Legislation proposed last week in the House of Representatives would make short sales faster.
The bill, with bipartisan backing would require banks and mortgage servicers to respond to requests for a short sale within 45 days of the request. This would be great news as getting negotiators on short sales to call back in this time frame is a nightmare even with daily phone calls to them.
A short sale is when a bank allows a borrower with negative equity to sell their home for less than is owed on the mortgage. The difference between the sale price and what is owed on the mortgage is usually then forgiven by the lender. They are most common in markets such as California where home prices have declined dramatically since the market peaked.
The problem is that in the era of mortgage securitization, multiple parties (investors, servicers, insurers, etc.) need to acquiesce to a short sale in order to complete the deal.
It can take an extremely long time for all involved parties to get back to the buyer and seller with an answer. It was recently found that in California, 4 out of 10 short sales that go under contract end up falling through. This is a direct result of the lengthy short sale process.