Senators Lisa Murkowski (R-AK), Scott Brown (R-MA), and Sherrod Brown (D-OH) are proposing a bill today requiring mortgage lenders to make a prompt decision on whether to allow a short sale at the request of a home buyer. This bill, “Prompt Notification of Short Sales Act,” will require a written response from the lender no later than 75 days after the receipt of the written request from the buyer.
Home buyers are often reluctant to purchase a short sale because they’ve heard they can be difficult. This is because many Realtors who don’t do short sales on a regular basis often struggle with them and don’t have the experience to get them completed.
They can wait months on end for a response from the banks on whether or not their offer was accepted. For this reason many buyers simply walk away from the short sale so that the home they wanted to purchase ultimately ends up in foreclosure. Once the home becomes vacant, it often falls into disrepair and depresses the values of neighboring homes.
This bill will help the real estate market for a few reasons. Making it easier for buyers to purchase short sales will reduce the amount of time it takes to sell these homes and reduce the overall number of foreclosures. This benefits home sellers, buyers, lenders, neighborhoods with distressed properties, and ultimately, all of us.
“It’s time to close the communication gap between banks and prospective homeowners who are willing and able to purchase short sale properties. Our economy needs these home sales, and this legislation would lift the real estate market and benefit neighborhoods across the country.”-Senator Scott Brown
Short sale homes tend to be in better shape than foreclosed homes since short sale homes are transferred from homeowner to homeowner, rather than homeowner to bank to homeowner, as foreclosed homes are. And over the past couple of years, short sale homes sold for about 25% more than foreclosures here in Massachusetts. This means short sale homes don’t drag down neighboring home values like foreclosed homes do, yet they’re still affordable enough for first-time home buyers. In fact, a recent HomeGain survey showed buyers who purchased a short sale home showed the highest homeowner satisfaction rate of 83% after their purchase.
This bill will require that the lender’s written response to the buyer must specify whether the request was approved, if more time is required, and, if they do need more time, the servicer must estimate a date a decision will be reached. The loan servicer is limited to one extension no longer than 21 days. This will give the distressed homeowner a more definite timeline for when the short sale will be completed so they can plan their move better.
Back in April 2011, Representatives Thomas Rooney of Florida and Robert Andrews of New Jersey introduced a similar version of this bill but it never came up for debate before a House committee before the legislative session ended.
The previous version of this bill said that that if a borrower submitted a written request for a short sale of a home and if they didn’t receive a written response within 45 days, the request would be considered approved. This new version extends the response time for lenders but includes a penalty if they fail to comply.
If the loan servicer doesn’t respond to a buyer’s request within the 75 day period, the buyer may be awarded $1000, plus reasonable attorney fees, per violation of the Act (this Act does not apply to mortgages where the borrower and the servicer have entered into a written agreement before the date of the enactment of this Act).
This bill would hold banks accountable to specific standards that they must follow, streamlining the process for everyone involved in the short sale transaction. It would make short sales more attractive to buyers and eliminate the uncertainty related to buying a short sale, resulting in more sales of distressed properties. This reduction of housing inventory will assist the stabilization of home prices and the real estate market.
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