Short Sales in Florida & the Impact of Proposed Federal Legislation
When properties sell for less than the mortgage amount, this is called a short sale. Ten years ago, nobody was talking about short sales. This is because banks lent only eighty percent (80%) of the appraised value on property and properties values were stable or were increasing. Today, properties have decreased in value so that many are no longer worth even the 80% the banks loaned on them. To sell these properties, therefore, the owners must ask the lenders to accept a short sale.
Proposed HR 6133 would require lenders to act promptly on short sale offers, and to either accept or reject them within 45 days of the time they are submitted to the lender for approval. Half of all foreclosures in the nation are located in five states, and Florida is one of those states. That is why this proposed legislation is particularly significant for residents of Florida. Also, in the Orlando area, approximately seventy five percent (75%) of all properties for sale are distressed property. This is substantially higher than the national average of fifty percent (50%). Given the importance of this proposed legislation for Florida, it is curious that it is not being sponsored or supported by any Florida legislators.
The provisions of this proposed legislation are designed to move distressed real estate off of the market as quickly as possible. For example, in addition to requiring Lenders to act promptly on short sale offers, HR 6133 would eliminate all deficiencies after short sales and would guarantee real estate commissions to realtors representing buyers and sellers in these short sale transactions. The Act would guarantee a three percent (3%) commission to the buyer’s agent plus three percent (3%) to the seller’s agent.
Deficiencies are one of the major concerns for sellers who apply to their lenders for a short sale. A deficiency is the amount of the difference between the money given to a lender at the short sale and the total outstanding balance due to the lender under the note and mortgage. For example, if the lender receives $100,000 at closing, but the unpaid balance under the note and mortgage is $150,000 then the deficiency amount would be $50,000.
Now, sellers must negotiate a waiver of the deficiency with the lender. Some lenders are more amenable to waiving deficiencies than others. This legislation would uniformly require lenders to waive these deficiencies and would make it easier for sellers to get out from under the worry of future pending liability. The legislation also recognizes that in a short sale, since there isn’t enough money to satisfy the mortgage, realtor’s commissions are unprotected. This makes it less attractive for realtors to work on short sales. This proposed legislation would eliminate that risk.
Requiring lenders to act promptly on short sale offers would help remove inventory from the real estate market more quickly than going through the foreclosure process and thus would stabilize the real estate market and speed the economic recovery. After a foreclosure, the property is put back on the market by the bank. With a short sale, it is taken off the market altogether, thus reducing the inventory of distressed properties and helping to stabilize property values.
HR 6133 has been referred to Committee. It appears that it has very little chance of passage unless citizens become vocal and get behind it. This bill is important to the citizen’s of Florida and would help stabilize our real estate values. It is particularly important to the residents of Central Florida, where almost 75% of all real estate for sale is distressed property.