Pros and Cons of New Short Sale Regulations

The recently introduced new regulations for streamlining short sales sounded too good to be true. For some home sellers, they just might be.

Under the new federal regulations, with the new and improved short sale process:

• Homeowners receive $3,000 for relocation expenses when they complete a short sale or hand over the property deed to the lender.
• Lenders are required to set their minimum acceptable bid before the house is listed for sale. If the offer is at or above the minimum, the lender must accept it.
• Homebuyers making an offer should receive a reply in two weeks. This often took months.

However, there is a lot of fine print and many homeowners looking for a short sale — when a lender accepts less than the amount owed on the mortgage — as a way out of an financially upside-down home, will not qualify.

“I’ve had a couple of clients call that immediately didn’t qualify right off the bat,” said Lori Wehrli, a Realtor at Century 21 M&M and Associates in Tracy. “There are so many rules and regulations. I think it’s very specific, so it’s limited.”

Wehrili, who completed five short sales last year, said she closely looked over the new regulations and immediately found stipulations that eliminated many home sellers.

Some of the exceptions include:
• The home must be the seller’s principle residence.
• The home seller must be delinquent and default inevitable.
• Does not apply to loans guaranteed by Fannie Mae or Freddie Mac, which accounts for approximately half of all U.S. mortgage debt. The pair of government-operated firms is developing their own short sale program.
• The monthly mortgage payment must exceed 31 percent of the before tax income of the home seller.
• The balance of the mortgage must be less than $729,750.

“Every single program they put in place, there seems to be a lot of exceptions,” said Wehrli. “It’s really a letdown to a lot of people.”

Bonny Howell, a Century 21 M&M Realtor based in Los Banos, said the new short sale regulations remind her of the complicated FHA and VA mortgage process.

“It’s a little like the FHA,” she said. “Everyone wants to get into a FHA or VA loan, but it’s difficult. There’s a lot of hoops to jump through.”

Howell said FHA for example, does not allow the purchase of a home by an investor, mandates two appraisals and the repair of some items.

Wehrli concurs and noted navigating through the new short sale regulations requires an experienced expert.
“You must seek a real estate agent, tax professional or an attorney,” she said.

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