Could you really do a short sale in a short time?

When you want to sell a home that is worth less than your mortgage, doing a short sale -- making a deal with the lender to sell it for less than you owe -- is usually considered preferable to just letting the home slide into foreclosure.

But lenders have often made the process difficult, taking months to respond once buyer and seller have signed a contract. The uncertainty keeps many buyers from even considering short-sale homes, or the buyer may walk away before the deal can be completed, forcing the seller to start over.

New Treasury Department rules (.pdf file) that take effect April 5 are supposed to streamline and shorten the process. In addition to offering lenders cash incentives, the rules require them to respond to a purchase offer within 10 days. Sellers also can get as much as $1,500 in relocation assistance.

The Home Affordable Foreclosure Alternatives Program applies to all the lenders participating in the Home Affordable Modification Program, and homeowners who want to participate have to be evaluated first for a loan modification and turned down. The National Association of Realtors has some details.

The current practice for short sales is for the seller to list the home at what the real estate agent determines is market value. Once a buyer has made an offer, the offer goes to the lender for approval. That’s where many deals fall apart.

• Bing: Best housing deals

In southwestern Florida, one of the areas hardest hit by the real-estate crisis, The Sarasota Herald-Tribune related a typical short-sale story.

Tom and Susan Nagle placed an offer on a Venice condo last summer and hoped to close in July and spend winters in Florida. The condo, which had sold for $300,000 at the height of the market, was listed at $155,000. Weeks passed, and they received no response to their offer.

"The bank never called. We heard nothing," Tom Nagle told the newspaper. "When we called and actually got a person, their only interest was to get you off the phone. It was basically, 'There is no change. Goodbye.'"

• Video: Hot deals spur condo mania in Miami

Their real estate agent, Jan Keith, had to refile the bid paperwork numerous times, and her assistant called the lender every few days. Still no response.

The Nagles gave up. "We are looking for something else to buy and it will not be a short sale because this is insane," Nagle said. "The banks make no decision and leave you hanging and can't even tell me a timeline. That's why so many people walk away from a short sale."

The new rules will require the lender to agree to a sale price before the home goes on the market. If that price doesn’t bring any offers, the real estate agent can make a case for a lower price.

Once the process has started, the homeowner can quit making payments, but those missed payments are not supposed to be reported to credit bureaus.

Will the new rules work?

Realty professionals aren’t sure.

“I think if lenders can make it work, it could be amazing,” Guled Kassim, a settlement officer with Atlantic Title & Escrow in Bethesda, Md., told The Washington Post, which summarized the new rules. "Essentially, you're asking lenders to take a bath. It's not a business model most companies have set up. They are very doubtful about pricing, which is why I think the 10-day timeline may be wishful."

Chris Paul, a real estate agent in Phoenix, another hard-hit area with lots of short sales, also is skeptical. “In a perfect world, this would work,” he told The New York Times. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

Jeff Liesher, the managing director for regulatory policy at the National Association of Realtors, is cautiously optimistic.

"This program has the potential to revolutionize short sales," he told the Herald-Tribune, "but its success will depend on the implementation by servicers in cooperation with investors."

What do you think of the plan? Have you tried to buy or sell using a short sale? If so, what was your experience?

Related reading:

• Citi unveils kinder, gentler foreclosure plan
• Banks really do prefer foreclosure
• Why lenders might forgive your debt

• Short sales are the new foreclosure