New Laws Regulate the Short Sale Process

If you are trying to keep your property out of foreclosure; you may begin considering selling your property in a short sale. As of April 2010 new regulations apply to second lienholders. Get the pertinent information before deciding whether to apply for a short sale with your lender.

A short sale is a common tool homeowners may use to keep their property out of foreclosure. When a bank forecloses on a property, they repossess it making the bank the property owner. Avoiding this fate is usually in the homeowner’s best interest. If you apply for a short sale with your lender; what you are doing is asking the lender, and any second lien holders, to allow you to sell your property at the current fair market value for the property. In some cases, if approved for a short sale, the lenders will forgive the deficiency between the amount the property sells for and the amount you owe on your mortgage. It all depends on the bank and what you negotiate. This process saves everyone involved the time and expense of the legal proceedings incurred by pursuing a foreclosure. Short sales are done because everyone is better off – you’re stop getting mortgage bills and the bank recoups a sizeable portion of the money they initially loaned to allow you to purchase the property.

There is a hitch in this process; the second lien. Prior to April 2010, secondary lien holders were unlikely to receive any portion of the proceeds of the sale. This likelihood was increased if the property was in a state of negative equity. The secondary lien holder could block the approval of the short sale by refusing signoff on zero payoff.

Enter the new short sale laws. Due to the change in the laws regulating short sales there are now incentives for secondary lien holders to approve the sales. There is also an incentive for the seller to pursue this option.

Secondary lien holders will receive a portion of the sale proceeds; an amount of at least $3,000. The will also receive an additional $1,000 from the federal government.

The seller is encouraged to use this option because the government will provide them with an incentive of $1,500 for relocation expenses.



While the new short sale laws may provide incentives, make the process less time consuming and help homeowners avoid foreclosure; they may only be enough to cause an increase in the number of short sales with only one lender. Homeowners with more than one lien on their property may still be left out in the cold, as far as short sales are concerned, because the second lien holders are still receiving far too little compensation for their initial outlay of funds.