New rules designed to speed up short sales

Financially stressed homeowners left hanging while their banks consider whether to approve the short sales of their properties may benefit from new federal guidelines that give lenders a 10-day limit in which to respond to purchase offers.

The rules from the U.S. Treasury, which also allow financial incentives for both sellers and lenders, could figure prominently in Florida's housing market, where about one in every five existing-home purchases involves a short sale.

Gary Balanoff, a real-estate agent with Re/Max Select in Oviedo, Fla., tells his clients to expect at least a 60-day wait when they try to buy or sell a home via a short sale. And as Treasury's expedited short-sale process emerges between now and April, he said, he's not going to tell his clients any differently.

"It's a very, very tough process to get some degree of standards," Balanoff said of short sales. "I think this will help - it will put more pressure to comply and get quicker results. ... Three or four months of waiting for an answer is not doing anyone any good - even lenders."

The effect of the new rules will likely be somewhat limited because only banks that owe the federal government TARP bailout funds must comply. And according to Balanoff, even when certain banks do push for faster short sales, there is so little consistency among mortgage negotiators that he doesn't expect the new deadline measures to be applied or enforced evenly.

In a short sale, the homeowner sells the property for less than what is owed on the mortgage, and the lender forgives the difference. Many of the single-family mortgage holders in Central Florida are "under water," meaning they owe more than their homes are currently worth.

According to the Orlando Regional Realtor Association, 20 percent of its members' existing-home sales in December were short sales. An additional 43 percent were bank-owned properties, and the remaining 37 percent were "normal" resales.

While short sales are considered an ideal solution for banks and for "under water" homeowners on the verge of foreclosure, the deals often drag on as lenders take weeks or months to decide what to do. Frustrated buyers sometimes walk away during the delays. In some cases, lenders insist that the borrowers share in the financial loss, which holds up the transactions even longer. As a result, homes stay on the market, prolonging the housing downturn.

The Treasury rules, in addition to imposing a 10-day deadline for bank decisions, call for sellers to receive $1,500 moving allowances - and for the sellers to not have to repay any of the debt.

Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing as much as $3,000 of a short sale's proceeds to be distributed to less senior lenders.

The 83 loan servicers participating in the Obama administration's Making Home Affordable loan-modification program, including Bank of America and JPMorgan Chase, are required to follow the guidelines for all borrowers who have requested short sales or who did not complete loan modifications.

The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which constitute about half of all U.S. mortgage debt. The two government-run mortgage companies are working on their own guidelines.

The Treasury plan, which must be implemented by lenders no later than April, is meant to help sellers like Dawn Sclafani, who has been waiting since October for her lender to approve a short sale offer on her South Florida home. A buyer has offered $155,000, and she owes $233,000.

Sclafani, a 50-year-old psychologist who lives in Margate, Fla., said she is eager for her bank to approve the deal so she can put the experience behind her. "I want to move on ... but I can't until somebody gives me permission to," she said. "I've heard that this is a horrendous process. The banks are just not very cooperative. I do believe these new rules will help."

U.S. Rep Ron Klein, D-Fla., said the guidelines are meant to make short sales "a more usable tool." Klein notes that the rules provide standardized paperwork for all short sales, and give buyers and sellers a more reasonable time frame for finding out whether or not the sales will happen.

But Klein and others say the government may have to increase the financial incentives. The $3,000 cap on short-sale proceeds to less-senior lenders is not sitting well with second-lien holders, who have been demanding more money from sellers, the first lenders and real-estate agents in exchange for releasing their claims and allowing the short sales to proceed.

"This is a great program if all these mortgages had only one lien holder," said Travis Hamel Olsen, chief operating officer for Loan Resolution Corp., an Arizona company that helps lenders complete short sales. "But many of these properties have two liens."

Some Florida real-estate agents remain skeptical of the guidelines. Broward County agent Ron Rosen, who urged Klein last summer to push for new regulations, said he thinks "the banks will still play their little games with people and make life difficult for everyone."

A spokeswoman for the Treasury says it will hand down "substantial" penalties to lenders that don't comply. The agency said it can fine lenders, withhold or reduce incentive payments, or require improperly rejected loans to be modified.

Lenders have blamed short-sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don't submit proper paperwork in a timely manner.

Because short sales involve so many moving parts, lenders will be hard-pressed to meet the 10-day deadline, said Anthony DiMarco, executive vice president of government affairs for the Florida Bankers Association.

"That will be a challenge," he said.

In many cases, the banks are not to blame for the delays, said Ward Kellogg, chief executive of Boca Raton-based Paradise Bank. But he thinks the guidelines are necessary to help clear the market of so many distressed properties.

"I think the pressure on (the banks) is a good thing," Kellogg said.

Mary Shanklin of the Orlando Sentinel contributed to this report.

Source: http://www.miamiherald.com/163/story/1424542-p2.html