Copyright © 2010, Orlando Business Journal
By Anjali Fluker
October 4, 2010
Dusty Sutton is tired of the long wait associated with short sales.
Sutton, broker/owner of residential brokerage Sutton & Sutton Realty, Inc. in College Park, said short sales — when a bank agrees to accept a sales price on a home lower than what the borrower owes on the mortgage — have become almost the norm in today’s distressed real estate market.
Distressed sales — which include short sales and the sale of foreclosed homes — accounted for about 55 percent of Sutton & Sutton Realty’s deals so far this year, up from 30 percent in 2009.
The problem: Many potential buyers ultimately walk away from short-sale deals after the purchase offer gets no response from the mortgage holder for two or three months.
But a new federal bill introduced in Congress last month seeks to end that seemingly endless waiting period associated with short sales.
HR 613, also know as the Prompt Decision for Qualification of Short Sale Act of 2010, would hold banks, lenders and special servicers to a 45-day limit on responding to offers on short sales. And if the buyers don’t get a response on their offer within that allotted time, that will mean an automatic approval on the sale, according to the bill text.
It could have a big imact on the local market.
Metro Orlando had 551 short sales in August alone, which made up nearly 23 percent of the area’s 2,429 existing home sales, said Orlando Regional Realtor Association. Those short sale homes sold for a median price of $100,000 in August, down from $116,000 a month earlier, the association said.
“Making this law is huge” said Travis John, a short-sale specialist with Re/Max Gold Partners in Apopka. John said most programs introduced to help homeowners so far aren’t laws, so private lending institutions don’t have to participate – and most don’t. “If it’s an act, people will take it seriously.”
It also would help raise buyer confidence that home sales would close in a timely manner, helping Realtors earn commissions on the many deals they spend a lot of time, money and effort on.
But it may make the process more challenging for the lenders, who already heave a complicated process to follow. Generally, the paper-intensive review process begins when an offer is recieved. It involves collecting documentation of the borrower’s financial hardship and getting up-to-date appraisals on the property. That financial information has to come from the seller or agent, and then is reviewed by the servicer and investor. That’s not an easy task, said Bank of America Corp. spokesman Rick Simon.
Plus, if ther are third parties involved in the transaction - a lienholder, mortgage insurer or investors like Fannie Mae, Freddie Mac, the Federal Housing Administration or private securities – all those parties must be involved, said Tom Goyda, spokesman for Wells Fargo & Co. (NYSE: WFC). “Every layer you add adds additional complexity and time to the transaction.”
Simon said short-sale offers nationally have doubled each year since 2007 for Bank of America, which since January 2009 has added 2,200 associates to the short-sale area -a nearly a four fold increase.
Meanwhile, the short-sale property also must be appraised within 60 days, which can further lenghten the process if the short-sale isn’t approved in that time and more appraisals must be done.
Debbie Barrett, president of Orlando based Barrett & Associates Appraisal Group, said if the property appraisal comes in less that what the buyer contracts for on a short sale, financing can fall through.
Though a short-sale closing in a neighborhood is devistating to property values, it’s something the real estate market will continue to see, Sutton said. The sooner that inventory is moved, the better, “but it will be a slow movement.”