Read Your Short Sale Approval Letters


Sometimes when I visit real estate offices, I notice that real estate agents have lots of unopened envelopes on their desks, pushed up in a corner. I recognize those envelopes because I see them all the time. They are preliminary title reports and zone disclosure reports, and I frequently wonder why agents are not reviewing them more regularly.

Another item that agents and sellers are not reviewing carefully enough is the short sale approval letter.

When you obtain a short sale approval letter, you need to read it very carefully. My high school English teacher used to tell us that in order to fully review and comprehend all the details of a poem, you would need to read it a minimum of three times. I’d say that they same holds true to the short sale approval letter. (Thanks, Mrs. McHugh. It’s been a long time, but I actually retained something that I learned in high school.)

There are so many details for agents to review on the short sale approval letter that it may also help to get a second set of eyes (escrow, title, your Broker) to also review the letter. I’ve seen all sorts of crazy stuff. Sometimes the buyers and sellers names are misspelled or just completely incorrect. Other times the closing date on the letter is incorrect. I’ve seen approval letters in 2010 with closing dates in 2009. That’s what happens when you open an old word processing document and just make a few minor tweaks.

I’ve also seen incorrect figures—including purchase price and the net amount to the seller’s lien holder. So, it is important to review the approval letter and see if the figures match the amounts that you submitted with the short sale package on your original settlement statement. Then, it is a good idea to have the escrow or title company prepare an updated settlement statement in order to assure that the numbers still work. Since property taxes increase daily, it is vital to assure that the lender is allocating the correct amounts.

The final item that really needs to be reviewed and discussed with the seller is about how the bank is going to handle the deficiency balance. Different states have various laws and rulings with regard to short sale deficiency. In California, we have Senate Bill 931 that will take effect at the beginning of the year. No matter the state, short sale sellers need to be very clear on whether the debt is settled or whether the bank may be pursuing the deficiency balance. Usually, this information is stipulated in the approval letter.

Since the issue of deficiency is a real hot button in a short sale transaction, it’s probably a good idea to have the seller and possibly his/her attorney review the short sale approval letter as quickly as possible. After all, nobody wants any surprises at the closing table. Short sales are a tough and challenging transaction to complete, and it would be a terrible disappointment if the short sale goes kaput at the eleventh hour. Reviewing the approval letter (reading it three times) will go a long way towards a successful short sale closing.

Photo: flickr creative commons by TheTruthAbout

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. Stephanie Greer on

    I have negotiated a lot of short sales over the last couple of years, and I can attest to the fact that it has gotten a lot easier to navigate through the process. Additionally, there is going to more uniformity in the coming year to the content of the short sale approval letter. Especially in states like California where we have protection, in most cases, from deficiency judgements from lenders after the short sale has close.

    • Hi Stephanie,
      what sort of protection are you speaking of after the short sale. I have a mortgage co. (PNC) that is in contact with us to settle the difference after the short sale 1.25 years ago. Can they place a judgement on us if we do not settle with more cash?
      Thank You,

  2. I read my short sale approval letter – I am a buyer on a short sale. I was all set to close but then the bank decided not to sign the HUD – and now they are requesting a BPO (Broker’s Price Opinion from another real estate firm) – I assume due to the fact that the home appraised higher than my offer (which was a full price offer). I don’t see how they can do this – I have an approval letter! I paid for appraisal, inspection, and had to pay to have utilities turned on for the inspection and appraisal even though I didn’t own the house – I waited until I got the approval letter and thought that I was safe at that point. Guess not:(

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