Short Sale Rule
The basic short sale rule has changed significantly since government and private programs have taken on short sales as a foreclosure alternative. In fact, short sale rule changes continue to take place today, as lenders themselves are still learning to deal with the large volume of defaults. That’s why as a short sale buyer or seller, it’s important to stay updated on every short sale rule and know how each change affects you. To help you get started, here’s a quick guide to today’s short sale rule and what it means for your case.
Pre-approved Short Sales
The Home Affordable Foreclosure Alternative (HAFA) program put into effect a new short sale rule in which borrowers must be approved for short sales before putting their home on the market. Before this short sale rule, many borrowers would list their homes without knowing whether or not their lender would accept their terms. Because the HAFA short sale rule sets the terms before listing, borrowers have more negotiating power and potential buyers don’t run the risk of title or lien problems down the road.
Eligibility Requirements
The first short sale rule for qualifying borrowers is a previous attempt at mortgage aid. To qualify for HAFA, a homeowner must have first applied and been rejected for a loan modification under HAFA’s sister program, the Home Affordable Modification Plan (HAMP). After finding a borrower ineligible for HAMP, the lender can then consider him or her for HAFA. This short sale rule helps keep applications down and keeps more borrowers from losing their homes.
Other terms set by the HAFA short sale rule include the following:
- The property must be the borrower’s principal residence
- The mortgage must have been originated before January 2009
- The mortgage must be owned or backed by Fr eddie Mac or Fannie Mae
- The homeowner is in default or at risk of defaulting
- The debt-to-income ratio exceeds 31%
- The outstanding balance is not more than $729,750
Short Sale Schedules
HAFA also sets a short sale rule on lender-borrower response times, which accounted for many problems in previous programs. Under the HAFA short sale rule, borrowers found ineligible for loan modification must be notified and offered the HAFA agreement within 30 days. The borrower must then respond to the offer within 14 days of reception; otherwise they may need to start over.