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Coming Up Short

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Posted On: 02/27/2013

Question:

My husband and I have made a reasonable bid on a short sale. Why wouldn't the bank jump on our offer rather than go into foreclosure? Is there a requirement for the owner to sell the house within a given timeframe?

Answer:

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It's really all about what's “reasonable” and to whom. A good way to check is to follow the money.

With a short sale, we have an owner who wants to sell a property for less than the mortgage balance. This would be perfectly fine if the owner paid for the loss, but instead, the lender is asked to take a loss. That's inherently unreasonable to lenders.

A lender has no obligation to accept any short sale offer. However, under rules introduced in June 2012, the Federal Housing Finance Agency says lenders must meet several requirements:

1. Lenders must review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package.

2. Lenders must provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days.

3. Lenders must make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.

The lender will scrutinize a short sale offer for three big reasons: First, it will check local home sales to assure that your offering price is as high as possible – and perhaps look for better offers. Second, it will see what other assets and income the owner has that can be used to offset the loss. Third, the lender will scrutinize the deal to assure that the transaction is an arms-length sale and not an arrangement where ownership will magically (in other words, fraudulently) revert back to the borrower.

So while you may regard your offer as “reasonable,” the lender sees it as a loss – and something to investigate with care.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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