Short sales have become increasingly pervasive as homeowners swimming against the financial tide use them to leave their homes – and mortgages. But the time it takes to complete a short sale is a problem, with some deals taking six months or more to complete. To shorten that cycle, a new bill in Congress would severely curtail that timeline.
Short sales are definitely on the rise. According to a new study from CoreLogic, short sales have tripled since 2008. All told, CoreLogic estimates the annual amount of short sales will exceed 400,000.
A short sale is a home sale where the sale amount is lower than the balance of the mortgage. This usually happens when the home is underwater, or the value of the home is lower than the amount owed on the mortgage.
The chief problem with short sales is the time it takes to close the deal. Real estate professionals have long complained about short sales that take three to six months to close. Banks and mortgage lenders tend to make short sales a low priority, because lenders don’t get the full value of their home loan in short sale deals. While they don’t want to see a home go into foreclosure, banks will hold out as long as possible to see if the homeowner can catch up and start making timely mortgage payments. If that doesn’t happen, lenders will ultimately OK the short sale, but on their own timetable.
Congress has started taking a closer look at short sale timelines. Now Reps. Robert Andrews (D-N.J.) and Tom Rooney (R-Fla.) have introduced H.R. 6133 – the Prompt Decision for Qualification of Short Sale Act of 2010. In a word, the bill would establish a 45-day time limit on lenders acting on short sales requests.
“The short sale, which requires lender approval, is an important instrument for homeowners who owe more than their home is worth,” said National Association of Realtors President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “While the lending community has worked to improve the size and training of their short sales staffs, they still have a long way to go on improving response times.”
“As the leading advocate for homeownership issues, NAR believes that quicker attention to the short sales process is vital to help homeowners who are underwater and their communities, as well as the nation’s economy,” added Golder. “Potential homebuyers are walking away from purchasing short sale property because the lender has taken many months and still not responded to their request for an approval of a proposed short sale price.”