower for repayment after approval. This is particularly likely to happen if the lender knows that you have other valuable assets.

Help Avoid Foreclosure with Short Selling Your Home

Short selling a house is a way to make the best of a bad a very abd situation. It enables you to privately sell your house, prevent repossession and avoid being left with a deficiency. However, the position is far more difficult for homeowners with a second charge. Borrowers are likely to find that the short sale process is thwarted when there's only enough money to repay the original mortgage.