An Easier Short-Sale Process

If you owe more on your home than it's worth, you may be hearing a lot about short sales.

That's when you sell your property for the current market value, even though that's less than your mortgage. Your lender agrees to take the proceeds, and you walk away from the house.

Since the foreclosure frenzy began last year, many consumers who have embarked on short sales have found the process complex and time consuming. Lenders can delay decisions for months on whether to accept the process. In many cases, potential buyers have walked away from the deal because they wanted to buy a house quickly and not lose a favorable mortgage.

In an effort to smooth out the process, the Obama administration on May 14 unveiled new incentives and uniform standards and procedures for parties involved in short sales.

The changes, announced by Housing and Urban Development Secretary Shaun Donovan, are structured as an extension to the government's main foreclosure prevention program, called Making Home Affordable. They offer cash incentives to lenders and borrowers to encourage them to participate.

Donovan said the program should reduce "the damage that foreclosures impose on borrowers, financial institutions and communities."

The plan -- to go into effect when the government issues standardized documents -- does not cover everyone. To be eligible, the home must either be owner-occupied or a one-to-four unit property. Condominiums, cooperatives and mobile homes are eligible.

First trust loans must have an unpaid principal balance of $729,750 or less, before including arrearages. (Amounts are higher for multi-unit buildings.)

Here are some highlights:

-- There will be a standard "Short Sale Agreement" and an "Offer-Acceptance Letter." The lender must independently evaluate and establish the market value and determine the minimum acceptable price that it will accept.

-- The borrower must list the property with a licensed real estate agent who has experience in the area where the house is located. Lenders must allow at least 90 days for the property to be marketed and sold, although more time can be allowed depending on local market conditions.

-- The short-sale process can proceed even if the lender has started the foreclosure process, but the foreclosure sale cannot take place until the short-sale timelines have been exceeded.