Guidelines Aim to Ease Short Sales

The Obama administration laid out final guidelines on Monday that should make it easier for some financially troubled borrowers to sell their homes.
By: RUTH SIMON: WSJ.com
The guidelines are designed to encourage the use of short sales, transactions in which the borrower with lender approval sells the home for less than what is owed on the loan.
The program also makes it easier for borrowers to voluntarily transfer ownership of properties through a "deed in lieu of foreclosure."

Short sales can result in higher prices than foreclosures and can be less damaging to local neighborhoods, in part because homes aren't left vacant and exposed to vandalism. But these transactions are often difficult to complete.

Under the plan, borrowers will receive $1,500 from the government if they sell their homes for less than the amount of their mortgages. Mortgage-servicing companies will also receive $1,000 for each completed short sale. The program is open to borrowers who may be eligible for the government's loan-modification program, but don't end up qualifying, or are delinquent on their modification, or request a short sale or deed-in-lieu transaction.

The short-sale program is the latest addition to the Obama administration's $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled loans. The government first said in May that it would include short sales in the program, but it has taken months to finalize the details.

Under the new guidelines, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgages, meanwhile, can collect up to $1,000 from the government for allowing such payments.

Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.