For those upside down on their mortgage, a short sale can be a saving grace.
With this sales transaction, which allows the seller's mortgage lender to accept a payoff of less than the balance that is due on their home loan, both the seller and their mortgage lender can avoid the pitfalls of foreclosure.
Unfortunately, in terms of the time it takes to complete a short sale, many have found the "short" in short sale to be a misnomer.
Realtors: Short sales need to improve
"Our members have been complaining about the short sale process being broken since 2007," says Jeff Lischer, managing director for regulatory policy for the National Association of REALTORS®. "There was a failure of deals going through due to the long delays. Buyers would walk away."
As a result, the NAR has been working with the lending community to fight these delays for the last three years.
"We communicated to large lenders that they need to improve, and they seemed to get the message, but there are still major delays on the front line," Lischer says.
This may be about to change.
Bill aims to shorten delays
On April 12 of this year, Rep. Tom Rooney (R-Fla.) and Rep. Robert Andrews (D-N.J.) introduced bipartisan legislation geared to speed up the short sale process and spur growth in the housing market.
The legislation came about when Realtors began expressing frustration to the Congressmen about the amount of time it was taking for banks to approve short sales and the increasing number of lost sales that resulted.
"Realtors told me they were running into this situation constantly, and other members of Congress were facing this with their constituencies," Andrews said.
The proposed legislation, "Prompt Decision for Qualification for Short Sale Act of 2011," will substantially shorten the processing time for short sale price approvals to a maximum of 45 days after the request has been submitted to the lender.
Since the recession began, short sales have become much more prevalent. According to the NAR, 27 percent of all home sales in Florida in the last quarter of 2010 were short sales.
"A short sale has less impact on sellers than a foreclosure," Lischer says. "There is no downside to a short sale for anyone involved, including the borrower, the lender and the community."
It's about helping buyers, sellers and the economy
According to Andrews, the implementation of this act is more than a matter of helping buyers and sellers.
"This legislation will have a major impact on the real estate market and the U.S. economy," he said. "We need to clear the backlog of existing housing inventory to establish with some certainty what the value of real estate really is."
Ongoing foreclosures and vacant real estate have forced home values lower for years now.
"Empty homes are bad for everyone," Andrews said. "The quicker we can move inventory, and have lenders help move inventory in a reasonable amount of time, the better."
The Short Sale Act is not about forcing lenders to agree to a short sale, but rather expediting the timeline in which they decide whether it's in their best interest to proceed.
The legislation's 45-day timeline was based upon advice from Realtors and others in the industry as to how long it would take for lenders to have all the facts and information needed to make a short sale decision.
According to Michael Mahaffey, communications director for Congressman Rooney, there are 32 co-sponsors of the bill, which has also been referred to the House Financial Services Committee.
Yet, Andrews holds out hope that approval of the legislation won't be necessary.
"If this becomes a policy of the Federal Housing Authority, Fannie Mae and Freddie Mac, we won't have to go through the [approval] process for this legislation to become law," Andrews says. "The FHA already has the authority to execute this."
Just by being introduced, experts say the Short Sale Act signifies that short sales are not working as they were intended.
While a timeline for this bill to take effect has not been set, "the Executive Branch has expressed interest in having this bill come through by the end of this calendar year," said Andrews.