Proposed Bill to speed up the short sale process: Prompt Notification of Short Sale Act
A new bill was introduced which would require mortgage companies to respond faster to inquiries about a possible short sale: The Prompt Notification of Short Sale Act. Bankruptcy attorneys know about this issue: a client would like to avoid foreclosure by selling his house to a third party below the mortgage amount. The mortgage company would lose money through a short sale but might receive more money than through a foreclosure. However, the process takes often a long time. Even though someone from the mortgage company talks with the house owner about the short sale process, someone else at the mortgage company might start the foreclosure process. Every so often, we see that clients have to file bankruptcy to stop a foreclosure and have more time for the short sale process.
The legislation is known as the Prompt Notification of Short Sale Act. It will require a written response from the mortgage company within 75 days after the house owner sends a request to the mortgage company.
If the act becomes law, it will not change anything in my opinion because the bill requires only a response from the mortgage company. The response could be that the mortgage company needs more time to review the house owner’s request. However, the mortgage company or better: the servicer of the mortgage company can extent the response deadline only once by 21 days.
If the servicer does not respond within 75 days after receiving the written request, the buyer could receive $1,000 in statutory damages. That means the buyer does not have to proof any real damages. Reasonable attorney fees would need to be paid by the servicer as well.
A short sale is favorable for two reasons, the seller avoids a foreclosure on his credit and a short sale is better for the neighborhood. A short sale does not bring down the value of other properties in the neighborhood as a foreclosure normally does.
A short sale normally takes four to nine month to complete. This is not only too long for a potential buyer but it is sometimes too long for the mortgage company itself which might foreclose on the property before the short sale process is finished.
Will the new bill be successful? A similar bill was introduced last year which required a response deadline of 45 days. The bill did not make it to a debate in the house….