Ask the Realtor - Will New Law Speed Up Process of Short Sale Property Purchase?

Jim E. Flynn
"Experience
& Integrity"

Ask The Realtor

As printed in the OC Register / Saddleback Valley News

Written by Jim E. Flynn, Century 21 Beachside Realtors, Lake Mission Viejo

Oct. 9, 2009

Will New Law Speed Up Process of Short Sale Property Purchase?

Q. Kathy from Mission Viejo asked: Jim, I was told that there is a new law that lenders now had to get back to sellers and their agents within 21 days. Will this speed up the process of buying a short sale property. ?

A. Unfortunately this new law is Senate bill 306 is complex and it really does not require lenders to review short sale requests from sellers within 21 days.

The new California Law inserts a short payoff amount request into the existing payoff demand law which generally requires a lender to respond to a request for a payoff demand statement within 21 days from when it is requested, typically by escrow. So, the new law essentially requires that after a short sale has already been approved, and this is what has been taking several months the lender is required to respond to a request for a short-pay demand statement within 21 days. The lender’s response to escrow can be a short-pay demand statement or even, depending on the circumstances, a written statement electing not to proceed with the proposed transaction.

There is also another provision of SB 306 that may also cause confusion. In practice, a lender may approve a short sale subject to its review of a closing statement prepared by escrow, but usually the lender does not review that closing statement promptly.

Under the new law, if a lender fails to approve the closing statement within four days, the closing statement shall be deemed approved, but only if it is "not clearly contrary to the terms of the short-pay agreement or the short-pay demand statement provided to the escrow holder." So, Kathy, the new law does not bind a lender to a short payoff amount in an offer that the lender has not approved and getting the approval just takes time. We have had good professional Realtors/Brokers in our Century 21 Beachside office share stories in our Tuesday morning Sales meetings that some of their patient clients (and them also as the representing Realtors who do not get paid until the escrow closes ) have offers that are over 4,5 and 6 months old. Often these laments include having to resubmit documents that have been misplaced, lost or claimed to have never been received.

Also According to NAR Nat. Assoc. of Realtors, Senate Bill 306 contains other technical changes in our Real Estate related laws, for example:

Expanding the existing requirement for a lender to contact certain borrowers to explore options for avoiding foreclosure at least 30 days before filing a notice of default, to include not only owner-occupied residences, but also owner-occupied residential property with two-to-four dwelling units.

Extending the existing requirement for a lender to record a notice of sale from 14 to 20 days before a trustee's sale. This provision does not change existing law requiring a lender to wait at least 20 days after mailing a notice of sale before conducting a trustee's sale. So it remains to be seen if the process will speed –up.

This new law comes into effect on January 1, 2010.
The full text of Senate Bill 306 is available here:

Jim is a Realtor at Century 21 Beachside in Mission Viejo.

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