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Short Sales – The Clock Is Ticking

by Melissa Zavala on November 22, 2011 · 4 comments

short sale processing

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

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{ 4 comments… read them below or add one }

Brandon November 22, 2011 at 10:47 am

So true. Timing is everything with short sales, not to mention some careful handling by the real estate agents involved. We work with a Pennsylvania short-sale specialist (or foreclosure alternative specialist) who preaches good timing and a real unemotional focus for the sellers. It’s not a fun real estate job, but it definitely helps people in need.


James A. Browning MRE November 23, 2011 at 9:47 pm


The industry has been trying though loan modifications to keep the borrower in their homes, leaseback programs, short sales and other creative processes. The last thing the servicers/banks/lenders want is to the see the foreclosure process in the courts. This delays the process and costs them more money.

Meanwhile, hundreds of thousands of foreclosures are stagnate or in limbo (Shadow Market?). In reality these assets are draining enormous industry resources that servicers could be and should be used “to engage and help”, distressed homeowners.

While opinions and reasons may vary, professional insiders are challenged by the dilemma of, “what is the best strategy in today’s market”? Should I throw a dart and hope it finds its target, literally and figuratively.

In the third quarter of last year (2010), Fannie Mae and Freddie Mac reported on a ratio between foreclosures and short sales, about 200,000 were foreclosures and about 40,000 were short sales. The ratio is approximately 5 to 1, this ratio should be much higher, short sales should be more dominate in my opinion.

The fact that foreclosures are outsourced to companies that, REO’s are driven by the “greed factor”, in other words, they only make money when a successful completion of a REO transaction. This accelerates the process since everyone in the REO circle, from the real estate professional to the asset manager, is “driven by getting the transaction successfully closed.

On the other hand, most of the big servicers have added short sale negotiators, departments, procedures, mod modules, and short sales modules. Yet, has the short sales period of time shortened for Lender approval or denial after the full submission package has been delivered to the Lender/Bank? The overall response from real estate professionals nationally is NO or NOT YET!!

RealtyTrac has kindly provided the following information: they are showing 314,002 “pre-foreclosure sales” (typically short sales) nationwide for 2010 based on their preliminary numbers. This represented 10 percent of all residential sales and REO sales accounted for an additional 16 percent. The average sale price nationally of a pre-foreclosure (typically short sales) was $203,306 and that was 15 percent below the average sales price of homes not in foreclosure. The average sales price for an REO property was 36 PERCENT below the average sales price of a home NOT in foreclosure.

According the RealtyTrac the difference between a pre-foreclosure and a REO successful transaction is approximately 21 PERCENT. In calculating this percentage, it should be a no brainer and does not take a rocket science to figure out which direction the Banks/Lenders/Outsourcers should go. They might be left on their own island

James A. Browning MRE, REOCertified(R), CEC, FSP, ShortsalesCertified(R), SFR


Vince P. November 25, 2011 at 9:31 am

I have found it is better to work with a title company that specifically “works” short sales and has a high rate of success getting paperwork through with no judgements or promissory notes.


Regina Cudney December 18, 2011 at 7:34 pm

The fact that foreclosures are outsourced to companies that, REO’s are driven by the greed factor, they only make money when a successful completion of a REO transaction.


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