Short Sales & Foreclosures

Short sales have become common transactions for REALTORS®. These lengthy transactions are always a challenge to take on. But those REALTORS® who have rolled up their sleeves are realizing the benefit of gaining expertise on these time-consuming transactions. The end result is better service to your clients and better business for you in a trying market.

This is your one-stop-shop to access a variety of resources to make you an expert on short sales and other complicated and distressed transactions.

What is a short sale?

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.

Why is the number of short sales rising?

Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. 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.
What challenges have short sales presented for REALTORS®?
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:

1.    Limited experience

Many REALTORS® are new to the short sales process; a difficulty which is compounded by many lenders’ lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult.

2.    Absence of a uniform process and application

Until HAFA guidelines were established, both short-sales documents and processes were lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.

3.    Multiple lenders

When more than one lender is involved, the negotiations are much more difficult. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing.
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.
What is being done to address or eliminate these challenges?
HAFA is designed to address many of the challenges presented by short sales. Below you will find information about the Home Affordable Foreclosure Alternatives (HAFA)  Program

SHORT SALES 101

NAR lays out the basics of short sales here.  You’ll find everything from flyers on short sale concerns to information for buyers on making an offer on a short sale.

NAR Field Guide to Short Sales

NAR Short Sale Workflow

NAR Field Guide to Foreclosures

NAR Summary: Making Home Affordable – the Obama Housing Plan

REALTOR® Concerns about Short Sales and the NAR Response

Home Affordable Foreclosure Alternatives Program (HAFA)

HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP (including HAFA) is available here

Home Affordable Foreclosure Alternatives (HAFA) Program

HAFA Outreach Toolkit

NAR FAQ – HAFA

HAFA Guidelines – Non-GSE, Fannie Mae, and Freddie Mac Mortgages

Home Affordable Foreclosure Alternatives (HAFA) Mortgage Program

Home Affordable Modification Program (HAMP)

U.S. Department of Housing and Urban Development (HUD)

Avoiding Foreclosure

U.S. Department of Housing and Urban Development (HUD) Preforeclosure Sale Frequently Asked Questions

Freddie Mac

Freddie Mac Bulletin

Freddie Mac Fact Sheet on HFA Mortgage Assistance Programs

Freddie Mac HFA Mortgage Assistance Programs

Other helpful resources

Wells Fargo REALTOR® Short Sale Guide (login required)

Foreclosure Assistance Programs

FTC policy on new Debt Relief Rule

Federal Trade Commission Press Release: FTC Issues Enforcement Policy Statement on New Debt Relief Rule

Source: National Association of REALTORS®