Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

Cash Incentives and Relocation Assistance for Short Sales: A Guide to Government and Lender Programs

Seattle Short Sales - Wednesday, February 20, 2013

Only a few years ago, struggling homeowners who wanted to get out of their underwater mortgages had a tough time convincing their lenders to approve a short sale. However, things have turned around completely since then. Lenders now realize that, in most cases, approving a short sale costs them far less than pushing the homeowner into foreclosure. In fact, many lenders are now actually paying borrowers cash - as incentive payments or relocation payments - for completing a short sale!

There is a lot of information about the various government short sale incentive programs out there. But it's harder to find information about cash incentive progams run by the banks, and some people may be wondering if the stories they have heard, for example of cash payments of $20,000 or more to underwater homeowners, are true.

Well, they are! We have worked directly with most of these programs, and they really do exist! Here is a brief overview of the various government and lender programs that pay cash incentives, as well as samples of real approval letters that we have obtained, to show exactly how much cash was paid to each homeowner for completing their short sale:

Government Programs:

FHA Pre-foreclosure Sale Program: If the loan is FHA-insured and the short sale is approved, HUD will pay the borrower between $750 and $1000 towards relocation costs.

This Maple Valley homeowner received $1000 towards relocation on his FHA short sale: 6.23.12 - MetLife - 1st Lien - 79k Deficiency - Debt Settled - Short Sale Approval

VA Compromise Sale Program: If the loan is VA-insured, VA will pay up to $1500 in relocation assistance to borrowers who complete a short sale with a VA compromise claim. This temporary cash incentive program was brought into place in January 2011, and is currently set to expire on December 31, 2013.

This GMAC short sale approval letter for a VA loan allows a Spanaway homeowner $1000 in relocation assistance: 11.16.12 - GMAC - 1st Lien - 92k Deficiency - Debt Settled - Short Sale Approval

HAFA: Short sales that are processed through the federal government’s HAFA program pay a $3,000 cash relocation incentive to the seller. If the home is not owner-occupied, the payment goes to the occupant, not the owner. The incentive is not paid if the home is unoccupied.

This Sammamish homeowner received $3,000 in relocation assistance by processing her Wells Fargo short sale through the HAFA program: 3.14.12 - Wells Fargo - 1st Lien - 146k Deficiency - Debt Settled - Short Sale Approval

FHFA “Standard Short Sale” Program: This new program replaces the HAFA program if the investor is Freddie Mac or Fannie Mae. It also offers up $3,000 in relocation costs to the borrower - but it's important to understand that this amount is a maximum total relocation costs. For example, if the borrower receives other relocation contributions, e.g. from their employer, that amount is subtracted from the $3,000.

Lenders’ In-House Programs:

Bank of America Cooperative Short Sale Program: Available to select homeowners who apply for it before submitting a short sale offer through BofA’s Equator system. Cash incentives to borrowers range from $2,500 to $30,000, and are offered at BofA’s discretion.

This Seattle homeowner received $27,388 in relocation assistance through the B of A Coop program: 12.13.12 - Bank of America - 1st Lien - 110k Deficiency - Debt Settled - Short Sale Approval

This Arlington homeowner received $5,000 in relocation assistance from B of A (incentive itemized on HUD, but not listed in the approval letter): 11.19.12 - Bank of America - 1st Lien - 45k Deficiency - Debt Settled - Short Sale Approval

Wells Fargo: Cash incentives reportedly range from $3,000 to $20,000, and are offered at Wells Fargo’s discretion.

Chase: Cash incentives of up to $35,000 have been offered to select homeowners by invitation from Chase.

This Snohomish homeowner received a $20,000 relocation incentive for doing a short sale of his home: 9.12.12 - Chase - 1st Lien - 105k Deficiency - Debt Settled - Short Sale Approval

And this homeowner received a $25,000 “relocation incentive” for selling his Enumclaw home - even though the home that he sold was a rental! 12.13.12 - Chase - 1st and 2nd Lien - 161k Deficiency - Debt Settled - Short Sale Approval

In some cases, cash incentives may be “doubled up.” For example, a borrower offered a cash incentive from their lender may also be eligible for HAFA’s relocation incentive of $3,000.

