Treasury Issues New Short Sales Guidelines

The Treasury Department has issued new guidance to expedite short sales and deed-in-lieu transactions for struggling borrowers that cannot qualify for a permanent loan modification under the government's Home Affordable Modification Program. The guidance establishes procedures for HAMP servicers to provide borrowers with pre-approved terms prior to listing the property for a short sale. Once the borrower submits a signed sales contract and all the required attachments - including status of subordinated liens - the servicer has 10 days to approve the sale. Treasury also is providing incentives to make sure that short sales actually happen. Servicers will receive a $1,000 incentive payment for each completed short sale. The former homeowner receives $1,500 for relocation costs. Investors can receive up to $1,000 if they pay $3,000 to subordinated lien holders that relinquish their claims. The investor's reimbursement is based on a one-for-three match. One of the major stumbling blocks in short sale transactions is getting the second lien holders to settle their claims, according to Joe McCloskey, a senior advisor to HomeTelos, a Dallas real estate services firm that specializes in short sales. The incentives may not seem like a lot, Mr. McCloskey said, but the "ability to recoup something is very attractive. Treasury has made a very effective use of incentives," he added.