Short sales are becoming an attractive options for homeowners who are significantly upside down with their loans and want to avoid foreclosure. As a result, banks are now being overrun with requests to consider approving the short sale for the individual owner. Lenders/investors are bickering over what dollar amount the bank will need to satisfy the defaulting loan. Short sale deals are turning into drawn out processes for homeowners and buyers. Some deals can take over a year to complete.
On the positive front, new federal guidelines will give lenders a 10-day limit to respond to offers. Hopefully, opening the log jam caused by banks -- allowing buyers to close on properties quicker without as much frustration.
The new U.S. Treasury rules will include financial incentives to sellers and lenders, and will figure prominently in Broward County's market as the housing slump continues into a fifth year.
However, many real estate agents question that the guidelines will be enforced, Conversely, bankers are concerned that the 10 business days will not be enough time to reply to offers.
Nearly half of approximately 838,000 single-family mortgage holders in Palm Beach, Broward and Miami-Dade counties are "under water," meaning they owe more than their homes are worth, according to third-quarter data from Zillow.com, a Seattle-based real estate firm.
Frustrated buyers often renege on the deal during the delays, or worse houses depreciate significantly from the original offer and make the offer unattractive to the buyer. In some cases, lenders require that borrowers share in the financial loss, holding up the transactions even longer. As a result, homes stay on the market, prolonging the housing downturn. Sometimes, the lenders who are often not based in the community believe a property is worth much more because the comparables indicate higher value, even though the local realtors understand the true market value. For example, in eastern Ft. Lauderdale, the quality of houses can change from street to street, making a similar sized house not truly comparable.
In addition to a 10-day deadline, the Treasury rules call for sellers to receive $1,500 moving allowances, and the sellers will not have to repay any of the debt.
Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing up to $3,000 in short sale proceeds to be distributed to less senior lenders.
The 83 loan servicers participating in the Obama Administration's Home Affordable Modification Program, including Bank of America and JPMorgan Chase, are required to follow these guidelines for all borrowers who request short sales or who did not complete loan modifications.
The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which represent about half of all U.S. mortgage debt. The two government-run mortgage companies are working to finalize their own guidelines.
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