The U.S. Treasury plan to help homeowners avoid foreclosure is many-faceted. The plan was announced in November 2009 and officially went into effect in April 2010:
It sets limits on the time it takes lenders to approve or reject Short Sales requests.
It provides incentives to lenders and borrowers for completing Short Sales.
It streamlines and standardizes the documentation necessary for Short Sales.
It limits the ability of subordinate lien-holders to obstruct the Short Sales process.
Incentives to Borrowers
Under the plan, borrowers who complete a Short Sale are released from their primary mortgage debt. Additionally, they receive $3,000 for moving expenses.
Incentives for Lenders
The plan provides for payments of $1,500 to mortgage servicers and investors for completing a Short Sale - or a deed-in-lieu transaction, in which the deed is simply turned over to the lender.
Payments Capped to Subordinate Lien-Holders
It is up to owners to negoitiate with any junior lein holders. The Treasure department is offering them 6% of the lien with a cap of $6,000. Many junior lein holders will not want to negotiate such a reduction in debt, and junior leins must agree to the terms with no deficiancy judgemnts or promissory notes before the short sale can be completed.
Time Limits for Short Sales
Lenders have only 10 days to approve or reject a Short Sale - a significant step, since the process often takes so long to complete that numerous transaction fall through. Borrowers are allowed at least 90 days to market and sell their home, with the possibility of additional time based on local market conditions. Marketing can run at the same time as the foreclosure process, but no foreclosure can take place during the marketing period as long as the borrower is acting in good faith to sell the property.
The most dynamic change is that the lender gives the seller an acceptable price they are willing to accept on the home up front or before an offer is submitted. This streamlines the process and allows the agent and the owner to know what kind of offer will be accepted by the lender.