The real estate crisis that gripped the United States in the late 2000's and into the next decade shook the housing market to its core. The real estate bubble caused many homeowners to owe more on their houses than they were worth. As these homeowners struggled to pay their mortgages, it quickly became evident that they would have to sell their homes or they would face foreclosure. Many mortgage holders agreed to allow the homeowners to sell their homes for less than the mortgage amount, a process referred to as a short sale. Rules from the Home Affordable Foreclosure Alternatives, a federal government program, set the stage for homeowners to shed these financial burdens.
Pre-Approved Short Sale Terms
The Home Affordable Foreclosure Alternatives (HAFA) program stated that short sale sellers and their banks can work out pre-approved short sale terms in advance of the sale of the home. These pre-approved terms should include the acceptable minimum net proceeds and acceptable closing costs. Each of these items should be the minimum amount to be accepted and is to be agreed upon by both parties.
The HAFA program offers financial incentives to both the short sale seller and their mortgage holder. The rules of the program provide for up to $3,000 in relocation assistance to the home owner and up to $1,500 in administrative cost assistance to the mortgage holder.
The short sale process is initiated when the mortgage servicer and the homeowner complete a short sale agreement. The mortgage servicer initiates the agreement and the homeowner and their real estate agent must sign it and return it to the servicer within 14 days. The short sale agreement must give the homeowner a minimum of 120 days to sell the home; however, extensions of up to 12 months are permitted if agreed upon by both parties. If a contract is placed on the property, the property owner or their real estate agent must complete a Request for Approval of Short Sale, which must be approved or denied by the servicer within 10 business days. Unless both parties agree, the closing on the property may take place no sooner than 45 days after the sales contract was submitted. The mortgage servicer, unless state or local laws supersede, must release the homeowner of the mortgage lien within 30 days of closing on the property.
Real Estate Agent Commissions
Real estate agents are permitted to receive a commission as a result of a short sale. However, the HAFA program requires that the commission amount and percentage be a part of the short sale agreement. The maximum allowable real estate agent commission in this instance is 6 percent. If the agent is also the homeowner, they are not permitted to receive a commission as a result of the sale. All commissions in such an instance, whether received directly or indirectly, are prohibited according to HAFA program rules.
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