We’ve all seen the horror stories relating to short sales, and some of us have experienced them. As a short sale specialist, I often times find myself questioning the logic of banks.
The government has even stepped in on occasion, passing legislation and proposing guidelines that are supposed to improve how banks handle the short sale process. However, each time, banks find loopholes and nothing really changes. The legislation isn’t specific enough, because the people writing the legislation don’t understand the short sale process.
Here Is My Proposal
Establish required timelines for each specific step in the short sale process:
- Acknowledge receipt of short sale package and assign to a negotiator (3 business days)
- Negotiator introduction call to seller, agent, or third-party negotiator (3 business days)
- General property evaluation and appraisal or interior BPO (10 business days)
- Mortgage insurer and/or investor approval (10 business days)
- Decision letter issued (2 business days)
Total time required for short sale approval: 28 business days (5 ½ weeks).
The bank should allow Steps 1-3 to occur prior to receiving an offer from a buyer, as long as the property is listed for sale. This way, only 12 business days are required for written approval once an offer is received from a buyer.
Loan servicers are currently required to forward all buyer offers to the investor, but that often times does not happen. A bank negotiator may prevent an offer from reaching the investor because they don’t want to go through the hassle, or they have a personality conflict with the seller, agent, or third-party negotiator. I propose establishing a requirement that all bona-fide offers must be forwarded from the loan servicer to the investor within 3 days after receipt, or be fined at least $5,000 for each failure to comply. A bona-fide offer is a valid Purchase and Sale Agreement with a pre-approval letter from the buyer’s lender or proof of funds for a cash offer.
Loan servicers would receive at least $1000 for each short sale approved within the required 28 day timeline, in addition to any other fees established in the contract between the loan servicer and the investor. The only problem here is that the $1000 really should be paid by the investor that owns the loan (not the government), but it would be difficult to force all investors to revise their contracts with their loan servicers even though it would be in their best interests to do so.
Lenders would be given 60 days to start complying with the new short sale regulations, which would give them sufficient time to hire and train additional staff if necessary. The additional $1000 per approved short sale would more than pay for the additional labor and office expenses.
- Short sales would no longer have the bad stigma currently associated with them.
- Short sales would sell for higher prices, because buyers wouldn’t require significant discounts to compensate for an indefinite short sale approval period.
- Real estate values would stabilize, because short sales and foreclosures wouldn’t have as much of a negative impact on prices.
- Banks would reduce their losses, because short sales would sell for closer to market value. With a defined short sale approval timeline on all short sales, the buyer pool for short sales would expand since many buyers who are avoiding short sales now would be likely to consider short sales with a guaranteed short approval period.
In an effort to keep this blog post from running on, I left out many other details that would need to be included. However, this should serve as a general starting point.
Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.
Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).