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Lenders Must Respond to Short Sale Offers Within Ten Days - 2010-01-31
LENDERS MUST RESPOND TO SHORT SALE OFFERS WITHIN TEN DAYS

One of the real drags on the Atlanta real estate market recovery is the huge inventory of bank-owned homes that are clogging our neighborhoods. In many cases, they sit vacant for several months while they are being processed, and become vandalized. A favorite targets for theft in these houses is the copper in the air conditioning compressor and the pipes of the plumbing system.

Once those systems are damaged, the house will no longer qualify for conventional financing due to its condition, so only a cash buyer or an investor would be able or willing to buy it. Eventually, the house sells at a greatly discounted price, pulling down property values as appraisers report the sale as a "comparable" home to others in the neighborhood.

This self-destructive scenario has been playing out all over the metro area, and continues to this day.

But things may change for the better this spring.

One of the ways to prevent a house from going into foreclosure is for the lender to accept a reduced payoff on the loan securing the property.

An owner knows he can't keep making payments, so he tries to sell. The only offer forthcoming is from an investor or a buyer offering less than the amount owed on the loan. The owner is willing to walk away with nothing in exchange for release from further liability.

If the lender agrees, it will take a financial hit on the loan shortfall, but it will avoid the costs of foreclosing the house and taking possession, then entering the lengthy sales process. In addition, who knows what the house will sell for after it sits empty on the market for a year? Perhaps much less than the offer in hand.

That process is called a "short sale," and it represents one of the best opportunities that lenders have to stem the tide of foreclosures. But in the past, lenders have typically been so slow to respond to these offers that buyers have walked away. Four to six weeks is common, up to three months not unusual. No typical buyer can wait that long for a response to any offer.

But a new rule issued recently by the Treasury will require that lenders respond to short sale offers within ten business days.

Effective April 5 of this year, the rule applies only to the 83 loan servicers participating in the president's Home Affordable Modification Program. These include Bank of America, Wells Fargo and JPMorgan Chase. But the hope is that the lending industry, including Fannie and Freddie, will adopt the 10 day rule for all short sale offers.

The rule also makes up to $1,500 available to the seller for moving expenses, and appears to release the borrower from further liability.

This is a step in the right direction for real estate recovery.

 
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