Getting Paid to Sell Short

With the Home Affordable Foreclosure Alternatives Program (HAFA) ready to take effect in April, the New York Times briefly outlined some of the program’s highlights in an article that appeared about a month in advance of the date servicers are required to begin abiding by it.

A couple of our clients have already been “approved to participate” in a short sale via this program and here is what we’re seeing so far…

• The servicers involved in the two files we’re currently working on are Wells Fargo and CitiMortgage. I’m sure it surprises no one to see it isn’t Bank of America and Chase utilizing this process ahead of the deadline.

• In the “Approval to Participate” (ATP) letters, both lenders have provided the amount the property should be listed for. In both cases, the requested list amount is higher than what we perceived the fair market value to be, but not dramatically higher.

• Both letters state an offer must be received by the servicers within 120 days of the ATP being issued.

• The letter from Citi, shows a sliding scale for the acceptable net, based on the date the file would be approved. For example, they suggest the list price be $51,000 and that the net to them should be $44,800 from 2.19.10-3.19.10, $43,860 from 3.20.10-4.19.10, and $42,840 until the expiration of 6.19.10. The letter from Wells Fargo simply says they must receive a net of about $69k (roughly $10k less than the list price) prior to the 120 day expiration. In this instance, the Wells Fargo letter makes more sense, since the Citi letter encourages the buyer to wait for the price to drop.

• And of course - the point of the NYT article - both letters claim that the seller will receive $1,000 at closing, should the file close prior to the 120-day expiration date, or $750 afterward. However, they both go on to state that: “You may elect to receive cash or apply some or all of the compensation to sale costs not paid by HUD, for example, discount points, or home warranty plans.” In the Wells Fargo deal, the investor would only approve a 2% sellers concession, so the $750 will be going towards the balance of the 3% sellers concession the buyer required. Sure, you hate to see that money going back into the deal, but I’d rather that happen, than see the deal die.

Once we close these files, I’ll be sure and blog about any additional thoughts/insights etc. On the surface, I don’t think this plan is a bad one. There is no doubt the lenders/servicers/investors will find loopholes that benefit themselves, but at least it seems like a step in the right direction - for now…