In an attempt to prevent hundreds of thousands of borrows from defaulting on their mortgages, the Obama administration is introducing a new program, that will pay both banks and delinquent borrowers to sell their properties at a loss.
This transaction is known as a short sale is often a last ditch effort to get out from under unsustainable mortgages and preventing foreclosure. Under this program, the government will pay the lender $1,000 and the borrower $1,500 to sell property at below market value.
The program will act as in incentive for drowning homeowners to leave their homes sooner so that they can proactively address their financial situations rather than simply waiting for banks to evict them. Preventing a flood of foreclosed homes on the market is imperative to keeping properties values from further plummeting which is creating a dangerous cycle of underwater mortgages that continuously claim new victims.
If the lender will agree to take whatever selling price is offered, and abolish the remaining debt, homeowners at-risk of foreclosure--and the economy--may have a chance at recovery. Will $1,000 be enough for the bank to forgive the debt? It's likely that the borrower will need to meet stringent requirements to prove to the cautious lenders the short sale is the only viable solution.
Experts worry that second mortgages and liens, common roadblocks to short sale, will put a wrench in program, but this concern and other details are still being ironed out.