Speeding Up Short Sales of Distressed Homes with New Rules

Calling a short sale "short" is probably the biggest oxymoron for the decade. Anyone that has tried to purchase a short sale or sell their distressed property as a short sale has instantly recognized that short sales are far from being short. I get hundreds of inquiries and discussions about how painfully slow short sales are and for most turn into months of frustration and emotional turmoil.

Team Baranowski has been able to optimize and customize our approach and process for each individual bank and property. This process has enabled us to navigate through time wasting pitfalls and pre-warn buyers and sellers exactly how the short sale process will unfold. This knowledge has made our short sale success rate at 100% in 2009, but has not significantly cut the short sale processing timeline down to a reasonable level. Most of short sale negotiations are done in 3 to 4 months which is good by many standards but pathetic when you consider the amount of time that is wasted by the lenders doing absolutely nothing to the short sale file. In early December of 2009 I wrote about "Sweeping Changes to the Short Sale Process" with a look into what changes are ahead to speed up short sales.

The federal government is setting guidelines for short sales of homes, giving lenders a 10-day limit to respond to offers, freeing borrowers from debt and providing financial incentives to lenders.

The new rules seek to address the many criticisms of short sales and figure to play a significant role in South Walton, where distressed properties dominate the market as the housing slump meanders into a fifth year.

In a short sale, the homeowner unloads the property for less than what’s owed on the mortgage, and the lender forgives the difference. Nearly half of all single-family mortgage holders in Walton and Bay counties are “under water,” meaning they owe more than their homes are worth, according to third-quarter data from Zillow.com, a Seattle-based real estate firm.

While short sales are considered the perfect solution for “underwater” homeowners on the verge of foreclosure, the deals often drag on as lenders take weeks or months to respond to offers. Frustrated buyers walk away during the delays. In some cases, lenders insist that borrowers share in the financial loss, holding up the transactions even longer.

To speed up the process, the U.S. Treasury is calling for lenders to respond to short sale offers within 10 business days. Sellers are eligible for $1,500 moving allowances, and they will not be on the hook for repayment of any debt.

Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing up to $3,000 in short sale proceeds to be distributed to less senior lenders. Loan servicers participating in the Obama Administration’s Home Affordable Modification Program are required to follow the guidelines.

The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which represent about half of all U.S. mortgage debt. The two government-run mortgage companies are working to finalize their own guidelines.

The Treasury plan, which must be implemented by lenders no later than April is expected to streamline the short sale process.

The guidelines are meant to make short sales “a more usable tool" and the rules provide standardized paperwork for all short sales and give buyers and sellers a more reasonable time frame for whether or not the sales will happen.

The government may have to increase the financial incentives. The $3,000 cap on short sale proceeds is not sitting well with second lien holders, who have been demanding more money from sellers, the first lenders and real estate agents in exchange for releasing their claims and allowing the short sales to proceed.

“This is a great program if all these mortgages had only one lien holder,” said Travis Hamel Olsen, chief operating officer for Loan Resolution Corp., an Arizona company that helps lenders complete short sales. “But many of these properties have two liens.”

A spokeswoman for the Treasury says it will hand down “substantial” penalties to lenders that don’t comply. They can include the withholding or reduction of payments and requiring improperly rejected loans to be modified.

Lenders have blamed short sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don’t submit proper paperwork in a timely manner.

In many cases, the banks are not to blame, said Ward Kellogg, chief executive of Boca Raton-based Paradise Bank. Still, he thinks the guidelines are necessary to force lenders to clear the market of so many distressed properties.

If you are a troubled homeowner, or have a family member or friend facing foreclosure, please give us a call for a confidential consultation about the possibility of a short sale.  Call Craig Baranowski at 850.259.1788 or email  us @ info@teambaranowski.com. Team Baranowski has a 100% success rate for all of our short sales for 2009!

This site, Craig Baranowski or Keller Williams Realty is not providing legal or tax advice. The information provided is for educational and informational purposes only. It is recommended that sellers considering a short sale should consult an independent legal and tax adviser for more information.