For any real estate professional negotiating a short sale, the moment you receive that magical approval letter there is usually a sense of celebration and relief. Not so on Monday when I received an approval letter for a standard short sale I am negotiating for another agent in my brokerage.

All of the terms looked fine, EXCEPT there was no allowance for relocation assistance. This is a Freddie Mac loan serviced by Bank of America that I am managing through the Equator platform, so I messaged back immediately. Money for relocation assistance has been an expectation since day one of the short sale process as the homeowner is a single mom with four children under the age of eleven who is currently off the job and receives disability as her only source of income. If anyone ever needed help with the expenses of moving, it is this poor woman!

The reply back from B of A was that the “borrower did not meet the investor guidelines for relocation assistance.” Are you kidding me? She is penniless! So I requested further clarification regarding the specific guidelines. I was told that “any borrower with a loan with MI (mortgage insurance) is automatically disqualified from receiving relocation assistance.”

Does that make ANY sense? I scoured the Internet and contacted a couple of fellow brokers who are short sale experts and no one could find anything to support this “rule”. In fact, everything I discovered supports that fact that as of 11/1/12 Freddie Mac would pay up to $3000 for relocation assistance, with no mention of an MI exception.

So yesterday morning I called Freddie Mac directly. They were incredibly responsive and helpful. The gentleman I spoke with put me on hold for quite a while as he researched the question, finally coming back on the line to tell me that he needed some additional time to investigate and would get back to me before 5:00 pm. At 4:45 he called to report that in all of his inquiries, no one he spoke with at Freddie Mac could find any reason why MI would disqualify a borrower from receiving relocation assistance. So Freddie Mac has opened an internal investigation to determine if the ruling by Bank of America is within guidelines or if they have overstepped the limits of their authority by denying relocation assistance. Ha!

I was told it might take up to a month to receive results of the investigation, but I feel better knowing that we are doing everything we can to help get our client the money she so desperately needs. And I have to admit it felt pretty good to have my hunch regarding this rule, somewhat vindicated by a giant like Freddie Mac. I’ll be letting Bank of America know about the investigation this morning 🙂

I guess that if it just seems wrong, it never hurts to question.

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Effective November 1, 2012, there are new guidelines for all Fannie Mae and Freddie Mac short sales.  The new program, dubbed the Standard Short Sale /HAFA II requires Fannie and Freddie servicers to manage short sales under one uniform process.  It is anticipated that this new streamlined process will make short sales faster, easier and more accessible to underwater borrowers.   Under the new program:

  • Homeowners do not need to be delinquent on their mortgage payments if they meet other hardship criteria.
  • Deficiency judgments will be waived in exchange for a cash contribution from certain qualified homeowners.
  • Military personnel who are relocated will automatically be eligible.
  • Up to $6,000 will be offered to  2nd lien holders to speed the process.

The new hardship criterion includes:

  • Death of a borrower or  co-borrower
  • Divorce
  • Unemployment
  • Disability
  • Relocation for a job

The good news is that this program should allow more homeowners to participate in a short sale and get out of a negative equity situation, even if they are not delinquent on their mortgage.  The bad news is that even with no missed payments; their credit will suffer as they will have settled their mortgage debt for less than the amount owed.  In the world of credit reporting, a short sale is a short sale, whether or not there was ever a missed payment or a Notice of Default recorded.

Overall, HAFA II should allow more homeowners to take advantage of a short sale and standardized processing can’t help but improve the whole experience for everyone involved.  As a Realtor who lists and negotiates short sales, I welcome anything that will streamline the often cumbersome and lengthy process.

If you live in San Diego County and are considering a short sale, or if you’re an agent looking to out-source negotiation, please call me for a confidential no-obligation consultation.