Will Proposed Short Sales Legislation Help Expedite Process?
By Keith Loria
RISMEDIA, October 4, 2010—New legislation was offered in Congress by U.S. Reps. Robert Andrews (D-NJ) and Tom Rooney (R-FL) in September that would require lenders to respond to consumer short sale requests within 45 days.
Many believe the bill, H.R. 6133, “Prompt Decision for Qualification of Short Sale Act of 2010,” will save thousands of homeowners who are underwater with their mortgages.
The National Association of Realtors was quick to lend its support to the bill.
“The short sale, which requires lender approval, is an important instrument for homeowners who owe more than their home is worth,” said NAR President Vicki Cox Golder, in a statement. “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. 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.”
Not everyone believes that such a bill would be helpful or even feasible the way it is written.
“If the politicians who come up with all these laws would just once walk in the shoes of the people in the trenches for a while, they would know that putting a time date certain on approving short sales is impossible,” said Matt Mathews, president of the Calif.-based real estate financial advisory firm Mathews Associates. “There are just too many people involved in the process, and too many properties that keep adding to the pile to think that putting a time limit on a short sale could be anything but stupid.”
Mathews described the process: “It starts with the seller submitting a financial statement, letter of hardship, and a complete short sale package. Right there is where 90 percent of the problem lies. Then you have, the BPO, appraisal, mortgage servicing agent, the investor holding the note, the insurance company, insuring the mortgage, maybe a second lien holder, and finally the underwriter to make sure the package is complete and everyone involved is on the same page and approves.”
According to NAR data, the number of potential short sale properties is rising across the country.
Unfortunately, homeowners who need to execute a short sale are severely hampered because lenders are unable to decide whether to approve a short sale within a reasonable amount of time.
“If the only goal of this legislation is to get a faster response from the mortgagee or servicer, then I think it will work in that regard,” said Robbie L. Vaughn, Esq., a partner in Mineola, N.Y.’s The Law Firm of Vaughn & Weber, PLLC. “The bill states that the ‘request shall be considered to have been approved by the servicer’ if a written response to the short sale request is not provided within 45 days. I do like the fact that a homeowner and potential purchaser will, theoretically, know if their deal is viable or not within 45 days, instead of six months to a year.”
These days, 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. This bill will try to curtail that.
One fear Vaughn has is that this new legislation will do nothing to stop the foreclosure crisis.
“Americans are losing their homes to foreclosure at an alarming rate. Too often, the lender has no standing to foreclose or the documents are flat out fraudulent,” Vaughn said. “The foreclosure occurs anyway because the homeowner can’t afford to hire an attorney to defend the foreclosure by raising these issues.”
Vaughn feels it would be a stronger act if it required the lender or servicer to halt the foreclosure action when presented with a bona fide short sale offer, since many homes are being foreclosed on while owners are in full contract and the closing is just days away.
“Additionally, the lenders and servicers will likely send out an automated written response requesting additional documents to satisfy the 45-day response requirement,” Vaughn said. “I think this is a loophole that will bring us right back to where we are today (i.e. lost documents by lender, no yes/no response from lender, buyers walking away from deals because it takes too long to get a decision from lender). What are the lenders obligations after the initial response?”
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