Short-sale timelines: New Rules for Faster “Short-Sale” Turnaround Times

(TheNicheReport) -- The horror stories are everywhere.  Short-sale approvals have dragged on and on.  Borrowers and real estate agents don’t hear a peep from anyone.  Clients give up and let the home go into foreclosure. 

That’s all in the past (we hope). The new short-sale timeline process has changed effective June 25, 2012. Fannie Mae and Freddie Mac have introduced policies to expedite the pre-foreclosure sale process.

Now, mortgage servicers must follow the policies outlined for all conventional mortgage loans held in either agency’s portfolio. Servicers are “encouraged” to follow these requirements with respect to mortgage loans sold to either Fannie or Freddie, including FHA, VA and USDA loans they may have purchased.

Knowledge is power, and by knowing the required timelines to process a short-sale approval, you’ll be able to challenge those lenders who are dragging their feet and not getting the job done. 

Here’s the short version: 

• Establishes maximum required response times for pre-foreclosure sale offers submitted for consideration

• Requires servicers to provide borrowers with status updates during the evaluation process, and

• Allows servicers to respond to unsolicited pre-foreclosure sale offers without first requiring an evaluation.

Here’s the long version: 

There are three types of short sales that are covered with different timelines for each:

1.    Evaluation of Borrower Response Package

• 3 days – notify client that their request has been received
• 5 days – determine what documents are missing
• 30 days – determine if they will allow short sale
• 60 days – prepare documents for client to sign
• Client has 14 days to accept or reject the agreement
• Optional 10-day extension at client’s request

2.   Short Sale without Short-Sale Agreement

• 10 days – Mortgage company must respond with approval or denial
•  5 days – Given to borrower to respond, if short-sale offer is made
• 10 days – If borrower makes a counter offer, Mortgage Company must respond in 10 days.

3.   Pre-foreclosure Sale Received with Borrower Response Package

• 3 days – notify client that their request has been received
• 5 days – determine what documents are missing
• 30 days – respond with an approval; approval with conditions; deny; counter-offer; or still under review.
•  5 days – If the offer is “deny with counteroffer,” borrower to respond with decision of the counter offer
• 10 days – When client responds, must communicate response with counter offer.
• 30 days – If response is “still under review,” and extension of 30 days is allowed, however, mortgage company must give weekly status reports to borrower
• 60 days – From first request, servicers must respond with final decision. 

Note:  These are “business days” and not “calendar days.”

This is a good thing for the housing market.  Right now there is a backlog of homes and borrowers that could benefit from a quicker path to a short sale as a foreclosure alternative, as well as myriad processes and paperwork – but no accountability or service that the servicer is obligated to follow on a consistent basis. 

Knowing the new short-sale timelines can help you get your deal closed faster and challenge the servicers if not met.

This new requirement from the agencies provides a single point of contact for the homeowner wishing to find alternatives to foreclosure.  It provides a clear path for all parties involved, and a defined timeline where one can finally see a light at the end of the tunnel. 

Short sales, pre-foreclosure sales and foreclosures are already an emotional and frightening experience for most folks, and these new standards set by Fannie and Freddie for the servicers will now be required to meet deadlines for the steps to qualify and be approved for a short sale.

I hate to be “Debbie Downer,” but one thing is missing from this new short-sale timeline rule—there are no penalties or repercussions if these timelines are not followed!