Short Sale Approval Letters and the Issue of Deficiency

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When I was in college, I took a sociology class that was taught by a professor who specialized in studying the impact of the media and its presentation of the news on the public. For example, he would study the number of copycat killers there might be after a murder was featured on the news. Not to be all gloom and doom, but I have noticed this same effect in real estate.

When the media talks about loan modifications, we get all sorts of calls and emails about loan modifications. When the media talks about short sales, we get all sorts of calls about short sales.

This past week, I have had several short sale sellers call for more information on liability and deficiency judgments with regard to short sales. In California, we’ve had some changes to our anti-deficiency laws. So, there has been an increase in discussion of this topic on television, on the Internet, or in print and that has resulted in a lot more buzz about the topic.

One question that I was asked about is how I can prove that when I negotiate a short sale, I always request that the bank specifically state that they will release the seller from any future obligation for the forgiven debt. As agents negotiating short sales, it is always our goal to obtain a full release of any future liability (again, this may not apply in California). Ultimately, the bank (if they approve the short sale) generates an approval letter which dictates the terms and conditions of the short sale approval.

Usually this approval letter will include the purchase price, the buyer and seller names, and the fees that the bank is willing to pay at closing (i.e., title insurance, real estate commission, etc.)

The short sale approval letter should carefully be reviewed by the borrower and an attorney selected by the borrower. Borrowers (short sale sellers) need to be sure that the language in the short sale approval letter represents a negotiation that is in their best interest. Most Realtors® are not attorneys, so it is vital to consult with an attorney on this matter prior to the closing of the transaction.

On a final note (and this one is for buyers of short sales): it ain’t over ‘til it’s over. Specifically, if the short sale seller is not satisfied by the terms and conditions in the approval letter, the seller does not need to close the transaction. Of course, a better plan would be to return to the bank and ask for a few changes to the letter. Then, the poor buyer who has been waiting for short sale approval can actually see a successful closing.

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.


  1. I had a similarly-minded teacher; she really got me to think about the ways in which the media influence us that we may not be aware of. Of course, this is a less subtle type of example of the media influencing public behavior, but very true.

  2. Great post. We list many short sales and as you suggested, the objective is to free the seller from any future collections or liability. Every so often, especially if the loan is not purchase money, the bank or investor will not agree to a deficiency settlement. Unfortunately in this case the only recourse that the buyer has is to attempt a purchase at the courthouse steps.

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