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New Legislation on Short Sale – Money Back for Seller when they Short Sale

October 2, 2009 By Simon

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Treasury officials be announcing that they will be providing a new subsidy to promote short sales as a way of avoiding foreclosure. This foreclosure subsidy will include a payment of $1,000 to the loan service provider and $1,500 to the seller. This is to encourage a homeowner facing foreclosure to pursue a short sale rather than letting the lender forclose. The purpose behind this new subsidy is to clear the excess inventory. The Treasury may also looking to facilitate this transaction which will result in less loss to the lender than in the case of a foreclosure.

In San Diego and Orange County, California we just have seen our first short sale payoff that gives the homeowner that has a pending mortgage foreclosure money back if they close by a certain date. The money going to the seller is approximately $2,000.00, higher than the amount quoted above. Presumably since homeowners familiar with the foreclosure process can expect “cash for keys” this new subsidy will encourage homeowners to short sale rather than let it go to sale.

California Foreclosures and Unemployment Remains High

According to the Mortgage Bankers Association, California remains at the top of the list for both foreclosures and unemployment. Unemployment is a principal reason for the continuing high foreclosure activity throughout California. Loan modifications have slowed the pace in San Diego, but with the new legislation trying to be passed in California, and at a federal level that would prohit upfront fees from being collected, the loan modification business may be shut down entirely, leaving homeowners little choice but to sell or be foreclosed upon.

In San Diego loan modification companies are concerned that if the ban on up-front fees are passed they will have to close their doors. Because loan modifications can take upward of 6 months, a company would have to have deep pockets to run a business without income for that long. It would be nearly impossible to pay employees without some sort of regular income. So if you are in California and looking for a loan modification, best to work quickly before this legislature is passed. Other alternatives to a loan modification in San Diego and other parts of California would be to do a forensic loan audit to see if there is potential fraud in your mortgage. This can be used in a short sale or to pursue legal action against the lender.

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