Landmine #1: Assuming lender approval of an offer will automatically postpone foreclosure proceedings.
In Washington State, lender approval of a short sale does not automatically halt a foreclosure sale. Once foreclosure proceedings are initiated, there are three parties involved in your transaction: the lender’s loss mitigation contact, the lender’s foreclosure contact (who is in a separate department), and an independent local trustee who has been hired by the lender to sell the property at auction. Once lender approval is obtained, the relevant parties are supposed to take the necessary steps to take the foreclosure sale off the calendar. However, there are instances where that does not happen, and the results can be disastrous. We recommend that agents always follow up with the loss mitigation department and local trustee to make sure they’ve received directions to cancel the scheduled foreclosure.
Landmine #2: Assuming that the short sale approval letter includes satisfaction of the seller’s debt.
Lenders may or may not issue a short sale approval letter to satisfy the buyer’s debt or waive the deficiency in full. Unless it is clearly stated in writing that the debt will be satisfied or the deficiency waived, you should assume that it is not. While it is getting better of late, lenders can be notoriously vague on this subject in many of their letters. If you receive an approval letter that does not clearly outline satisfaction or a full settlement of the debt, it may require you to do further negotiation with the lender on your client’s behalf.
Landmine #3: Assuming all banks have the same timeline.
In the over 900 short sale transactions we’ve completed, we have seen timelines vary significantly from bank to bank. In our experience, after mutual acceptance is received it can take from 30 to over 90 days to get lender consent, depending on the bank. The investor on the loan may require another level of approval, and the existence of second liens and mortgage insurance can add yet more time to the process. Knowing individual lender timelines is key in managing the expectations of the buyer and seller upfront.
If you are working with a buyer or seller on a short sale and have any additional questions, I’d be happy to provide you with advice free of charge. My name is Richard Eastern, and I’m a Windermere real estate broker and a partner in Washington Property Solutions, a short sale solution provider. Our goal is to help brokers like you provide the best possible service to their clients in the short sale process. We pay at 30% referral fee. If I can be of any help, please give me a call at (206) 612-5541.