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WASHINGTON - Jan. 12, 2010 - The federal government is setting guidelines for short sales of homes, giving lenders a 10-day limit to respond to offers, freeing borrowers from debt and providing financial incentives to lenders. The new rules seek to address the many criticisms of short sales and figure to play a significant role in South Florida, where distressed properties dominate the market as the housing slump meanders into a fifth year. "In a short sale, the homeowner unloads the property for less than what's owed on the mortgage, and the lender forgives the difference. Nearly half of all 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. While short sales are considered the perfect solution for "underwater" homeowners on the verge of foreclosure, the deals often drag on as lenders take weeks or months to respond to offers. Frustrated buyers walk away during the delays. In some cases, lenders insist that borrowers share in the financial loss, holding up the transactions even longer. To speed up the process, the U.S. Treasury is calling for lenders to respond to short sale offers within 10 business days. Sellers are eligible for $1,500 moving allowances, and they will not be on the hook for repayment of any 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. Loan servicers participating in the Obama Administration's Home Affordable Modification Program are required to follow the guidelines. The Treasury plan, which must be implemented by lenders no later than April, is meant to help sellers like Dawn Sclafani, who has been waiting since October for her lender to approve a short sale offer on her Margate home. A buyer has offered $155,000, and she owes $233,000. Sclafani, a 50-year-old psychologist, said she's eager for the bank to approve the deal so she can put the experience behind her. "I want to move on ... but I can't until somebody gives me permission to," she said. "I've heard that this is a horrendous process. The banks are just not very cooperative. I do believe these new rules will help." U.S. Rep Ron Klein, D-Boca Raton, agrees, saying the guidelines are meant to make short sales "a more usable tool." Klein points out the rules provide standardized paperwork for all short sales and give buyers and sellers a more reasonable time frame for whether or not the sales will happen. A spokeswoman for the Treasury says it will hand down "substantial" penalties to lenders that don't comply. They can include the withholding or reduction of payments and requiring improperly rejected loans to be modified. Lenders have blamed short sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don't submit proper paperwork in a timely manner. In many cases, the banks are not to blame, said Ward Kellogg, chief executive of Boca Raton-based Paradise Bank. Still, he thinks the guidelines are necessary to force lenders to clear the market of so many distressed properties. "I think the pressure on (the banks) is a good thing," Kellogg said.
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