Last week (April 12) a bill regarding short sales was introduced into the House of Representatives. H.R. 1498, "Prompt Decision for Qualification of Short Sale Act of 2011", was submitted by Representatives Tom Rooney (R-Fla.) and Robert Andrews (D-N.J.) Its purpose is summarized, "To require the lender or servicer of a home mortgage, upon a request by the homeowner for a short sale, to make a prompt decision whether to allow the sale."

The general idea of the bill is that a mortgage servicer must respond with a decision to a borrower within 45 days from the time the short sale request is received by the servicer.

The National Association of Realtors® (NAR) immediately responded with a supportive press release. NAR President Ron Phipps commented enthusiastically and, according to the release, "praised Reps. Rooney and Andrews for their efforts on the bill and urged Congress to pass the bill quickly." Phipps said, "Streamlining short sales transactions will reduce the amount of time it takes to sell the property, improve the likelihood that the transaction will close and reduce the overall number of foreclosures. This benefits sellers, lenders, buyers and the entire community."

NAR President Ron Phipps is certainly correct that the world would be a better place – particularly the U.S. real estate market – if the short sale process were to be streamlined. Certainly the lives of a vast amount of Realtors® would be improved. But will H.R. 1498, should it be passed by the House and Senate, accomplish this? I’m afraid it is unlikely.

The devil is always in the details, isn’t he? The details of H.R. 1498 would seem to take away much of what its title promises.

First of all, we note that the 45-day clock does not begin ticking until the servicer has received (a) a written request from the borrower, (b) a copy of an executed contract between the property owner and a prospective buyer, and (c) "all information required by the servicer." [my emphasis]

While my information is anecdotal, to be sure, it appears that in our office and our marketplace the #1 culprit responsible for the excessive time taken for short sales is that the servicer continually requests information that has already been submitted. H.R. 1498 doesn’t – and probably can’t – touch that problem. If you are on your third or fourth request from the servicer to submit the birth certificate of the borrower’s mother-in-law – even though you have already sent it to them multiple times – under H.R. 1498, the 45-day clock will not yet have started ticking.

Further, what the bill requires is that, within the 45-day period, the servicer must provide (1) approval or disapproval, (2) approval subject to specified changes, or (3) a request for additional information. (Anybody see a loophole here?) Otherwise, the request "shall be considered to have been approved by the servicer."

Suppose that the foregoing conditions have not been met and that the "request shall be considered to have been approved by the servicer." Exactly what shall this mean? Does it mean that the closing will proceed and that the lender will release the liens? Highly unlikely, I suspect.

H.R. 1498 has been introduced as an amendment to Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.), sometimes known as TILA. Many Realtors® are familiar with this act as the one that sets out the rules for quoting loan terms, interest rates, APRs, and the like.

As it now stands, violations of TILA may result in civil penalties of actual damages, statutory damages, and attorney fees. Criminal penalties for "willful and knowing violations" of TILA provide for a fine of up to $5,000 or one year in prison, or both.

It is hard to imagine that, should H.R. 1498 become law, the possible penalties for a violation will serve as a serious deterrent to potential offenders. Indeed, given the loopholes described above, it is hard to imagine anyone ever bringing an action against a possible offender.

You have to appreciate the sentiment behind H.R. 1498. But it would be unrealistic to expect that its possible passage will bring about much change in the real estate world.

Published: April 19, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .