Homeowners who pinned their hopes on short sales to avoid foreclosure are finding themselves facing Chicago foreclosure listings due to delays in the procedures.
Short sales involve the troubled homeowners’ selling of their distressed properties for less than the amount of the total mortgage they owed. Lenders played a great role in this foreclosure prevention method as they need to agree to the deal and to accept the sale price as settlement for the mortgage owed to them.
The method is becoming popular to distressed homeowners as the damage to the borrower’s credit report is manageable compared with foreclosure. However, the deal requires both the approval of first and second loan holders, thus many short sales are languishing.
Even real estate agents are shying away from the method to the point that they specify in their Chicago foreclosure listings that repossessed houses are not short sales.
The Obama Administration knows about the shortcomings of the short sale method and made some efforts to address them, such as streamlining the procedure by offering incentives to lenders and investors to motivate them to accept short sales.
But until now, lenders and homeowners are still waiting for guidelines on how the plan to streamline short sales procedures would work. The Treasury Department said that an updated program would be announced soon.
For the meantime, homeowners are in limbo about the state of their properties. Troubled borrowers who applied for short selling said that banks were telling them that they were waiting for bank statements, taxes and current payroll stubs. Most of them are expecting to go on renting until they will be cleared to take out another property.
According to market data, short sales accounted for 14 percent of the total home sales in the second quarter of this year. And majority of short sale deals were completed by first-time homebuyers who have the flexibility to handle long wait times. Industry experts said that two in every three short sales were never completed.
The short sales process involves lots of documents such as tax returns, bank statements, proof of sources of income and a letter explaining the distressed homeowner is seeking a short sale.
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