Equity investors and folks buying short sales are often involved in a waiting game—only to learn at the end that the bank is not interested in their offer because their offer price is too low. But there are other factors that can impact the closing of a short sale at the eleventh hour that have less to do with the bank itself and more to do with the seller’s review of the approval letter.
Here are three questions sellers often ask their agents at the end of the short sale transaction. The truth is that if some of this stuff was discussed at the listing appointment we might see more success with short sale closings.
How do I know that the bank gave full deficiency release on the loan? The short sale approval letter (or letters) clearly states how the bank will be addressing the deficiency. In many states, these approval letters must be signed and acknowledged by the sellers prior to closing. It’s a good idea for sellers to carefully review the letters, and consult with an attorney or an accountant if they have any questions or concerns about the text in the approval letters.
What forms should I have in my files that assure the seller that their debt is fully satisfied? Each state association has different addenda that advise the seller that there may be legal, tax, and credit consequences to a short sale. These forms also advise the short sale seller to seek advice from lawyers and accountants whenever necessary. Appropriate state forms and a copy of your lien holder approval letter should be in every file.
What do I do if the seller does not like the text in the approval letter? If the seller has concerns or questions about a short sale approval letter, than s/he should seek the advice of a qualified attorney or an accountant. Additionally, the seller could put those concerns in writing and they can be forwarded to the mortgage lender, so that the mortgage lender could provide a further explanation. Just last week, I had a short sale seller who had some questions about a 1099 from Litton Loan Servicing. We forwarded her questions to Litton and they responded immediately with clarification.
The bottom line is that despite the fact that the approval letter has come and the bank has consented to the short sale, the seller can change his mind if s/he is not happy with the terms and conditions offered by the bank. This may make some buyers very unhappy. Bottom line: The clock is ticking. It ain’t over ‘til it’s over, and it’s always best to clarify what may happen at the end when you are at the beginning of the process. Perhaps that will help resolve problems before they occur.
Photo: flickr creative commons by thenandagain