The new short sale rules from the Treasury Department took effect this month, now troubled homeowners may be able to qualify if they meet the following conditions:
- The property is their principal residence;
- They are delinquent on their mortgage or close to it;
- The loan was made before Jan. 1, 2009, and is less than $729,750;
- The homeowner’s total payment exceeds 31 percent or before tax income.
- The loan is now a Fannie Mae or Freddie Mac loan. Fannie Mae and Freddie Mac are expected to release their own separate foreclosure avoidance guidelines.
According to the Treasury rules, borrowers must first attempt to qualify for the HAMP foreclosure modification plan, and then other possible alternatives, before pursuing the Home Affordable Foreclosure Alternatives (HAFA) short sale plan. Borrowers may qualify for HAFA if:
- They do not qualify for a Trial Period Plan;
- They do not successfully complete a Trial Period Plan;
- They are delinquent on a HAMP modification by missing at least two consecutive payments;
- They request a short sale or Deed-In-Lease (DIL).
Don’t assume that even if you meet all of these qualifications, you’re automatically good for a short sale. The HAFA rules specifically give the power of approval to the lender, who can make the decision based on a number of criteria, including the potential loss of value on the mortgage, and conditions of the local market.
Most importantly, lenders are forbidden from pursuing the borrower for any portion of the first mortgage debt. No cash, promissory note, or deficit contribution is allowed under any circumstances.
