Investors and Realtors who target short sales may have just gotten some help from an unlikely source - the Obama administration.

The Treasury Department is rolling out a new program designed to encourage more short sales of distressed borrowers' homes as an adjunct to its earlier loan modification efforts.

In cases where borrowers can't qualify for a loan mod - maybe because they're unemployed or have excessive debtloads, the Treasury is now pushing for “streamlined” short sales to avoid foreclosures.

Short sales -- that's where lenders accept less than what's owed from the proceeds of a negotiated home sale -- can provide excellent opportunities for investors to pick up properties at bargain prices.

Though prices are often higher than what would be available in foreclosure sales, typically the houses come in much better condition. That's because the defaulting owners have continued to live in the property and maintain it.

Sales of bank-owned REO often have been sitting around empty for months and come with varying degrees of damage from the departing owners or vandalism.

But short sales also have a lot of built-in problems. And the new Obama plan attempts to solve them.

The program seeks to create a streamlined set of procedures, which will be mandatory for all mortgage companies participating in the Treasury's loan modification efforts, that will cut the timelines for short sales.

Uniform documentation and standardized incentive fees are part of the concept. Short sale participants ranging from home sellers to Realtors to bank banks and servicers will be required to use the same documents to make short sale proposals, and to close deals.

And there will be new money on the line for those who do so. The Treasury will pay home sellers fifteen hundred dollars for successfully closing on a short sale under the program.

Loan servicers will be eligible for $1,000 in fees, as will bond investors who help move short sales to closing. Holders of second liens - second mortgages and equity lines - will be guaranteed three thousand dollars out of the sale proceeds, even if their note is worth nothing in the open market.

Realtors will get a key benefit as well: The Treasury plan prohibits lenders or servicers from forcing them to cut their commissions below the pecentage stated in the listing agreement for the property.

The program encouraging short sales is brand new, and lenders are still digesting the details, so don't look for a quick start.

But if you invest in or list short sales, definitely check it out.

Published: December 11, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.