New Foreclosure Alternative - A Plan that Pays Owners

In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. The administration is trying a new approach - offering incentives for some of them to leave.

This latest program, which allows a short sale in exchange for a little spending money, is one of the administration’s most aggressive attempts to work on a problem that has defied solutions.

More than five million households are behind on their mortgages and modification plans have helped only a small percentage of them - much more needs to be done. There is also the concern that millions of foreclosures could delay or even reverse the economy’s slow recovery.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings by doing a short sale instead of a foreclosure. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

It is a step in the right direction and can offer help for many. There is a lot of work in a short sale for all involved so please make sure you qualify your agent first as the quality of the agent has a lot to do with the possibility of acceptance.

Please contact me for more information or if I can help in ANY way.