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Things looking up for short sale sellers

As New Jersey residents may know, a short sale is a way for struggling homeowners to sell their homes. During a short sale, a homeowner sells his or her home for less than the amount owed on the mortgage. As long as the mortgage lender approves the mortgage lien on the property will be removed and sometimes the mortgage lender will also agree to forgive the amount of the mortgage balance that isn't covered by the sale price.

These short sales, however, are never short. Homeowners are waiting months or even years to have their short sales approved, forcing them to sit and wait in financial distress. This is all about to change because the federal government is putting deadlines in place to make sure that homeowners are not waiting for months to get out of the mortgages they cannot afford.

Servicers must make decisions within 30 days

Mortgage companies under the control of Fannie Mae and Freddie Mac will have 30 days to decide whether they will approve of a short sale. Fannie Mae and Freddie Mac control about 60 percent of the mortgage companies in the country. The company can apply for an extension for up to one month as long as it provides the homeowners with weekly updates on the status of their approval.

There are also some other new requirements in the rules. For example, homeowners must send a short sale package to the mortgage company. Sometimes, mortgage companies do not let a borrower know if there are items missing from the package or if the package was not properly documented for a long time after the package was sent. Under the new rules, servicers will have to tell the borrower about the missing item within 30 days. They also must immediately notify the borrower if a deficiency payment is due.

Additionally, banks will be fined up to one million dollars if short sale approval or denial takes more than 30 days on more than 10 percent of all of their short sale requests.

Some question the effectiveness of the new rules

Some people in the industry do not think that the new rules will have much of an effect on the delay in short sale approvals. The mortgage companies are already short staffed, and the new rules require that they create an internal group that will review short sale requests; some people just do not think that there are enough resources for this.

The federal government has tried to speed up short sale approval in the past without much success. Additionally, the loans that are the most troubled are loans that are not controlled by the federal government, and the rules will not apply to them.

Struggling homeowners deserve relief. If you are behind on your mortgage and considering a short sale, contact an attorney to help you through the process.