You’ve found a short sale buyer for your home. In order for your sale to go forward, you need to get your bank’s approval. Since your lender is losing money on the sale, they have very specific requirements that you must meet before they will approve the short sale of your home.
First, we present the buyer’s offer to your bank. Prepare for the process to take some time. There is a lot of documentation required, and usually a series of negotiations with the bank. Don’t worry – we’ll walk you through the entire process.
When the approval letter arrives from the bank, many homeowners think the deal is done. This is when it is critical for a professional to review the approval letter with you to make sure your letter gives you the best deal and protects your rights against the bank. Our experienced real estate attorney partners will work with you to get the best possible resolution. There is no charge to you for this service.
Here is an overview of questions that are part of the short sale approval letter review from our partner, Lambros Politis, Lead Counsel and debt settlement specialist at Ark Law Group.
Will the bank waive any deficiency?
A deficiency waiver means that your lender will forgive any debt that remains after the sale closes. This is essential. In fact, it’s why you’re selling your home.
Every lender uses different, highly specific language to indicate whether they will forgive your debt. Sometimes it’s in complicated language that’s hard to interpret. Each investor and each bank has their own way of saying things. The letter may state that they will report to credit agencies that the debt was settled for less than the amount owed. That’s not enough to be sure that they won’t come back and ask for more money. You want them to say in writing that they will also waive any deficiency. You can’t rely on anything that you heard in a phone conversation with your lender. It must either be in the approval letter or in a separate affidavit.
Does the letter reflect the most recent offer?
Your bank may add conditions you weren’t expecting to the approval letter. They may not agree to pay fees that you expected them to pay. They may even change the purchase price. The lender is saying,
Sure, you can have your short sale, as long as you do these other things.Sometimes, they change things without telling you, so you’ll want to match what you asked for against what they approved to make sure you got what you expected.
Does the letter require additional money from you?
Many approval letters will also say that they require an additional amount of money from you (the homeowner) at closing. This may look like: “$X,XXX lump sum cash contribution from the seller is due at closing.” If this is the case, you should have been told about it during the negotiation process. You can request to have this removed – but you’ll want to deal with this well before closing.
Is the lender requiring you to sign a promissory note?
Your lender may agree to the short sale, but then make it a condition that you sign a new loan agreement. They can sneak this into an approval letter without being obvious, and it could mean you aren’t truly getting out of debt.
Are there any caps on closing costs?
Because you’re going through financial difficulties, you will ask your lender to pay the customary closing costs the seller would normally pay, e.g. title fees, escrow fees, property taxes, etc. The lender will then take those fees out of the proceeds of the sale. Sometimes lenders will put a cap on what they are willing to pay for closing costs. Some banks will cap what they will pay for escrow fees, homeowners association fees or utilities.
When we are aware of these caps, we find a way to negotiate with the lender or the other parties to make sure everything is taken care of ahead of time. If you don’t realize this is an issue until closing, you may not be able to get your short sale done.
Has the lender limited what can be paid to junior lienholders?
When you get a mortgage, your lender puts a lien on your property – meaning they can legally foreclose if you default on the loan. If you take out a second mortgage or home equity loan, the second lender acquires a lien too, and is called a junior lienholder. The first mortgage lender is senior. Any other liens on the property are also junior lienholders to the primary lender.
The senior lienholder has more rights than the junior lienholders to the proceeds of the short sale. And they can control whether money can be paid to any subordinate lienholders. Typically, senior lienholders give junior lienholders some money and the junior lienholders take it. However, if the approval letter says there’s a maximum amount that can go to a junior lienholder, when the sale closes that’s all that can be paid. If your junior lienholder wants more, there may be a problem with allowing the additional money to be contributed. Senior lienholders want to receive as much money as they can, and sometimes they refuse to let people pay junior lienholders. There is language in your approval letter that will say this. Be on the lookout for junior lienholder limitations.
As you can see, the short sale approval process is very complex and should be reviewed by an experienced real estate attorney. We’re here to help! And there is no charge to you for our service.
Call us at 425-381-2233, or email us to schedule your free, confidential real estate attorney consultation.