As more homeowners exit forbearance, some will fall behind on their mortgages and many local markets will see a rise in distressed sale properties. The flow of distressed sales is expected to be a fraction of those during the Great Recession, but nonetheless, REALTORS® will need to develop new skills to respond on behalf of their clients and their communities.
Here you'll find more information on short sales and their challenges, the government's efforts to address these challenges, and tools to help you navigate the short sale process.
To check on the status of a particular short sale you should contact the lender. For a Freddie Mac loan, email shortsales@FreddieMac.com .
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
The rapid increase in the number of short sales, and the short sales process itself present a number of challenges for REALTORS®. Major challenges include:
As a result of these challenges our members have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away and harm distressed sellers.
NAR continues to push the lending industry to improve the process for approving and expediting short sales. In a direct response to REALTOR® concerns, the Treasury Department developed the Home Affordable Foreclosure Avoidance Program (HAFA), to establish uniform procedures, forms, and deadlines for short sales. The development of the HAFA program pushed both Fannie Mae and Freddie Mac, as well as a number of large servicers, to implement standardized processes and procedures to improve the speed and efficiency of short sale transactions.
Though there have been many improvements, many members still reiterate that short sales continue to be delayed and servicers often hold unrealistic views of current home values. Often time the result is having a potential buyer cancel the contract and the property going into foreclosure. Enormous amounts of time are spent on potential short sales that result in foreclosures. Even if successful, the process usually takes many months and countless hours and often requires re-marketing because buyers lose patience and terminate the contract. Maintaining a focus on streamlining short sales will reduce the amount of time it takes to sell the property, improve the likelihood the transaction will close, and reduce the number of foreclosures. This will benefit the lender, the seller, the buyer, the community.
NAR strongly supported the implementation of the HAFA program and continues to call for improvement of other short sales programs to make them feasible. NAR believes lenders should adopt best practices learned from HAFA principles including identifying the required net proceeds, and approvable closing costs, up front to reduce delays in approving the transaction once a sales contract is executed.
The improvements to the short sale process helped stabilize the housing market during the Great Recession by providing additional options for responsible homeowners to avoid foreclosure. In turn, this allowed homeowners to avoid the foreclosure process and neighborhoods to avoid the blight of vacant foreclosed properties.
NAR continues to meet with the four largest lenders, Fannie Mae, and Freddie Mac to emphasize the importance of making short sales work better. Though many lenders and the GSEs have improved procedures to handle escalated cases, NAR has continued to push for changes to make the short sales process as efficient as regular transactions.
NAR supported the Consumer Financial Protection Bureau's final rule on mortgage servicing that requires servicers to comply with new loss mitigation procedures for loans secured by a borrower’s principal residence. If the servicer receives a complete loss mitigation application more than 37 days before a scheduled foreclosure sale, the servicer must evaluate the borrower within 30 days for all loss mitigation options available, including loan modifications and short sales. A borrower may appeal a denial of a loan modification only if the complete application was received 90 days or more before a scheduled foreclosure. The rule also restricts so-called dual tracking.
No short sale legislation has been introduced recently.
Conventional Financing and Policy Committee