Treasury Streamlines, Simplifies Short Sale Process

The U.S. Treasury plan to help homeowners avoid foreclosure is many-faceted. The plan was announced in November 2009 and officially went into effect in April 2010:

It sets limits on the time it takes lenders to approve or reject Short Sales requests.
It provides incentives to lenders and borrowers for completing Short Sales.
It streamlines and standardizes the documentation necessary for Short Sales.
It limits the ability of subordinate lien-holders to obstruct the Short Sales process.

Incentives to Borrowers
Under the plan, borrowers who complete a Short Sale are released from their primary mortgage debt. Additionally, they receive $3,000 for moving expenses.

Incentives for Lenders
The plan provides for payments of $1,500 to mortgage servicers and investors for completing a Short Sale - or a deed-in-lieu transaction, in which the deed is simply turned over to the lender.

Standardized Documentation
The program has published streamlined and standardized documentation for Short Sales, including a Short Sale Agreement and Offer Acceptance Letter. Creating one standard set of documents minimizes the complexity of Short Sales, which should significantly increase use of the option.

Payments Capped to Subordinate Lien-Holders
In the past, some holders of second mortgages have blocked Short Sales by seeking steep payment in exchange for releasing their claim. Under the new plan, participating subordinate lien-holders as a group can receive no more than $6,000 from proceeds of the sale.

Time Limits for Short Sales
Lenders have only 10 days to approve or reject a Short Sale - a significant step, since the process often takes so long to complete that numerous transaction fall through. Borrowers are allowed at least 90 days to market and sell their home, with the possibility of additional time based on local market conditions. Marketing can run at the same time as the foreclosure process, but no foreclosure can take place during the marketing period as long as the borrower is acting in good faith to sell the proper.