Do what?? Please read and share your thoughts. This is crazy!!
SHORT SALE APPROVAL LETTER CONTAINS UNACCEPTABLE CONDITION
We have just been alerted to the fact some lenders have a new form of short sale approval/estoppel letter, in which the lender now attempts to retain the right to invalidate a transaction for events which may have occurred at the loan's inception or in our transaction. In one particular demand, the following condition was found in paragraph 16 and read as follows:
"If the property was acquired by any means of fraud, [lender's name] reserves the right to pursue any and all actions available to it to pursue any and all actions available to it to offset its losses. If it is determined that Sellers and/or Buyers participated in any way to the fraud, this short sale will be void, and the Note and Security Instrument will remain in full force and effect."
If a similar provision or other conditional language appears in a payoff/estoppel letter from your short sale lender, you are NOT authorized to close the transaction unless the letter is amended in writing to remove the offending provision.
First American cannot insure the new purchaser or the lender, if the short sale lender purports to reserve the right to void a conveyance and maintain its lien after closing and disbursement.
While few provisions have been so blatant as to purport to void the transaction, it serves to remind all of us of the importance of carefully reviewing not only your short sale letters but also all of your lender's closing instructions, as these traps are sometimes buried in vague language deep in the body of the letter.
We have also been advised of IRS payoff/estoppel letters in short sale transactions which state they will refuse to satisfy an IRS lien if it is determined after closing that the value of the property to the IRS was greater than they thought.
All of this is yet another reminder that all short sale approval letters have conditions for the lender's agreement to take a short pay off to be effective. If there is ANY provision which purports to allow the lender or the IRS the right to refuse a reconveyance after closing, do not complete your closing without contacting your local First American counsel.
The above notice is courtesy of First American Title.
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