A new bill has been submitted that will require lenders to respond to short sale requests in a timely manner.
Short sales are when a homeowner sells a property for less than what is owed to the bank. I have handled a few short sales and they are not fun. I even had a situation where the bank took so long to respond that the buyer walked away from the transaction. The bank then sold the property for less than the offer that was being considered, much to my chagrin.
When banks are being bailed out by tax-payers, it doesn’t seem unreasonable to me that the bank’s own business practices do not make the problem worse. The handling of short sales by larger banks has done exactly that (It has been my experience that the foreclosure practices of local banks are less destructive to home values in their market, which is why I advise all of my buyer clients to call local banks first).
By accepting less than what is owed, banks save money in the long run because foreclosures are more costly. Some banks have already figured this out and have even offered incentives to owners of distressed properties to sell their home short so they wouldn’t have to foreclose.
Known as the Fast Help for Homeowners Act, H.R. 6153 was introduced by a California Congressman and will, “require the holder of a subordinate lien on the property that secures a federally related mortgage loan, upon a request by the homeowner for a short sale, to make a timely decision whether to allow the sale.”
The bill comes with the support of the National Association of REALTORS® (NAR).
“Second mortgage lien holders frequently hold up and cancel the short sale transaction while trying to collect the largest possible payout in exchange for releasing the homeowner’s lien, even though the secondary lien holder often gets nothing if the home ends up going into foreclosure,” said NAR President Moe Veissi. “While efforts have been made to improve primary lien holders’ response times, issues still abound with second and subsequent lien holders, and this legislation is a step in the right direction.”
The flood of foreclosures in recent years has hurt home values because once the bank takes ownership, they want to unload them quickly. To unload properties quickly, they are priced at a deep discount. What’s more, in some communities, foreclosed properties have also deteriorated and unsightly making some neighborhoods a less desirable place to live. This has led to decreased home values, which has contributed to a significant drop in median U.S. household net worth.
It only makes sense to do whatever we can to prevent foreclosures. The Fast Help for Homeowners Act is one thing that we can do.