The fact that the Treasury Department is taking steps to work with lenders in order to help streamline the short sale process is encouraging to say the least. For the last several years, I and other real estate professionals who have committed to helping homeowners upside down in value, have been frustrated at the lack of uniform procedure and common sense on the part of lenders and investors.
We have all been calling for cohesive standards and clearly outlined procedural guidelines for months now. And finally, last week the Treasury Department announced new guidelines aimed at easing the short sale process.
Let’s just say I’m cautiously optimistic. Cautiously because of the position they’ve taken with respect to the junior lien holder.
Under the new guidelines, the Jr. lien holder (2nd mortgage/equity line) must agree to only $3,000 as payment in full. While the new guidelines are a step in the right direction, I don’t know if they go far enough. Here in my marketarea, where homes appreciated to a point where our average sales price was in the mid-high $400,000 range, many homeowners experienced huge equity increases and subsequently took out big equity lines of credit.
So if a homeowner has a $150,000 line of credit, and the Junior lien holder can:
1. Retain the rights to deficiency upon foreclosure
OR
2. Sell the deficiency rights for 10% (or more) to a creditor as a charge-off prior to or after foreclosure….
Why would they want to settle for a $3000 payoff?
In the above example, the junior lien holder could get $15,000 from a collector, why would they settle for $3,000? I think a far better option would have been to limit the amount the second lender can receive to a percentage of the loan. This have a greater chance of success on a national level by allowing for regional price differences.
I remember how optimistic agents were when Fannie and Freddie announced their short sale commission policy, only it has only applied to a handful of the short sales I’ve seen since it was announced. If our lending system was made up of five or six or even a dozen companies, I could see this working. But many of the big name players are just servicing the loan for other investors….and there’s no way I can think of to make them all play ball by the same rules.
Maybe I’m wrong.
In fact, I HOPE I’m wrong.
I’d like to be as excited by this announcement as many of my colleagues are.
Only time will tell if the new guidelines will be embraced , or if they turn out to be another pacifier offered to quiet and soothe an industry desperate for answers and clarity.
In the meantime, we will continue to help educate home owners in the greater Seattle area who need assistance negotiating their short sales so that they can sell, move out and move on.
And hopefully between now and April 5th, someone will find a way to make that three thousand dollar pound elephant in the room disappear.
Colleen Fischesser, Washington State Designated Broker & Owner of RE/MAX Select R.E; Member NWMLS, SKAR, WAR, Voted "Best in Client Satisfaction" Seattle Magazine 2006,2007 & 2008. Representing home Buyers & Sellers for nearly two decades. 
