New Rules May Speed Up Short Sales

The Treasury Department unveiled sweeping rules this week to help financially troubled homeowners who need to sell but can’t get a price high enough to pay off their mortgages. Homeowners will even get $1,500 to help cover their moving costs.

The plan is designed to help homeowners who don’t have the income or debt levels to qualify for a loan modification under the $75 billion Making Home Affordable program. The plan establishes timelines, a standard process, and documents.

Short sales, as these deals are known, reduce the damage to the borrowers’ credit record and save the lenders the cost of foreclosure. Short sales also help neighboring property values because the sales price is usually higher than what the house would fetch in a foreclosure auction.

To qualify: The property must be the owner’s principal residence; owner is delinquent or default looks likely; the loan was made before Jan. 1 and is less than $729,750; and the borrowers’ total monthly mortgage payment exceeds 31 percent of their before-tax income.

The plan is designed to accelerate the necessary agreements between lenders, real estate agents, buyers, and sellers.

But the plan has some shortcomings. Mortgage firms don’t have to launch the program until April 5, which is no relief for anyone mired in deals now. The program is voluntary for lenders who hold second mortgages.