Real Estate Journal Online

According to California realtors, a little under half of all short sales fail to close thanks to slow response times on the part of lenders[1]. Despite state regulations governing how quickly banks are required to respond to short sale inquiries, some real estate agents report that it routinely takes one or two months to get an answer from a lender – even though “the process has improved dramatically in the past year” according to Dustin Hobbs, spokesman for California’s Mortgage Banker Association[2]. Hobbs points out that while lenders may be required to provide a response within a short period of time, ultimately, they have to get permission from the entity or entities that actually own the loan. This means “a lot more phone calls, a lot of paperwork, a lot more decisions that have to be made” in the midst of handling foreclosures and other distressed properties. “I don’t doubt there’s a backlog of requests,” said Hobbs.

Unfortunately, this backlog is leading to more foreclosures, say agents. Because it takes so long to get a response on short sales, by the time that the response comes even if it is positive the buyer may be gone. Agents blame this on the banks, saying that “time is of the essence” in real estate contracts and things must speed up. Lenders and even some brokers, however, admit that real estate agents can actually complicate short sales significantly if they are inexperienced or, in an effort to make sure the deal closes, allow clients to enter several short sale purchase agreements at once and then back out of the ones that do not close soon enough, thereby skewing the actual failure numbers. There are also still bookkeeping problems for banks associated with short sales, in that if they foreclose on a home they have some time to report the loss that they may take on the property. Short sale losses must be reported immediately.

The California Association of Realtors has requested that government agencies compel banks to “complete all short sales following HAFA guidelines and to comply with the program’s time frames.” Since most lenders have completed their repayment of TARP funds, this is optional at this time.

Do you think that lenders should still be forced to participate in HAFA?

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[1] http://www.latimes.com/business/la-fi-short-sales-20110307,0,6800709.story

[2] http://www.ocregister.com/articles/estate-291142-sell-lenders.html