Does the robo-settlement do anything to speed up short sales?by Tim Manni
The post below was written by HSH.com contributor Michele Lerner. Michele has contributed several features to HSH.com, including her most-recent work, “Conventional vs. FHA financing: Which is cheaper?” and “How to challenge that low appraisal.” This is Michele’s first blog post for HSH.com:
While much of the focus on the robo-signing settlement has been on restitution and relief for foreclosure victims and underwater homeowners, part of the settlement also impacts short sales. The settlement forces mortgage servicers to meet a strict short sale timeline or face financial penalties.
The robo-settlement rules regarding short sales matches the short-sale timeline established in 2010 by the Home Affordable Foreclosure Alternatives (HAFA) program.
“The short sale rules set up by the AG settlement are not really new, they just add a layer of accountability,” says Christopher Plummer, managing director of the Wingspan Real Estate Network in Dallas. “It’s a step in the right direction and has more teeth to it than the HAFA program.”
Short sales timeline
The five largest banks that are part of the settlement (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial—formally GMAC) will need to follow this timeline for all short sales transactions:
- Provide a decision to a borrower within 30 days of receiving a completed short sale request package
- Notify a borrower within 30 days if any documents are missing from the request package
- Notify a borrower if a deficiency payment will be required before the short sale is approved; and, if so, an estimate of the payment amount
Internal groups established by the five banks–and monitored by North Carolina Banking Commissioner Joseph Smith–will review short sales quarterly. If more than 5 percent of short sales within one quarter take longer than 30 days, the given bank will be in violation and will be required to develop an action plan to correct the problem. If the violation is not corrected, a penalty of up to $1 million could be imposed. Repeat violations can carry a fine of $5 million.
“While this timeline brings a little clarity to short sales, we need to wait and see how much of an impact it will have on the housing market,” says Plummer. “They’re not really in violation and won’t have to pay a fine until after they have put an action plan in place. If the short sales are only being reviewed on a quarterly basis and then the servicers have time to develop an action plan, then it could still take months for short sales to go through.”
Plummer says that on the positive side, most servicers prefer short sales to foreclosures.
The process must be streamlined
“If they focus on streamlining the short sales process and use the available technology to make short sales faster, that could be a good thing,” says Plummer. “The problem right now is that we see a lot of back-and-forth and delays when the banks say they are missing paperwork. Hopefully a standardized timeline will help.”
According to RealtyTrac, the average time for a short sale during the fourth quarter of 2011 was 308 days from the time the home was listed as a distressed pre-foreclosure property. Plummer says the period between the submission of a short sale package and settlement is usually shorter.
Short sale sellers
“Sellers who are considering a short sale need to educate themselves quickly and find a good real estate agent or attorney with a solid track record of completed short sales,” says Plummer. “Homeowners shouldn’t be passive in this process and should work with a provider who can get results.”
Short sale buyers
According to Plummer, most short sale buyers are investors rather than owner-occupants, mostly because of the uncertain timeframe of the purchase.
“Since this new agreement won’t likely change much for short sale buyers, the decision to buy a short sale comes down to the buyer’s tolerance for waiting and the benefit of purchasing for a reduced price,” says Plummer.
According to RealtyTrac, there were 88,303 short sales during the fourth quarter of 2011, a 15 percent increase compared to the fourth quarter of 2010.