Short sales have been receiving a lot of media attention lately. In April, it was announced the Short Sale Act of 2011 was up for presentation to legislature in attempt to expedite the process. If passed, lenders would be required to respond to borrowers request within 45 days. Currently, the process can take up to 6 months.

Short sales are sometimes offered when homeowners can no longer afford mortgage payments and do not qualify for loan modifications or mortgage refinance. In essence, banks allow homeowners to list their property through a realtor and accept less than the full balance owed on the mortgage note.

Many homeowners are now turning to the Making Home Affordable program to apply for real estate short sales. Others are hiring lawyers to help them negotiate with their lender. Regardless of the method used, the process is complex and time-consuming and often leaves homeowners feeling overwhelmed and frustrated.

Making Home Affordable was initiated under the Obama Administration in 2009. At the time of launch, MHA touted it would help 3 to 4 million homeowners avoid foreclosure through loan mods and refinance.

The process is so cumbersome that less than 250,000 homeowners have obtained permanent loan modifications. This equates to less than 6-percent of the goals Making Home Affordable established. Even fewer have qualified for short sales under MHA\’s Exit Gracefully program.

This is not to say that homeowners should not apply for available help through Making Home Affordable. Instead, it serves as notice that the process is not easy. Homeowners should prepare for a lengthy process and plan ahead by organizing financial records, loan documents, and tax returns.

Homeowners in need of short sale approval should start by visiting the MHA website at MakingHomeAffordable.gov to determine if their lender participates in the program. At present, over 100 banks are participating.

The website provides short sale eligibility criteria, but each lender\’s policy may vary. The only way to know exact protocol is to talk with the servicing lender\’s loss mitigation department. Loss mitigators act as a mediator between lenders and homeowners. Their role is to minimize financial losses for the bank and help homeowners keep their property if possible.

Homeowners who apply for help through Making Home Affordable must first list their home with a realtor for at least 120 days prior to submitting their short sale request. The property must be the homeowner\’s primary residence and the principal balance on the first mortgage cannot exceed $729,750. Additionally, the first mortgage must have originated prior to January 1, 2009.

Homeowners who qualify for short selling under MHA are not held responsible for deficiencies between the loan balance and sale price. This is one major advantage over non-participating lenders.

Many banks require homeowners to pay the difference, which often amounts to several thousand dollars. When homeowners cannot pay the deficiency in full, banks obtain court ordered deficiency judgments. Judgments remain on borrowers\’ credit reports for up to 10 years after the debt is fully paid and can result in substantially reduced credit scores.

Borrowers who obtain short sale approval without help from MHA must strive to obtain a \’Payment in Full without Pursuit of Deficiency Judgment\’. This releases them from further financial obligation, but may require legal counsel to accomplish.

It\’s important to carefully weigh the pros and cons of short selling real estate. A good source for obtaining help with the decision-making process is through HUD housing counseling. Not only can HUD help homeowners determine if short sales are the best strategy, they can also help file required paperwork with the servicing lender.

Author Bio: Author and real estate investor, Simon Volkov provides additional information and resources to help borrowers make informed decisions about short sales. He has helped hundreds of homeowners successfully negotiate with lenders and provides an extensive short sale article library at www.SimonVolkov.com.

Category: Real Estate
Keywords: short sale, making home affordable, exit gracefully, short sale approval, real estate short sale