Getting Cash in Exchange for a Short Sale
To avoid further clogging the already sluggish home foreclosure pipeline, some lenders have been offering cash incentives to strapped homeowners at risk of foreclosure to complete short sales and move out of their homes.
Chase, for instance, has been quietly offering as much as $35,000 to homeowners who are “upside down” on their loans — meaning, they owe more than the home is currently worth. In a short sale, the lender allows the sale of the home for less than the loan amount and often relieves the borrower of any further obligation.
The incentives began late last year and are available nationally, a Chase spokesman said. Why would the bank want to pay more money to a homeowner who hasn’t been keeping up with the mortgage payments? It generally wraps up the transaction much more quickly, and leaves the home in better shape for resale. “A short sale generally produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” the Chase spokesman said in an e-mail. Chase has completed more than 140,000 shorts sales since the start of 2009. The program is continuing.
Wells Fargo also offers relocation incentives for short sales as well as “deed in lieu of foreclosure” transactions in some markets with extended foreclosure timelines, like Florida. The payments apply only to first-lien loans that Wells holds for its own portfolio (rather than loans it merely services for others), a spokesman said. The amount varies, based on factors like the loan balance and appraised value of the home, but can be as much as $20,000.
It doesn’t appear likely that the need for short sales will end anytime soon. The outlook for home prices remains glum, with a drop of 2.5 percent expected this year followed by meager growth for several years thereafter, according to a recent report from MacroMarkets LLC.
Incentives offered in California (where there are a lot of loans made by the failed lender Washington Mutual, which was subsumed by Chase) apparently depend on various factors, agents say. Daniel Klein, a real estate broker and entrepreneur, said his firm had one client with a $300,000 loan who received a $20,000 incentive for a short sale, and another client with a $500,000 loan who received $10,000.
The funds can be used by the borrower to cover expenses, like moving costs.
The programs were started after a government program, known as HAFA (for Home Affordable Foreclosure Alternatives), began in early 2010. That program provides up to $3,000 in borrower relocation assistance for short sales. That program is available through the end of next year.
Despite the incentives, Mr. Klein said, some borrowers prefer to take their chances and stay in the home. The lengthy foreclosure process in some areas appears to have made some people complacent about the prospect of eviction.
Have you been offered a cash incentive for a short sale? Did you take it?