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So You’ve Gotten a Short Sale Approval Letter… Now What?

by Bill & Jackie Patterson on January 16, 2011 · 11 comments

  

When talking about short sales, everyone focuses on getting an approval letter from the lender. From the day you determine a short sale meets your investment criteria, and you gather the necessary paperwork and submit it to the lender, the primary goal is to obtain a short sale for the client, and get an approval letter at a price that allows you to make a profit. What people often overlook, is that an approval letter is only the first step and means nothing if you can’t close it. Without a successful closing, there is no short sale.

Jackie: Getting that approval letter on a short sale you’ve been working on for 3-4 months or more, is exciting, but only if it has acceptable conditions that will allow you to close and make a profit. By the time you get the approval letter you should already have the other parts and pieces in place, and be ready to schedule a closing.

Bill: We’ve seen investors get an approval letter, and then be unable to get it closed for many reasons. You need to have a buyer with acceptable financing that can meet the timetable in the approval letter. A cash buyer is great! If you’re attempting a flip, you should have your transactional funding lined up. You need to be working with a title company that understands the short sale process and is capable of working with you through the inevitable, last minute details. Your relationship with the title company is very important, and you should begin building that relationship long before getting the approval letter.

If You Want to Close, You MUST Closely Follow All Details

Jackie: It’s important to read the letter carefully, and follow the instructions exactly. We read them, highlight the instructions and make sure we comply with them 100%. The first priority is adhering to the timeline. We’ve gotten approval letters with 1 day to close, 21 days to close and 30 days to close. When they say a close date they mean that exact date, not a day later. If you can’t meet the deadline you will have to ask for an extension, but that is not automatically granted and can have costs associated with it. That is why it’s important that you have everything lined up to be ready to close when the approval letter arrives. After you get the letter is not the time to find a buyer, line up financing, etc.

Bill: The approval will list several conditions that the sale is contingent upon. Read these carefully. These conditions include the “net” amount (payoff) required, the commission amount they will allow, approval of the final HUD details, and how funds are to be transferred to the lender with a date and time for them to be received. These are exact dates and times and must be adhered to. With a good negotiator, there shouldn’t be any surprises in the letter regarding seasoning or deficiencies for the homeowner.

Jackie: Pay attention to the details. If the approval says the funds must be delivered to the lender by 5pm Central Time on January 17, that’s what they mean. We try to schedule the closing a couple of days before the pay off date. This makes a calmer, less stressful closing. However if we are unable to do that, we make certain to schedule it first thing in the morning to allow the pay-off wire to be sent and arrive that day. Watch your time zones. If we’re closing in California, and need the payoff to arrive by 5:00 pm Eastern Time, we make sure the wire is sent before 11:00 AM Pacific Time. This is also important if you’re using a transactional funder. Since the title company is responsible for getting final approval of the HUD before closing and for getting the funds wired, you can see the importance of having a title company that understands the process and that you can rely on.

Bill: The last thing you need is for the closing agent to decide to go to lunch before sending the wire! There are a million details involved in a closing. When scheduling the closing, be sure you allow adequate time to get everything you need. We quite often are involved in transactions where the seller and or buyer is in a different state than the property. If this is the case, you need to allow time to get documents overnighted back and forth before the closing. Be sure you check and recheck to be sure signatures aren’t missed. You also need to understand the HUD, and be sure that numbers are not only correct, but in the correct place on it. The title company can miss a final meter read, or the fact that a home owner’s association is requiring a month paid in advance or a buy-in fee. If it’s not on the HUD, it can end up coming out of your pocket after the fact, or even derail the closing. Even the best title company can make a mistake, so you need to understand the process and closely review the HUD.

Jackie: The closing is the culmination of the long short sale process. It’s important that you understand and oversee the closing, so your months of hard work pay off.

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{ 11 comments… read them below or add one }

MH January 18, 2011 at 9:47 am

As always, great post from the two of you. Bottom line: get all the ducks in a row before that letter makes its way back.

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Donna January 19, 2011 at 5:54 pm

Has anyone worked with Real Time Resolutions lately? need your help! They are asking for more than the first will allow, this is an non deficiency state, CA how can they be getting away with this and causing deals to collapse?

