Mortgage Law, Mortgage Modification, and Foreclosure: Obama's Making Home Affordable Program Alternatives to Avoid Foreclosure Part II
Hola! So last time I was explaining that even though some folks qualify for the MHA program, they are denied for a modification. When this happens there are still some benefits that the MHA program may provide through alternatives to foreclosure like a Short Sale or Dee-in-Lieu. So now that we know what those are, how about those program benefits?
How The Home Affordable Short Sale/DIL Program Works:
So in a prior post we discussed the main eligibility requirements for the MHA. Then we went over some of the income and expense requirements. People who meet the main requirements; but not the income and expense requirements will be eligible for the Foreclosure Alternative Program.
So before the bank goes to foreclosure, participating servicers must evaluate each eligible borrower to determine if a short sale is appropriate. Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor's recovery through foreclosure Incentive Payments. So the incentives are:
1) Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or DIL.
2) Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.
3) Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 by Treasury.
Furthermore, and of great importance is the effort of the program to publish streamlined and standardized documentation, including a Short Sale Agreement and an Offer Acceptance Letter. These documents will outline specific marketing terms, describe the rights and responsibilities of all parties and establish clear time frames for performance. Creating one standard set of documents that the industry can use is expected to minimize the complexity of these transactions and significantly increase use of the short sale option.
The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: an appraisal and/or one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.
Under the program, servicers will allow borrowers at least 90 days to market and sell the property, with possibly more time based on local market conditions. The property must be listed with a licensed Realtor experienced in selling properties in the neighborhood. Marketing of the property may run concurrently with the foreclosure process, however no foreclosure sale can take place during the marketing period specified in the Short Sale Agreement as long as the borrower is acting in good faith to sell the property. There will be a maximum marketing period of 1 year for the property, provided any longer period not otherwise delay foreclosure sale, to ensure diligence by servicers and borrowers in moving as quickly as possible to complete the short sale and deed-in-lieu process.
Reasonable and customary real estate commissions and selling costs that may be deducted from the sales price will be specified in the Short Sale Agreement. The Servicer will agree not to negotiate a lower sales commission after an offer has been received. Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.
Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared.
Eligible borrowers will be accepted until December 31, 2012. Program payments will be made upon successful completion of a short sale or DIL.