This Kirkland homeowner received $2,000 from her lender, Bank of America, in addition to the HAFA $3,000 relocation assistance - for a total of $5,000 in cash for selling her home: 10.26.12 - Bank of America - 1st Lien - 122k Deficiency - Debt Settled - Short Sale Approval

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

To find out what short sale cash incentive programs you may be eligible for, contact us for a no-obligation, no-fee consultation: http://seattleshortsales.com/homeowners/

New FDMC Guidelines Mean Streamlined Automatic Short Sale Approvals

Seattle Short Sales - Thursday, November 01, 2012

New FDMC (Freddie Mac) guidelines, which take effect today (November 1, 2012), will streamline the short sale process even more, and will allow loan servicers to issue automatic short sale approvals - without having to bring the file to the investor or the mortgage insurer. These new Freddie Mac short sale approval guidelines were drafted in cooperation with FNMA (Fannie Mae) and FHA, who will also apply them - which means that they will apply to the majority of Americans who have a home mortgage.

The aim of Freddie, Fannie and FHA in bringing in these new guidelines is to streamline the whole short sale process by putting the decision-making authority back to the loan servicers. If homeowners meet certain baseline criteria, the servicers are now authorized to approve a short sale themselves, without ever having to bring the file to the investor. We’ll go through all of the significant details of these changes below - but the important thing to understand is that this is great news for anyone considering a short sale, because it means that a part of the process that slows things down has been eliminated. Short sales will be both simpler and faster.

The key difference between the previous system, what Freddie calls the “classic short sale,” and the new guidelines for a “standard short sale” is that servicers are delegated to approve short sales, without having to refer the file to the investor, provided that the following requirements are met:

  • the homeowner is 31 or more days delinquent on mortgage payments
  • the homeowner is current, or less that 31 days delinquent, but has undergone one of the four eligible hardships.

The four eligible hardships are:

  • divorce or separation
  • death of the borrower or the primary wage earner
  • long-term permanent disability of the borrower or dependent family member
  • distant employment transfer or relocation (including PCS for service members)

However, if a borrower is current and does not meet one of the four eligible hardships, and the servicer still feels that they should be considered for a short sale, the servicer may still send the file to the investor to review. In other words, if the borrower doesn’t meet the criteria above, they still may be approved for a short sale - just the servicer does not have the authority to approve it without passing it to the lender.

For borrowers who are 31 or more days delinquent, all property types are eligible for the servicer-approved “standard short sale” - including primary residences, investment properties, and second homes. However, for borrowers who are current or less than 31 days delinquent, the home must be their primary residence, and their monthly debt-to-income ratio must be greater than 55% (service member with PSC orders are exempt from this last requirement).

Freddie Mac will provide guidance in choosing a listing price, based upon a BPO (Broker’s Price Opinion) that is to be undertaken as early as possible in the short sale process. That listing guidance is to be passed to the borrower and broker through the loan servicer, but it is up to them to choose the final listing price. The transaction must, after deducting commissions and other closing costs, meet Freddie’s minimum net proceeds requirements in order for the approval to be issued. It is important to note, that the suggested listing price based upon the BPO may not necessarily meet Freddie’s minimum net proceeds requirement.

Other aspects of the “standard short sale” guidelines that are not new include guidance on timelines:

  • servicers must acknowledge receipt of the purchase offer within three days
  • servicers must respond with a decision within 30 days, or with an explanation for the delay, allowing them up to 30 more days
  • if servicers require the delay, they must provide the borrower with weekly updates
  • if servicers counter the offer, 15 days are allowed for this process

Requirements about the short sale deal being an “arm’s length transaction” have not changed, but Freddie now provides servicers with a template form to assist them with this requirement. Homes may not be resold for 30 days following the short sale, and they may not be resold for a value more than 120% of the short sale purchase price for 90 days (this clause is to prevent fraudulent “flipping” transactions with two buyers).

If the requirements above are met, and the borrower has acted in good faith, Freddie Mac does not pursue the borrower for the deficiency. This means that the amount that the balance owing was discounted by when the mortgage was paid out following the short sale - which is often in the order of $100,000 - is permanent debt relief for the borrower: their lender will never pursue them to pay that discount back.

The “standard short sale” program has a lot of similarities to the government’s HAFA program - so Freddie will be phasing out their participation in HAFA at the end of this year. As for HAFA the “standard short sale” program will allow up to $3,000 in relocation assistance for the borrower upon completion of the transaction - but it is important to understand that this is total relocation costs. For example, if a new employer is contributing $1,000 to relocation costs, then Freddie will contribute a maximum of $2,000. Also similar to HAFA, through the “standard short sale” program, lenders may allow up to $6,000 total towards subordinate liens; junior lien-holders may not receive anything from the borrower.

As we've noted, this is great news. Short sale approvals are up, and the time to process them is already down from a year ago. These changes will streamline the short sale process even more, and make the approval process even faster.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/


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