Short Sales of Homes Falling Short in CaliforniaMar 8th, 2011 | By Roy Rasmussen | Category: Business and Finance
California lenders were failing to complete 43% of short sales transactions that had gone to contract at the end of last year, according to survey results the California Association of Realtors released Monday. Additionally, 67 percent of those surveyed said they are not satisfied with the process of approving short sales, finding the process difficult and slow.
Short sales are sales of distressed homes at a price below the amount still owed on the mortgage. Lenders sometimes accept short sales as an alternative to foreclosure when foreclosure would be more expensive. Borrowers prefer short sales to foreclosure where it would have less impact on their credit rating.
Short sales have been difficult lately for a number of reasons, according to experts. One is that lenders are handling such a large volume of distressed homes that the number of phone calls and paperwork is slowing down the approval process. Survey respondents reported lenders typically taking over five days to return any form of communication, and over 60 days to return written approval of loans. By the time approval comes back from the lender to the buyer, the buyer has often given up and moved on to another purchase.
Another reason so many short sales fail to reach completion is because of common practice among real estate agents. Agents often permit their clients to initiate several short sale agreements at once, wait to see which one will close first, and then back out of the others. This increases the percentage of shorts sales transactions that fail to close.
Since 2009, lenders have been working to speed up the short sale approval process. For instance, Bank of America recently added an automated approval system. But Monday’s survey report indicates that there remains room for improvement.
Monday’s announcement was based on results from 2,150 California Association of Realtors members who participated in the association’s Short Sale Lender Satisfaction Survey in December 2010.