Planning to buy a Short Sale or already have an offer in on a short sale? You need to read this! New government guidelines meant to help distressed home sellers and their banks sell a home in a short sale may actually hurt the chances of achieving that goal and anger potential sellers and buyers. Our Medley Sokoler Team handles a number of short sales and this week we’ve seen the HAFA program have devastating repercussions.
The Plan: On Tuesday April 5th banks have the option of adopting the Federal Government’s Home Affordable Foreclosure Alternatives or “HAFA” guidelines (see understanding HAfA here). In short HAFA pushes lenders to help eligible homeowners by quickly and effectively implementing short sales or deeds-in-lieu. The government will provide financial incentives to lenders that carry out foreclosure alternatives through the program’s guidelines set forth in Supplemental Directive 09-09 Revised.
The Problem: Up until this past week, banks were approving short sales of up to 28 percent off a home’s fair market value. That means a $200,000 home could sell for $146,000. That was a great deal for the buyers and it relieved the banks from having to foreclose on the property. But under the new HAFA guidelines, many banks will accept only 8-10 percent of the fair market value of a home. That means a bank may require a sales price of $180,000 on that 200,000 home. Still a good deal but when you have buyers seeing approved home sales prices much lower than the 8-10 percent now being accepted, there are going to a lot of angry home buyers asking why did things change on them!
More Fallout from HAFA: Additionally this week we’ve seen banks like Bank of America respond to a short sale offer with a simple rejection to an offer instead of a counter offer for a minimum sales price they would accept. While this is meant to speed up the time it takes a bank to respond to an offer (the goal of HAFA), it will create more paperwork and delays which will actually drag out the time it takes for a short sale to be approved. Buyers will have to resubmit an offer (and possibly the entire contract) and repeatedly do that until they back away or go high enough for the bank to accept.
The Wait: With buyers up against the $8000 first time home buyers tax credit deadline for being under contract by the end of April, buyers will have to make a decision to stay with their offer on a short sale property or jump to another home not in a short sale.
Down the road: We’ve seen 3 of our short sales tanked this week because of the new HAFA program. There are more rejections to come and the buyers (as of right now) don’t understand why. Yes we can challenge the banks rejection with items like an inspection report or Comps in the area, but the bottom line is short sales are going through an evolution that may force extinction or major revision. Either way, for the time being, buyers and sellers will be the ones that loose.
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