Peter King | April 16, 2011
Lenders would have to decide within 45 days whether to approve or deny a short sale, under bipartisan legislation introduced this week in Congress.
The bill, jointly introduced by Reps. Tom Rooney (R-Fla.) and Robert Andrews (D-N.J.), takes aim at one of the major issues hindering short sales for both buyers and sellers – the often months-long wait it often takes to get such sales approved.
In a short sale, a lender allows a homeowner who is in financial difficulty to sell the home for less than the amount owed on the mortgage as an alternative to allowing the property to go into foreclosure. The homeowner suffers less damage to his or her credit, the bank recovers more of its money that it would be likely to do in a foreclosure, and the buyer gets a discounted price on a home.
“Potential buyers can wait for months for a lender to make a decision on a short sale, and that wait often stops a sale from happening,” said Rep. Andrews. “Our bill would require that lenders respond when an offer is made, and will help make sure that these sales happen.”
“Due to the economic crisis, the number of short sales in Florida is rising, but lenders haven’t always been able to keep pace,” Rooney said. “By requiring lenders to make decisions on short sales within 45 days, this legislation would speed transactions and help prevent homes from going into foreclosure.”
Both congressmen come from states where short sales have been a significant part of the real estate picture. According to the National Association of Realtors, short sales accounted for 27 percent of all Florida home sales in the last quarter of 2010, and 10 percent of all sales in the first quarter of this year in New Jersey.
Lenders are often reluctant to approve a short sale until they’re certain the home will go into foreclosure otherwise. Arriving at a sale price can also be a challenge, as the bank wants to recover as much of its money as possible.