The Anatomy of Short Sales. Part 6 of 7: The Approval Letter(s)

A short sale approval letter is issued by the lender approving the terms of agreement in order to close the short sale transaction. This letter supersedes language written on any other documents. If you have two lienholders, a 1st and a 2nd Mortgage/HELOC, then you will receive two separate approval letters. If the letter is agreeable to the seller, it would be the final agreement between all parties and the short sale transaction may initiate its closing process. Be very vigilant for the verbiage used on the approval letter regarding deficiency.

Approval letters contain the following (and more):

• The acceptable sales price
• Maximum allowable commissions
• Maximum closing costs
• Minimum net proceeds
• Closing date
• Deficiency verbiage (Watch for this. They may omit from letter)

In the approval letter, you want to find verbiage or similar verbiage to, “we release you from all liability and consider this loan paid in full.” However, if the approval letter states “we reserve the right to pursue” then the bank is keeping their right to pursue you for the deficiency.  In the state of Washington, the lender has 6 years to pursue you or they might sell the debt to a 3rd party collection agency.

If there is no verbiage addressing the deficiency, then you could still be liable for the deficiency. This is not good. Make sure you get the proper deficiency release verbiage on the approval letter prior to closing so you may free yourself from future liability completely.

Getting deficiency language removed is not an easy task to do. Depending on various factors such as your agent, the bank, or whether you have a relationship with the decision maker at the bank or not, you may or may not get release of deficiency. Find a great negotiator and you will greatly increase your chances of selling your property on great terms.

Next Post: 1/4/12 Wednesday

Peter