I came down with the flu on Friday. At least, I think it is the flu. It's a wild combination of cold stuff and fever that has kept me away from the computer. When I checked my email this morning, I had an email from a Realtor® friend who had some questions about short sales and deficiency. They were good questions and questions that are fairly indicative of the kind that less experienced short sale listing agents may have when working short sales. So, I thought I would share them here:
How do I know that the bank gave full deficiency release on the loan? The short sale approval letter (or letters) clearly states how the bank will be addressing the deficiency. In the state of California, these approval letters must be signed and acknowledged by the sellers prior to close of escrow. It's a good idea for sellers to carefully review the letters, and consult with an attorney or an accountant if they have any questions or concerns about the text in the approval letters.
What forms should I have in my files that assure the seller that their debt is fully satisfied? The California Association of Realtors® form called the Short Sale Listing Addendum advises the seller that there may be legal, tax, and credit consequences to a short sale. This form also advises the short sale seller to seek advice from lawyers and accountants whenever necessary. This form and a copy of your lien holder approval letter should be in every file. See the short sale approval letters for clarification on how the bank will be addressing the unpaid mortgage debt.
What do I do if the seller does not like the text in the approval letter? If the seller has concerns or questions about a short sale approval letter, than s/he should seek the advice of a qualified attorney or an accountant. Additionally, the seller could put those concerns in writing and they can be forwarded to the mortgage lender, so that the mortgage lender could provide a further explanation. Just last week, I had a short sale seller who had some questions about a 1099 from Litton Loan Servicing. We forwarded her questions to Litton and they responded immediately with clarification.
This Realtor's transaction recently closed and I wish that she had asked these questions prior to close of escrow. It's definitely important to review the approval letter prior to closing. If the approval letter does not fit the bill for the seller, than the deal should not close. Not closing and losing a little bit of commission is far better than closing and being plagued with any long term problems that could be associated with that closed short sale transaction.
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