New Bill introduced to speed Short Sales

A bill named the “Prompt Decision for Qualification for Short Sale Act of 2011” was introduced in the U.S. House of Representatives in April which would require mortgage lenders to respond to short sale requests within 45 days from the time they receive it. Short sales represent about 13% of recent home sales. This bill may be a boon to thousands of home owners who are unable to keep their home and hope to avoid foreclosure. The short sale process is currently inefficient and time consuming and many potential buyers end up walking away from the sale because of long delays, which invariably causes properties to be foreclosed.

The National Association of Realtors® (NAR) is fully supportive of this new bill. NAR had been actively pushing the mortgage industry to revamp the short sales approval process. Short sales are beneficial to lenders because they cost less than foreclosures and it also reduces the negative financial impact on borrowers. Ron Phipps, the president of NAR said “as the leading advocate for home ownership and housing issues, Realtors® want to help more homeowners avoid foreclosure by facilitating a short sale when a family is absolutely unable to keep their home; however, that can only happen if lenders and servicers approve short sale offers in a reasonable amount of time.”

Here’s the problem with the current situation. There are many decision-makers involved in the short sale process including buyers, sellers, investors, servicers, insurers and lenders. All of them must agree to approve or reject each sale. Lenders find it difficult to decide if they must approve or deny a sale. Sometimes this could cause several months of status quo, resulting in potential buyers getting frustrated and canceling their contracts due to a lack of response from lenders, and this results in properties being foreclosed.

According to the proposed bill, the servicer must notify the borrower about the status of their sale within the 45-day deadline. The notification may include approval or denial of the sale process, or a request for additional information and paperwork.

Phipps also stated that “streamlining short sales transactions will reduce the amount of time it takes to sell the property, improve the likelihood that the transaction will close and reduce the overall number of foreclosures. This benefits sellers, lenders, buyers and the entire community.”

This bill has the potential to dramatically reduce the inventory of foreclosed homes across the country. However, it has not yet been assigned to a committee. A similar bill with the same title was introduced in September 2010, but it did not make it to a House committee for debate before the end of the legislative session. NAR has urged Congress to pass this new bill quickly. When passed, the bill would provide much needed relief to millions of home owners by helping them prevent foreclosures. It will also reduce the financial hit on lenders and servicers.