The Washington Post ran a story on the rise of short sale home transactions, along with the disappointment and frustrations home owners have with the process.
Generally, a “short sale” of a house is a sale for a purchase price that is less than the amount of the debt owed to the bank on the property. In order to do this, the home owners must obtain an agreement from their bank or lien-holders that the liens on the property will be released in exchange for the proceeds generated by the sale. Since the proceeds will not pay off the lender in full, the seller cannot force the bank to accept the deal–it can only be done with approval by all lien-holders.
And there’s the difficulty. In this foreclosure crisis, banks are overwhelmed with short sale proposals, all of which must be reviewed to determine if the “short sale” price is reasonable and better than the bank can do at foreclosure. In almost all cases, the prices will be better. But, still, the approval process requires that a bank officer agree to release the lien rights for something less than the bank is entitled to under its lien, which isn’t a decision that a bank can quickly make.
The most common complaint from sellers is that this process takes far too long, especially when there’s a buyer waiting who can simply move on to another house. In response, some law makers have filed legislation, HR 6133, that would require expedited processing and responses to short sale proposals.
This new legislation is unlikely to solve these issues, because who is to determine what is the proper timing to process short sales? Ten days? A month? And what’s the proper penalty? A forced sale? Release of the lien or deficiency rights?
I doubt that the legislators want to force their own terms onto what should be a typical “business decision” by the banks, and, if they do, there’s the risk that the lenders will simply respond immediately…with a “No” to all requests.
Creditors Rights 101 