That transaction, in which borrowers sell their house for less than they owe, has earned a reputation as a frustrating morass with banks taking weeks or months to respond to offers and then often rejecting them. Because lenders swallow a loss on short sales, they have the ultimate say.
But now real estate professionals and banks say the logjam is starting to ease, with decisions coming more quickly, more short sales trading hands, and the prospect of a new Treasury plan that will further lubricate the process.
For homeowners, a short sale provides a more dignified transition than a foreclosure – and will allow them to return to homeownership sooner. Fannie Mae, for instance, requires at least a five-year wait after a foreclosure but only two years after a short sale – and less if the homeowner wasn't delinquent.
Short sales are also better for the neighborhood because the home stays occupied instead of becoming a vacant foreclosure that may attract crime. And for banks, short sales let them skip the expense and time of going to foreclosure.
Several developments are helping to expedite the sales:
— Pre-approval. Some banks are proactively deciding what amount they will accept for a short sale house. Sometimes they reveal the amount; sometimes they don't, but either way it expedites the process. Homes with this arrangement are listed as "Lender pre-approved short sale."
"It's an internal reserve price that lets us know the floor we'll accept on a short sale," said Dave Sunlin, senior vice president for foreclosures and real estate at Bank of America, which doesn't reveal the price for competitive reasons.
At Wells Fargo, Ben Windust, senior vice president of default operations, said the bank is testing various short-sale approaches, including pre-approved sale amounts that it does reveal. That pilot is only for homes that Wells owns in its portfolio; homes owned by investors require more complex decision-making.
— Proactive discussion with homeowners. Windust said another Wells pilot is to monitor real estate listings. "If we see we have a (Wells Fargo) borrower who listed property, if it's underwater, we might proactively reach out to them to work with us now on a short sale."
Similarly, JPMorgan Chase spokesman Gary Kishner said, "We are working on a more proactive approach to short sales by obtaining a listing of our delinquent borrowers who have their property listed for sale and then reaching out to help them sell the property."
Wells, Chase and other banks said it benefits homeowners to let their banks know early on that they want to pursue a short sale so the home's value, paperwork stream and other factors can be determined.
— Treasury plan. In May the Treasury Department said it would offer a streamlined framework for short sales and incentive payments of $1,500 to homeowners, $1,000 to loan servicers and $1,000 to second-lien holders. That plan is supposed to be implemented very soon.
"As we understand it, it allows lenders to work with borrowers to mutually agree on how to market the property, set the price for it, gives us a fixed amount of time to sell the property and if not, converts it into a deed in lieu of foreclosure," said BofA's Sunlin.
But despite the progress, many short sales are still exasperating.
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