It’s one of the cardinal rules of short sale transactions: the homeowner cannot profit from the transaction. (Aside, of course, from the debt relief and the fact that they no longer are in a home that they cannot afford). Now, I’ve heard plenty of ways around this, such as buying items inside the home from the homeowner, but part of the deal is that they do not make money on the transaction that allows a third party to buy the property from the bank for less than is owed on that property.

Now, however, the government is rewriting the rules – at least, when it comes to the government’s short sale transactions. Basically, a new HAFA supplement starting next month will offer banks 1,000 dollars for each short sale they conduct while the homeowners themselves will receive 1,500 dollars as a reward for doing the short sale instead of going through the foreclosure process.

(To date, I’ve seen nothing that indicates I’ll be able to offer this kind of incentive directly to the home owner should I find it necessary )

Now, I understand that this money could be a lifesaver for many of these folks. It could get them moved, get food on the table or tide them over while they find a new place to live. Honestly, my main complaint about this is that investors are not allowed to do it directly, because it sure would make the initial process of a short sale easier. But let’s think about the bank’s end of the deal:

Of course, it’s nice that the bank will receive an additional 1,000 dollars to defray their loss, but let’s think back to other incentive programs in recent years. What about loan modifications? There were incentives for those, and lenders and loan-mod brokers made innumerable modifications that everyone knew were worthless, just to get the incentives. Then, when the loan mods fell through, the brokers who had arranged them were still sitting pretty because they had raked in tens or hundreds of thousands by doing these ill-advised deals in bulk. Sound like an echo of a certain mortgage-related issue we’ve been dealing with? Well, I think it does, and I think this new incentive program has all the hallmarks of more “good” government intentions all set to go awry.

If you have any experience with this program or more information that would be useful for the real estate investing community to know about, please use the comments box below – your thoughts are welcomed and encouraged!