New federal rules could make it easier for financially troubled homeowners to dispose of their properties through short sales, where the home is sold for less than the amount of the mortgage.
But questions Tuesday at the weekly meeting of the North Bay Association of Realtors in Santa Rosa made clear that short sales still hold risks for many sellers.
The new rules belong to the Home Affordable Foreclosure Alternatives, or HAFA, part of the federal Making Home Affordable program. That program includes a loan modification program that has been widely criticized for failing to bring real relief to so many distressed homeowners.
Short sales often prove a long and frustrating process. Buyers and sellers can end up waiting months for a bank to decide whether to allow the transaction.
“The short sales are the longest sale we ever have,” Shawn Hermosillo, an agent with Keller Williams in Santa Rosa, reminded those at the breakfast meeting.
But speakers suggested the new rules that began this month may allow homeowners more control over their destinies. Participating lenders must consider a eligible borrower for a short sale within 30 days of either a request or of a determination that the borrower doesn’t qualify for a loan modification. Other rules: lenders cannot continue to seek repayment for the mortgage; they are limited in the fees they can charge up front; and they must provide $1,500 for the homeowners’ relocation costs.
But beware the pitfalls and know the rules. Real estate agents said those who use short sales in California may receive a bigger tax bill because state government considers the forgiven portion of the mortgage to be taxable income. To qualify, borrowers first must go through the federal home loan modification program, and they must watch the mail in order to respond within 14 days once their lender offers the chance to conduct a short sale.
Mike Kelly, the meeting’s master of ceremonies and a Keller Williams agent, said agents must advise their clients to check with their attorneys and accountants to see if a short sale makes sense for them. Clients also can get free counseling from the Neighborhood Assistance Corporation of America (www.naca.com).
The Realtors’ group plans more meetings on the topic. John Duran, a broker with Frank Howard Allen in Santa Rosa, told listeners that “the shadow inventory that everybody’s looking for this year is going to be the short sale.”
— Robert Digitale