Today, the upside down Mortgages in California are due mostly to the risky, highly leveraged loans that were extensively used over the past 7 years to purchase homes with little or nothing down. Worse yet, many of these loans were adjustable rate loans, or negative amortization loans in which the loan balance gets higher every month.
In addition, southern California home prices have decreased by as much as 35% to 45% in some areas. These factors are causing many home owners to consider a Short Sale to solve their financial crisis. The result is, there are 1,000′s upon 1,000′s of southern California homeowners who are upside down on their mortgage loan by then of thousands of dollars, and can no longer afford their mortgage payment.
The New Federal Government HAFA Short Sale Program.
The US Treasury Department has released the guidelines for the new federal Home Affordable Foreclosure Alternatives program (HAFA). The HAFA program is designed to streamline the short sale process and offers financial incentives to both homeowners and mortgage banks to encourage this type of resolution versus foreclosure.
The purpose of the HAFA program is to help reduce the rate of foreclosures, for short sales have been shown to reduce the financial loss to the banks. Short sale properties are rarely left vacant and neglected, thus reducing the chance of vandalism and deterioration that often becomes foreclosure properties. Some of the key features and benefits of HAFA:
1- Pre-determined cash incentives to both the Homeowners and Mortgage Bank servicer.
2- Listing Agent and Homeowner to receive pre-approved short sale pricing guidelines and terms prior to listing the property for sale.
3- Mortgage Banks are required to release the Homeowner from current and future mortgage debt liability.
4- The Short Sale must be an “Arms Length” transaction, meaning no relative can be a buyer, nor can an investor buyer offer to sell the home back to original homeowner.
5- The US Treasury department is to share the cost of paying off the 2nd Mortgage holder to release claims, by matching $1 for every $2 paid by the 1st Mortgage Bank.
6- Mortgage Banks cannot seek a deficiency judgment or require homeowner to sign a promissory note for any unpaid balance.
7- Mortgage Banks are required to pay for all fees and costs, that are normally a cost of the Seller in a standard real estate sale.
8- Mortgage Banks are required to render a preliminary decision to short sale within 15 days after receiving a fully completed document package from the Homeowner
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