Commercial & Residential Property Blog

Beginning April 5, the Obama administration will encourage delinquent borrowers to avoid foreclosure and instead give up their homes in short sales by streamlining the process.

Short sales accounted for 15.9 percent of home purchases in January, according to a survey by Campbell Surveys for Inside Mortgage Finance.

The Obama administration laid out final guidelines on Monday that should make it easier for some financially troubled borrowers to sell their homes.

The guidelines are designed to encourage the use of short sales, transactions in which the borrower with lender approval sells the home for less than what is owed on the loan. The program also makes it easier for borrowers to voluntarily transfer ownership of properties through a “deed in lieu of foreclosure.”

Banks are backing away from short sales, forcing sellers to pay extra at closing or demanding a promissory note for the amount due. One-third of borrowers owe more on their mortgages than their properties are worth, according First American CoreLogic.

When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.