Short Sellers Dealt A Blow
HOME LOANS, REAL ESTATE LEGISLATION
October 9th, 2009
Senate Bill 306 will not require lenders to review or respond to short sale requests from sellers and their agents. This bill was allegedly mischaracterized by practitioners as much needed legislation requiring a 21-day turnaround for short sales approvals. This bill actually requires lenders to respond within 21 days with a payoff demand when requested.
What this law really does is require lenders to provide the loan payoff within 21 days on an approved short sale. My experience has been lenders ususally provide the demand within a day or two of short sale approval. Apparently there was no law specifying when a payoff must be provided. Non-short sale lenders are required to provide a payoff to an escrow company within 21 days of a request. This law extends that to short sales.
Practitioners such as myself would love a law requiring mortgage holders respond within a 3-week time period. Currently, 3 weeks is the quickest one can expect a bank to respond but 3 months is the more likely time frame. I’ve been told that asset management companies that handle negotiations on short sales for the bank are paid by the hour, so it is in their best interest to prolong the process to enhance their profits. Others speculate that banks may benefit more by foreclosing and writing off the loss than working in good faith with homeowners underwater on their mortgage.
Another provision of this bill allows escrow companies to close escrow even if the bank has not approved the final closing statement (Hud-1) as long as it is “not clearly contrary to the terms of a short sale agreement.” Typically, banks provide a payoff demand that signifies the short sale approval and a specified amount of time to close the transaction. The escrow holder is required to submit a closing statement a few days before closing for bank approval. Some banks apparently are slow to return the approved HUD-1 delaying the closing even if the net proceeds to the bank are in agreement with the original estimated closing statement. The new law takes effect January 1, 2010.
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