Your mortgage is under water and you can no longer make the payment.
Is there any way to remain in the home?
The answer is… possibly.
This is really a two phase question- before I answer the “remain in home” portion let’s take a look at the first phase.
What is a Short Sale?
A short sale is when you are given approval by your mortgage company to sell your home for less than the mortgage that is owed on the property.
For example, you might owe $200,000 on you mortgage but because of the housing crash of 2008 it’s now only worth $125,000.
Imagine your mortgage company agrees to accept $125,000 in a sale as payment in full for the outstanding debt. You’d be released from the obligation to pay the shortfall of $75,000.
Here’s the big question:
“Why would any mortgage company agree to take less than owed and let you off the hook for the rest?”
The truth is, they actually make more money this way.
History has shown that Banks and mortgage companies typically net 12% to 25% more in a short sale or modification than a foreclosure.
More importantly, the US government says that they have to work with you.
Enter the HAFA.
What is HAFA?
Glad you asked…
An article by Bankrate.com describes it very well so I just copied and pasted the gist of it below:
“Homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government’s Home Affordable Foreclosure Alternatives, or HAFA, program.
Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed — have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure.
HAFA establishes streamlined short sale rules and incentivizes borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short sale process.”
But wait… the program expired in 2012, right?
HAFA short sale is extended until December 31, 2015 with a closing date on or before September 30, 2016.
(And, it is expected that it will be extended again, so stay tuned…)
NOW HERE’S the hidden gem:
According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short sale agreement.
OK, so you may be able to short sell your property… but how does that help you stay in your home?
Enter the Short Sale Lease Back Option
A Short Sale Lease Back program (SSLB), allows you to sell your upside-down home and remain there for up to three years while paying a fair market rent.
If the renter is successful, he or she should be able to buy anew at the end of the rental term.
The SSLB is the brainchild of Bob Irish, a Riverside, CA real estate broker at Lake Hills Realty and CEO of National Short Sales, the SSLB program facilitator.
Lenders have been lukewarm about the program, but some homeowners have benefited from the program and more lenders are likely to participate.
Does it really matter to whom the homeowner sells their home, as long as it’s a legitimate sale, there is a real hardship, and the owner can sell at fair market value?
Probably not, but in this crazy housing crisis, reality and common sense have not always led the way.
Here’s how the program works according to Bob Oakes at Evergreen Realty:
“The Short Sale Lease Back Program may allow some qualified homeowners to stay in their home after a short sale. Certain banks will approve short sale lease-back transactions on certain loans as long as the homeowner has a valid hardship and the short sale terms are acceptable to the bank.
The SSLB Program was inspired by changes to the federal Home Affordable Foreclosure Alternatives short sale program. Program founders designed it to help distressed homeowners find an alternative to foreclosure and more quickly return to the housing market as buyers.
A short sale occurs when a property is sold for less than is owed on it and the bank agrees to a discounted payoff. In recent years, banks and servicers have required that a short sale be an “arm’s-length” transaction, meaning the buyer and seller could not be related and could not have a prior agreement for the homeowner to stay in the property.
The U.S. Treasury Dept. in March 2011 issued a supplement, or amendment, to the HAFA guidelines to allow “servicers the discretion to approve sales to non-profit organizations with the stated purpose that the property will be rented or resold to the borrower, so long as all other HAFA program requirements are met.”
It further strengthened that option in a November 2012 supplement that smoothed the process for such a sale.
The SSLB Program is monumental and game-changing, providing a more attractive solution for homeowners who cannot afford their homes but have valid economic hardships and with steady incomes can afford a lease payment. Homeowners must work with a licensed agent who is trained and certified by the Short Sale Lease Back Program
A qualified non-profit would purchase the home in a short sale
The homeowner’s lenders MUST approve of the lease-back terms—the intent of the sale and tenancy cannot be hidden from the lienholders
The seller would lease the home for up to three years, allowing their credit to heal so that they could qualify for a mortgage and re-enter the market Homeowners must attend ongoing HUD and financial-literacy counseling and speak with legal and tax experts to ensure the program is the right fit
Not all homeowners qualify for the program. Borrowers must have sufficient income to afford the monthly rent payments in addition to their other debt payments.”
For more from Bob check out: http://www.sunnews.org/letters/on-real-estate-short-sale-lease-back-may-be-an-option-for-you/
What are the drawbacks?
- The improving housing market has in many cases wiped out the negative equity in properties across the country. Because of that lenders are more willing to foreclose than make a short sale deal.
- The ability to short sell and stay in the home is dependent on a sale to a “non-profit” organization. Finding that component is becoming increasingly difficult.
- If the lender is willing to discount the amount owed they might as well just modify the loan and leave the owner in place. The gymnastics ofselling to a non-profit and allowing a lease back seems to be a long way around getting to the same result.
For the record, I’m not a fan of this option.
However, it’s my goal to bring you every option available whether I support the program or not.
With the improving housing market short sales are becoming less necessary – with equity in your home there is usually a way out before foreclosure.
My job is to help you explore those options and give you unbiased answers to your questions.