Friday, October 31, 2014

Short Sales Incentivized

On October 30, 2014, Supplemental Directive 14-04 was issued by Treasury.

2 major changes for those considering a short sale or deed-in-lieu are offered by this Directive.

FIRST - Relocation assistance available to the property owner, who occupies the property as a principal residence and is required to vacate as a condition of the short sale or deed-in-lieu, will be eligible for $10,000 as opposed to $3,000 for transactions that close on or after February 1, 2015.

SECOND - Perhaps most importantly, for transactions closing on or after February 1, 2015, the gross sales proceeds that may be paid to a subordinate mortgage lien holder (e.g. 2nd mortgage) used to be capped at $8,500, but now there is no cap requirement. Instead, servicers can create their own cap provided its not less than $12,000.

To explain the second change above, a first mortgagee may approve a short sale, but the second mortgagee may deny it because there is no fair market value to support a payment to the mortgagee (i.e. the house is underwater as to the second mortgage). This change permits the first mortgagee to pay the second mortgagee (out of their monies from the short sale) to approve the short sale and extends what was a cap of $8,500 in payment to a minimum new cap of $12,000 and potentially no cap at all.

Many deals die because of the second lienholder - this Supplemental Directive should save a lot of deals.