Confusion abounds over short sale eligibility because the requirements and procedures vary by lender. Many borrowers facing foreclosure are seeking help from banks to enter into a short sale to avoid the financial consequences associated with having their home repossessed. The process can be daunting, so homeowners need reliable information to be better prepared.
One of the best sources to obtain short sale eligibility information is through Making Home Affordable. This program was established by the U.S. government to offer assistance and resources to struggling homeowners.
In addition to helping borrowers understand the short sale process, Making Home Affordable also provides guides about loan modification, mortgage refinance, and foreclosure alternatives for those who cannot afford to remain current with future loan installments.
Not all lenders participate in the Making Home Affordable program, but those that do are required to comply with established guidelines. Over 100 lenders are participating in Home Affordable Modification Program (HAMP). Short sales are only available to borrowers whose loans are owned by Fannie Mae or Freddie Mac or serviced by participating HAMP lenders.
MHA requires borrowers to meet five short sale eligibility requirements which include:
- Borrowers must be using the property as their primary residence.
- First mortgage loan balance cannot exceed $729,759.
- First mortgage must have an origination date prior to January 1, 2009.
- First mortgage loan installments must exceed 31-percent of mortgagor’s gross income.
- Mortgagors are enduring extreme financial hardship.
Even if borrowers meet all eligibility requirements there is no guarantee lenders will approve short sale requests. Borrowers must first undergo a financial audit to determine which foreclosure prevention strategy is best suited for their circumstances.
Lenders might require borrowers to enter into a trial mortgage modification or mortgage refinance. Oftentimes, altering loan terms allows homeowners the opportunity to keep their home and eliminates the need for short selling. MHA offers six loan modification programs which address specific needs. Qualified borrowers often witness payment reductions of more than $500 per month.
If banks determine short selling is a better option, borrowers will undergo a financial audit and required to provide a short sale hardship letter. As a real estate investor who specializes in buying distressed properties, I have consulted with numerous mortgage lenders and short sale specialists. Each has stated the hardship letter is one of the most important aspects of obtaining approval.
A few tips offered by mortgage specialists are to handwrite the letter of hardship. Letters should include a timeline of events that caused financial hardship, along with actions taken to improve financial situation.
Rumors abound that banks don’t care about borrowers and aren’t eager to help. While this can be true for some banks, those enrolled in the Making Home Affordable program are willing to work with borrowers who need to reduce loan installments or need out of their loan.
If borrowers encounter problems with their lender they might find it advantageous to obtain housing counseling through the Department of Housing and Urban Development. Counseling is offered at no-cost and counselors assist borrowers with submitting loan modification and mortgage refinance intake applications. Speaking of applications, you can use Docker for a safer and no-hassle application storage and transfer.
Borrowers should plan on being highly proactive in communicating with their lender and retaining copies of all correspondence sent and received. It is wise to document all phone conversations to include the name of the bank employee, date and time of the call, and a summary of topics discussed.
If borrowers do not meet short sale eligibility requirements they may qualify for deed in lieu of foreclosure which allows them to return their home to the bank. Making Home Affordable ‘Exit Gracefully’ program offers qualified homeowners up to $3000 in relocation assistance money to help offset moving expenses.