Government Offers $1500 Incentive to Homeowners who Pursue Short Sales Instead of Foreclosure

The Obama administration recently unveiled updates to the Making Home Affordable program to make it easier for home owners who owe more than the current market value of their homes to sell those properties at a loss via short sale and have the remaining debt forgiven.  The updates, announced by Treasury Secretary Timothy Geithner, address situations in which borrowers cannot qualify for refinance or loan modification through the program and are at risk of losing their homes.  The administration will now provide additional financial incentives to lenders willing to work with homeowners to negotiate a short sale and avoid the long and costly process of foreclosure. 

The benefits of “short selling” a home versus allowing it to foreclose are three-fold.  The homeowner benefits by minimizing the damage to his or her credit, the lender benefits by avoiding the costs involved in a foreclosure and the community at large benefits by keeping prices stabilized and avoiding yet another empty, neglected property on the block.   

Under the new plan, loan servicers will receive compensation of up to $1,000 per short sale accepted.  As an incentive to avoid foreclosure, borrowers could also be paid up to $1,500 in relocation expenses. In addition, because many homes have second mortgages, the Treasury will pay subordinate lien-holders up to $1,000 to settle the debt and forgive the remaining balance.

“We have heard from REALTORs^® that the extensive delay in the short-sale process has caused many buyers to go elsewhere and has left many would-be sellers with no option but foreclosure,” Charles McMillan, president of the National Association of REALTORs^®, said in a statement. “We are all pleased that the government has stepped in to help homeowners and those wishing to buy a home.”