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Bill Patterson January 20, 2011 at 12:14 pm

Hi Donna,

I have not had the pleasure of working with Real Time Resolutions, but my negotiator has. I did a quick check on line and there are lots of angry and frustrated people who have dealt with them. They are not always easy to deal with, but sometimes their negotiator can be worse than others. Luck of the draw! The best bet I am told is to try to keep a dialogue with them and keep working the numbers. You can always tell them that $XX is all the First lender will allow and if they won’t accept it, it is going to foreclosure and they will get nothing! Our negotiator has had them cave in at the last hour, but you would want to have a plan “B” in place. Rather than the seller being stuck with a foreclosure, maybe there is room in the deal (Investor, Seller, Buyer, Realtor, etc.) to make up the difference. Maybe a long term note for the difference at no interest for 360 months? Keep them talking and hope that they can make it low enough to make things work out. The main goal is to get the best outcome for the seller as possible. He will need to look at all of the options and consult with his attorney and tax advisor.

Good Luck,
Bill

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nervous July 10, 2011 at 2:22 am

my title search was completed very late in the process of short sales. I have received my approval letter. I am literally a couple of weeks away from closing on the deal and a lien was noted during the title search. I trusted my company knew what needed to be done. I was provided with a timeline that gave a guide for the short sale process. My question is….is it to late to revisit the negotiating process. I know this is working in reverse but at this point it’s worth a try for me. Otherwise i would have to seek yet another alternative. I did not withhold any information from my company. They requested a list of expenses and i provided them with the same form submitted to the mortgage company. What do i do at this point …or is it too late?

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Bill Patterson July 10, 2011 at 5:29 pm

Nervous,
Give me a few more details and maybe I can give some advice or options. I’m not clear….are you the homeowner or the buyer? What is the lien, who holds it and how much is it? What is the sale price? Who is negotiating the offer…seller’s Realtor, Buyer’s Realtor or a third party negotiator? It is never too late, but there are times and circumstances that make it not the best thing to do. There are always options, so let’s see what can be done!
Bill

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nervous July 11, 2011 at 5:36 am

I am the home owner. The lien is for water conditioning equipment with a company called I.S.P.C. My remaining balance on the account is $6,8893.19. If you are referring to the sales price of the home…the investor with the loan wanted a minimum of 150,000 and that’s what the buyer was pre approved for with the lending company. My real estate team is negotiating the offer (sellers realtor)
Thank you so much for your help!!

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nervous July 11, 2011 at 8:08 pm

to add more insight on the situation as to why the fee is difficult. I have to replace an air unit and stove that was stolen from the home. Insurance was cancelled because of previous thefts and the amount of time the home was vacant. I am also being asked to pay for dewinterizing the home to help speed up the process as the mortgage company hasn’t responded to the request to dewinterize the property. I’m no longer in the state where the property is located so there are expenses associated with traveling. I’m doing this by way of POA as my husband is deployed. any insight is helpful. To add to the companies’(I.S.P.C.) involvement with me, one vehicle was included on their contract…so my guess is they have placed a lien on it as well.
I gave thought to asking my representative to contact that company and negotiate a release of lien for less than face value. But with a vehicle also listed with them would this even work as an option? Threatening the risk of falling into foreclosure so they would accept some type of payment as opposed to none at all.
My representative hasn’t offered any options.

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Bill Patterson July 12, 2011 at 6:14 pm

Nervous,
Negotiating with I. S. P. C. is what should be done. Without knowing the terms of your approval letter (no deficiency?) or if it is your principal residence (tax implications?) or how much the lender is discounting the pay off, it is hard to give solid advice. You also mention that your husband is deployed. That can have an effect on a foreclosure by your lender.
I just got my cell phone back after a kayak mishap and also just got our electric power back on after a big storm, so I can be reached by phone and also have my e-mail access. My office will not have power until Thursday! Maybe a phone call might be the best way to discus your situation.
Thanks,
Bill
Mobile 269-720-2922 (EST zone)

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nervous July 12, 2011 at 10:07 pm

yes…it is no deficiency. I received your information a bit late but I will try contacting you regarding the matter tomorrow. Since my last response, my title company has asked that I sign a consent form so they can request a formal payoff from I.S.P.C. Once they receive that it will be forwarded to the lender to request approval for payoff. I’m not sure if this is the situation in it’s entirety (if they tried to negotiate) but what was told to me rather. The house was/is the principal residence as we have not purchased a new home or rented the one for sale. We resided in the home from may 2007 until march 2010. The payoff is being discounted 60,000. And the deployment, what type of effect could that have?

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Bill Patterson July 13, 2011 at 5:42 pm

Yes, give me a call. It will be easier to assess your position and options. As for your husband being deployed, the Servicemembers Civil Relief Act may be of help in case of foreclosure or other judgments. Check it out on line.
Thanks,
Bill

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Avery Piantedosi November 13, 2011 at 7:43 pm

Thanks for the great article! I do short sales in Brevard County, FL, and always appreciate the information of other practitioners in the field. Its not easy out there! Thanks again, Avery Piantedosi, Silver Palm Properties

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