Obama’s Foreclosures Alternatives Plan (FAP) and how it affects you as a short sale investor

The government and the National Association of Realtors just did us a big favor for pushing even more short sales through.

Obama passed these incentives for lenders to approve more short sales. These are very nice incentives and shows the government and the National Association of Realtors are pushing the lending community to favor the short sale option in this Real Estate Market.

This is all great news for you. You will be getting more deals approved and making more money in 2009!

Here are the details with my Commentary:

Obama Administration Announces Financial Incentives and Uniform Process for Short Sales

National Association of REALTORS® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001 REALTOR® is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics Responding to the call of the National Association of REALTORS®,

on May 14, 2009, the Obama Administration announced incentives and uniform procedures for short sales under its new Foreclosure Alternatives Program (FAP). For borrowers who are unable to retain their home under the Making Home Affordable Loan Modification Program, the servicer may consider a short sale or, if that is not successful, a deed-in-lieu of foreclosure. Participating servicers must comply with program requirements so long as they do not conflict with contractual agreements with investors.

Borrowers (Homeowners). Borrowers/homeowners qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program but don’t qualify for a modification or do not successfully complete the three month trial period. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

D.C.: Most homeowners go back into default after a loan modification anyway so this is great news for us. Many will convert and need a short sale. Follow up and stay in contact with homeowners that opted for a loan mod instead of a short sale. They will result in deals for you down the road.

Incentives. Incentives include: (1) $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; (2) $1,500 for borrowers/homeowners to help with relocation expenses; and (3) up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).

D.C.: Lenders like incentives and now borrowers can get moving money from a short sale from these FAP transactions. Now 2nd mortgages can get more money on the Hud than the 1st mortgage will approve. That will help a lot.

Standardized Documents. The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.

D.C.: It’s about time! I’ve always used my own standardized documents but some lenders are sticklers and still require their own.

Property Valuation by Appraisal or BPO. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.

D.C.: Not much new here. 

Timeline. In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.

D.C.: NICE! This is like an automatic postponement of the foreclosure auction. This is Huge for short time (non-judicial) states like GA and TX. The lenders will approve more short sales at lower offers because they won’t want to wait until the 90 days -1 yr expired to retire their bad debt.

Commissions. The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.

D.C.: Excellent. More fees on the HUD means lower offers accepted and more money to our agents from the A-B Hud and more profit for us.

No Borrower Fees. Servicers may not charge fees to borrowers/homeowners for participating in the FAP.

D.C.: That’s kind of them!

Program Expiration. The program is in effect through 2012.

D.C.: Well that tells you how long the government thinks we’re going to need to have this program to help liquidate all of these preforeclosures. I told you it was going to get worse before it got better. They will probably extend it after 2012 because we will still be in a buyer’s market then. History repeats itself. The real estate market goes up for 7 years then down for 3.

Deed-in-Lieu of Foreclosure Option. Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement (plus any extensions).

D.C.: This is always a last resort. A short sale is more favorable on a homeowner’s credit report that a voluntary foreclosure (deed-in-lieu)

There is more opportunity out there right now than we’ve ever seen. The time is now! Go get some Deals!

Committed to Your Extreme Success,
D.C. Fawcett