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NO NEW 21-DAY TURNAROUND REQUIREMENT FOR SHORT SALE APPROVALS

October 8, 2009 By Jeffrey Simons

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NO NEW 21-DAY TURNAROUND REQUIREMENT FOR SHORT SALE APPROVALS

Recently enacted Senate Bill 306 does not require lenders to review short sale requests from sellers and their agents within 21 days.  The new California law, which addresses certain escrow procedures, has been mischaracterized by some practitioners as landmark legislation calling for a 21-day turnaround for short sale approvals.

The new 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.  The new law essentially requires, after a short sale has already been approved, for the lender 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.

Another provision of SB 306 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 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 escrowholder.”  The new law does not bind a lender to a short payoff amount in an offer that the lender has not approved.

Senate Bill 306 contains other technical changes in real estate related laws, such as, but not limited to, the following:

  • 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.

This new law comes into effect on January 1, 2010.  The full text of Senate Bill 306 is available at http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0301-0350/sb_306_bill_20090806_chaptered.pdf.
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Changes coming… Senate Bill 306.

October 1, 2009 By Jeffrey Simons

As you may or may not already know… senate bill 306 was just signed by our govener.  Based on the recent changes this is what you should expect:

Senate Bill 306, signed into law this September, changes some of the rules for California real estate short sales . Much of the excitement around this legislation is a revision to Civil Code section 2943 that provides, when an owner/borrower submits to the lender a “short sale request,” the lender is required to accept or decline it within 21 days.

This excitement overlooks what is required by the statute to trigger the lender’s duty to respond quickly. The statute describes a short sale request as a written request that includes;

A. A copy of an existing contract to purchase the property for an amount certain;

B. A copy of the short-pay agreement in the possession of the entitled person.

C. Information related to the release of any other liens on the property, if
any. Item B, the “short pay agreement,” is further defined as an agreement in writing in which the beneficiary agrees to release its lien on a property in return for payment of an amount less than the secured obligation.

It appears that the procedure is as follows:

1. The prospective seller must first have in hand an agreement with the lender
agreeing, in advance, to a short sale. But there is no deadline for the lender to
provide the agreement, nor discussion of whether the agreement specifies how much the lender will accept. On its face, the statute allows the lender to provide the agreement, but not accept a short sale if it is for less that one dollar below the total owed.

2. The owner/borrower the gets a bona fide purchase offer, and makes a short-pay request.

3. The lender then has 21 days to respond, setting forth whether they accept
the existing offer, or specifying the price and terms they would agree to a short sale.

I’m not sure how this will really benefit the consumer as the only adverse effect to the lender is a minimal fine, and there are challenges as to when the time frames truly begin… If you ever worked with a short sale, they don’t always receive everything you send them, packages get lost or placed in the wrong department, etc… however I’m hopeful that this is a step in the right direction…  your thoughts?

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