So You’ve Gotten a Short Sale Approval Letter… Now What?
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.
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
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.