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Home sale transactions categorized as “short sales” may soon become more frequent and popular. A planned incentive program will make these sales more appealing to lenders, thus making them more cooperative in arranging such sales.

A short sale of a home is when the proceeds from the sale fall short of the balance owed on a mortgage loan secured by the property. In a short sale, the lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower (homeowner).

The homeowner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. The lender has the right to approve or disapprove a proposed sale. Extenuating circumstances influence whether or not lenders will discount a loan balance. They are usually related to the current real estate market and the borrower’s financial situation.

The incentive plan, recently proposed by the Treasury Department, would provide subsidies of up to $2,500 (total) to lenders and servicers who accept a short sale. It’s a way to encourage short sales as a means of clearing a lender’s excess inventory and reducing the number of foreclosures.

The fees are designed to help compensate lenders for the extra time and effort required to process a short sale, according to a report from John Burns Real Estate Consulting, a research and consulting firm. It also motivates lenders to be more cooperative, and homeowners to leave their property in good condition.

— Jim Woodard of Creators News Service

Tips from the Pros features tips on issues of interest to homeowners. Local professionals are encouraged to participate. Contact Heather L. Modlin at 373-7144 or e-mail heather.modlin@news-record.com.