Short Sales Get Boost From New Obama Treasury Guidelines

by Rich Vetstein on December 1, 2009 · 17 comments

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Short Sales

The Obama administration on Monday set long-awaited guidance on a plan for mortgage companies to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program (HAFA) provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed. The announcement can be found here.obama_hope A complete set of the guidelines can be found here.

The new federal guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders. New financial incentives for completing short sales or similar “deed-in-lieu” transactions — in which the deed is simply transferred to the lender — include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would also receive $1,500 in relocation expenses.

While a short sale may be preferable to a foreclosure, they have been frustrating for borrowers, buyers and realtors, because they are often hung up by lengthy negotiations with multiple lien holders and mortgage insurance companies. Realtors have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Under the new rules, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt. The rules also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

This may help, but by how much remains to be seen.

Click here for our most recent post, Will Short Sales Get A Boost From Obama’s HAFA Program?

  • I Hate Bank of America

    Like George said, these are just “guidelines.” Tough, swift, and harsh consequences are needed in order to see a true change in practice. Until then, banks like Bank of America will continue to screw potential short sale purchasers out of potential deals, and millions of additional properties will become vacant eye sores…and potentially dangerous settings.

  • Yes, these are guidelines, and not laws. We have to remember, only laws like the bankruptcy code can alter/amend/modify such contracts/loans.

  • Pingback: Happy Birthday To This Blog: A Statistical Review of Year 1 | The Massachusetts Real Estate Law Blog()

  • Pingback: Attorney Richard D. Vetstein’s The Massachusetts Real Estate Law Blog Cracks Top 100 List | Richard Vetstein()

  • Short sales account for +/- 70% of the $350,000 or less MLS listings in our area (Riverside County, California). Short sales account for 20% of the closings. Bottom line AT BEST 1 in 4 short sales close – it has been as low as 1-10. Until the short sale process is dependable Realtors will only pursue short sales as a “fall back” possibility for their clients. Attorneys and “Short Sale Specialist” companies sometimes accelerate the process but we all have to remember we are trying to force free market banks to lose money and close escrow in a timely fashion. That will always be a tough sell.

  • I haven’t dealt with short sales in awhile but it is refreshing to see that all the complaining I have done on the social media and on Obama sites is starting to pay off. Now folks lets get together and see if we can make some changes for the better of the real estate industry.

    Great article by the way!

  • Tom Sirianni

    I am an attorney that does many short sales here in New York. These guidlines are helpful, but does not impose penalties for the bank if they are not applied.

    Without “teeth” these guidlines are not very helpful. Stealing is illegal as well, but if there is no penalty associated with the theft, people will continue to steal.

    Any questions I can be reached at

  • Lynn

    As a buyer I am presently putting in an cash offer,I am curious as to what recourse I have , if the bank does not respond in the 10 days required- do I benefit any by giving a
    slightly longer time frame for a response from the bank ?? The only contigency we have is that we will pay x amount of dollars for a property- if the property appraises for less we will pay full appraisal price

  • Michael Hughett


    Even with the short sale completed properly the sale will take forever if the banks are losing upwards of $700k-Million dollars as are the ones I am working on currently. They need upwards of 7 to 8 VP signatures to obtain payoffs. Are your loans that large and do you see those being included in 10 day turnaround?

  • I’m short sale specialist that works with and for realtors who are struggling because of lack of information from the lender to the homeowner and the realtor. When the package is completed properly, our attorney gets the approval within the 10 day time frame. Bank of America is becoming easier as time moves along. Also, we don’t accept the approval unless the bank is willing to completely forgive the deficency. So, I believe that short sales are improving and giving the home owner a better chance at making a responsible decision instead of trashing the house or simply walking away and handing house (problem) over to the bank . Short sales will result in a quicker recovery!

  • I am a Realtor in Hilton Head Island SC and specialize in Short Sales. I would love to believe that the banks will be required to answer short sales in a 10 day time table. In my dealings with the bigger national bank, it is obvious that they will not be able to accomplish this feat. If they can not answer in time their only answer will be NO, which would effectively put a stop to all short sales until the rule is adjusted to a more reasonable time table. Even 30 days would be great! Right now many of these bigger bank take more than three or four months to respond.

  • This is another good step on how to bring back the life of real estate business, by giving such program like this that makes easier for every one to obtain a property and to be able pay the obligation.

    Scott@Financially Free Landlord

  • Thanks for the post. Hopefully, lenders will adjust to the changes quickly. It makes sense to start with loan modifications and then a targeted short sale price (signed by the lender) so we can avoid unnecessary foreclosures.

  • Bobby Barfield

    My understanding is only owner occupied homes can be let off the hook . Does the new guidelines allow debt forgiveness for people who purchased investment properties like a 2nd homes or raw land?

  • Pingback: Relief? Government Announces Short Sale Guidelines This Week — At Home In Scottsdale | Your Guide to Scottsdale Real Estate()

  • Patrick Maddigan

    Good Article Rich. There are many short-sales I’ve worked on where I had to call the bank every day looking for an update. My friends, often first time home buyers, have complained and complained about their short sale deal disasters to me. Glad to see the Feds getting involved.

  • Pingback: With Real Estate, Tough Options For Massachusetts Divorcing Spouses In This Economy | The Massachusetts Real Estate Law Blog()

Previous post:

Next post:

Real Time Analytics