But somehow short sales come together -- generally with a bit of luck, a lot of prodding, some spit mixed with Crazy Glue, and perhaps a few black-and-blue bruises. All of it is in pursuit of that short sale approval letter.
The time period in which a bank processes the short sale and generates the approval letter can range on average from 2 to 3 days for small banks to 3 to 4 months for major banks. It depends primarily on the investor.
Contents of a Short Sale Approval Letter
The short sale approval letter spells out exactly what the bank expects from the seller. It lays out the following terms, among other considerations:
- The acceptable sales price
- Maximum allowable commissions
- Maximum closing costs
- Minimum net proceeds
- Closing date
Not every short sale approval letter contains a release of liability. In fact, some approval letters don't address a release of liability at all. Lawyers say that if the matter is not addressed, then the lender might retain whatever rights are available to the lender under federal and / or state law to pursue a deficiency judgment.
How Short Sale Approval Letters Vary From Bank to Bank
Every bank designs its own short sale approval letter templates. Most of these short sale approval letters are created by lawyers. The letters will probably contain verbiage about how the loan will be reported to credit agencies, whether a 1099 will be issued and whether the sellers can later sue the bank. Of course, the bank might reserve the right to sue the seller. It is the bank's lawyers who draw these letters. That's why it's very important for sellers to ask a lawyer to review the short sale approval letter before accepting its terms and conditions.
A letter issued for a Bank of America short sale might be different than another BOA short sale approval letter, depending on:
- Whether the bank releases the seller from personal liability
- The position of the existing loans
- The loan's origin.
A Bank of America short sale approval letter will be different in February than a letter issued in November. In fact, a Bank of America short sale approval letter will be very different from a Wells Fargo short sale approval letter.
Often, extensions, if granted, are not a rewrite of the existing short sale approval letter but are an amendment or supplemental to the original approval.
Some banks don't issue the final short sale approval letter until closing. The document issued in advance is often a preliminary or conditional approval of short sale.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
