The biggest problem with entering into a short sale agreement has been the length of time the banks take to approve the sale. Lenders are hesitant to approve these deals because they take a huge loss but with an average of 308 days to complete a short sale deal, many buyers get frustrated and walk away from these deals.
As of June 1, 2012 the Federal Housing Finance Agency will institute new rules to speed up the short sale process. Banks will then have only 30 days to review and respond to a short sale request and an additional 60 days to approve the offer. Also, if the offer is still under review after 30 days, the bank is required to send weekly status updates to the seller and buyer. No doubt this will make all parties more agreeable to enter into a short sale agreement.
What Is A Short Sale?
A short sale is a deal where the buyer will purchase the property for less than is owed on the mortgage. This problem is rampant with the number of homeowners getting behind on their payments due to job loss and adjustable rate mortgages that are now too much for the homeowner to handle.
Short sales have been considered a better alternative than going into foreclosure but with the current length of the process, many houses end up being repossessed anyway, especially if a buyer cancels the contract.
A survey from the California Association of Realtors revealed that 60% of short sales failed to close last year in California due to lender response times. Some lenders even foreclosed on houses before the short sale could be completed.
The biggest problem with banks foreclosing on properties is that it can take years to unload a foreclosed property, during which time the expenses, such as property taxes and insurance, increase dramatically.
With the short sale process, the bank is at least getting some of their money back and won’t have to worry about auctioning the property or having it sit vacant while the expenses keep adding up. In the end, the short sale process IS a better alternative to foreclosure and now banks will have to reorganize their short sale process to abide by the new guidelines.
This is good news for buyers, sellers and realtors.
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