House Bill Proposes Prompt Short Sale Decisions: H.R. 6133 requires 45 day response

by Dan Krell © 2010

A recently published study by CoreLogic (“The Cost of Short Sales: CoreLogic Research Study”; August 2010) indicated the number of short sales tripled since 2008. The study also indicated that “short sales will continue to be a significant factor for the housing industry.” Additional telling data from CoreLogic’s second quarter Negative Equity Report (2010) indicates that 23% of all properties with a mortgage (approximately 11 million) are in a negative equity position (also referred to as under water or upside down).

For many, this news does not come as a surprise; which is why short sales have become the focus of a new bill introduced last week in the House of Representatives by Rep. Robert Andrews (D-NJ) and Rep. Thomas Rooney (R-FL). The “Prompt Decision for Qualification of Short Sale Act of 2010” was referred to the House Committee on Financial Services on September 15th and, although approximately five pages in length, could potentially impact the housing industry.

Representative Rooney stated, in a September 16th press release regarding the bill, that short sales in his state of Florida are rising, “but lenders haven’t always been able to keep pace”… “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.”…”This bill would spur growth in the housing market by helping sellers and buyers complete short sales quickly.”

Anyone familiar with a short sale knows that there is uncertainty as to the length of time the seller’s lender will respond to a short sale request; which prompts many buyers and real estate agents to shy away from them. Additionally, some buyers who take a chance on a short sale walk away because the transaction takes too long. These are just a few factors that contribute to failed short sales which add to the foreclosure roll.

The bill, also known as “H.R. 6133: To Require The Lender Or Servicer Of A Home Mortgage, Upon A Request By The Homeowner For A Short Sale, To Make A Prompt Decision Whether To Allow The Sale,” is intended to provide a timeline for the lender to provide a response to a short sale request. The basics of the bill states that the home seller’s lender has 45 days to provide an answer to a short sale request when the seller submits all lender required short sale information and a fully executed sales contract. The lender’s response could be an approval, a conditional approval, or a request for additional information. If the lender fails to respond to the request within 45 days, then the short sale request will be considered to have been approved.

Although the bill puts a necessary spotlight on one weakness of the housing market, the bill obviously falls short in a number of areas. Besides the limitations already specified within the bill, the bill fails to address the complexity of a short sale with multiple lenders as well as the possibility that lenders may “game the system” by issuing requests for additional information or provisional approvals by the 45th day then take several additional months to make a final decision.

Unfortunately, many bills do not make it out of Committee and the odds of passing this particular bill are slim. Ironically, we won’t know the outcome for several or more months.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 20, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.