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More on Short Sale Approval Letters: What Sellers Want to Know

By
Real Estate Broker/Owner with Broadpoint Properties Cal BRE #01324959

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 Obama's HAMP loan modification program, Broadpoint Properties gets all sorts of calls 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. So, apparently, there has been an increase in discussion of this topic on television, on the Internet, or in print.

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. 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.

Comments(6)

Christine Hynes
American Capital Corporation - Laguna Beach, CA
Orange County Senior Loan Consultant

Melissa you've always got great information regarding short sales. As you said, the seller really needs to be aware if their bank is willing to forgive their deficiency or not so that they arent suprised later on.

May 24, 2010 10:46 AM
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Melissa,

"When the media talks about "how terrible being "up-side down" we get a huge rush in "strategic defaults" are we sheed following a Judus Goat?

This is reminiscent of Janet Reno saving the Dividan children form a fate worse than death!

Bill

May 24, 2010 12:57 PM
Doug Anderson
Tucker Associates Real Estate Services - Danville, CA
Bay Area Real Estate Views

Excellent information Melissa.  Short Sales are a complicated matter and with everything the homeowner has already gone through following your advice will fully put the matter behind them. ~ Doug

May 24, 2010 03:57 PM
Brenda Carus
Century 21 Zwygart Real Estate - Monroe, WI

It is hard when the seller is in a position of thinking they can't afford an attorney to review the approval.  This is one thing where "penny saved, pound foolish" can certainly apply.

May 25, 2010 02:56 PM
Wendy Smith
Wendy Smith Real Estate - Clearwater, FL
Real Estate Advisor

I've noticed more short sale approval letters coming in initially more vague relative to release vs satisfaction and having to request specific language to clarify.

May 28, 2010 07:03 AM
Kira Angel
Equity Oregon Real Estate - Canby, OR

We also have to keep in mind any 1099 income if the mortgage being forgiven is not a principal residence or a non purchase money mortgage. The debt forgiveness act does not protect the homewner in this situation.  I make sure that all my clients sign a hold harmless agreement that clearly states they have been advised they need to counsel an attorney and CPA to determine any future liability.

May 30, 2010 06:37 PM