Governor Schwarzenegger has recently signed SB 306, which mandates lenders and loan servicing companies to respond in writing to short sale payoff requests within 21 days of receiving it. This law will be effective on January 1, 2010 in California. Wachovia Bank is ahead of the game and has already streamlined their short sale approval process -sometimes providing the short pay statements on the spot!
If the lender's short-pay statement requires approval of the settlement statement or HUD-1, which is prepared by an escrow officer, the lender must provide the payoff demand statement or rejection letter no later than four days after receiving that closing statement. I can't wait to find out if the banks are prepared to comply with this portion of the bill provision; If they do not meet that deadline, I don't know what the penalties are either.
Exceptions: Lenders are not obligated to respond so quickly with a payoff demand statement if the loan is subject to a recorded notice of default (NOD). The short sale package (equivalent to a written demand for the payoff statement) must be received prior to the first publication of the notice of trustee sale or the notice of the first date of sale established by a court.
While the lenders aren't required to approve short sales (oh we wish!), they ARE required to either reject or approve the sale in writing within that time frame. This is a huge win for everyone involved, the whole real estate market and community will benefit. I can envision fewer properties going into foreclosure, fewer vacant and abandoned properties, and more people able to afford their mortgages. Those that do a short sale of their homes even get to qualify to buy again that much sooner! And of course, they will NEVER have to say YES when asked if they've ever had a foreclosure.
If you or someone you know is facing foreclosure, please get off the fence. You will want to discuss your options with a qualified person. If you are able to refinance or modify your loan, great. However, most people -especially if they've fallen behind on their payments and are upside down- won't qualify.