Short sales have dominated the local real estate market for the past couple years.  They have driven down prices and been the force behind our reduction in inventory.  Everyone knows someone who has sold their home as a short sale (where the bank takes less than is owed on the loan).  There have literally been hundreds of homes sold this way in Lakewood Ranch, Sarasota and Bradenton.

But the world of Short Sales is shifting under our feet.  The Making Homes Affordable (MHA) program from the federal government is creating new rules and processes that will alter the way we do Short Sales. 

CHANGES:  Prior to being allowed to do a short sale, nearly every short sale candidate will be expected to apply for a refinance or loan modification under one of the new federal programs.  The Fed wants to ensure consumers have a shot at keeping their home before they lose it.  Sellers will have to attempt alternatives before being granted short sale status if all else fails.  If approved to do a short sale, the bank will set the listing price based on what makes financial sense for them.  Thus the bank will have to do a lot of work prior to the listing (as opposed to after the offer like it is today).

GOOD:  The Fed is trying to create consistency and reduce the number of homes lost.  In the past every deal and every bank was completely different.  Some deals that should qualify for a short sale were denied while others that should not qualify have been successful.  Some are approved in 30 days while others take 6 months.  If this works, homes that are listed as a short sale should be approved much much faster and should be nearly assured of being approved at the asking price.

BAD:  No matter what the Fed says, this will slow things down even more.  This change will shift the delay to before a home is listed versus after an offer comes in.  Homeowners who want to try and sell short will get frustrated over having to wait several months while they apply for loan modifications and the bank does up front work.  It could ultimately take several months just to get to the point of listing the house for sale.   A sellers credit will damaged even worse due to the long delay before they can sell.

REALITY:  Nothing the Fed puts out gets implemented as intended.  Things are going to change and banks are going to create workarounds and exceptions.   Sellers will be more frustrated by all the rules and upfront delays, but buyers will appreciate the quicker approval time on the backend.  We will probably see an overall slowdown in the number of homes coming to market as a short sale in the next few months.   That might help stabilize the market further, but on the other side several of those sellers who wanted to sell short will end up being foreclosed on because they did not fit the Federal guidelines.  We will see how it plays out over the next 6 months.