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 that is 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 $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.
The End Result
- 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.