The Anatomy of a Lender Short Sale Approval Letter

Quite often, I am asked questions from readers regarding what a lender will and will not do during a short sale negotiation. To help answer these questions, I have decided to break down a lender short sale approval letter. Not all lenders write their approval letters the same. As a matter of fact, sometimes they are not even called “approval”letters. The one that I have chosen to feature is called a “Short Sale Agreement”, courtesy of HSBC.

The following is sample of reader questions that I will attempt to answer in this blog post:

• Will the Lender make me sign a promissory note?
• Will the Lender issue a deficiency judgement?
• Will the Lender issue a 1099?
• Will the Lender pay a real estate commission?
• Will the Lender pay for closing costs?
• Will the first mortgage holder give the second anything?

The Short Sale Agreement

The following picture is the beginnig of a recent “Short Sale Agreement” that I received from HSBC. When you get to this stage of the short sale, it is important to remember that you are still “negotiating”. Many of the terms that you see in the following samples do not appear advantageous to the borrower. Keep in mind that this letter is from the second lien holder, and is the preliminary offer from this particular holder.

This picutre merely shows the basic elements of the letter header to include the title, Title Company, Customer name, Social Security Number, Property Address, and account number. If you note at the top of the short sale approval letter that in parentheses are the words Deficiency Liability. To me, this indicates that they have different form templates that they use and have chosen to start the process with a Deficiency Liability. This is not good news if you are the borrower. This basically means that the lien holder has accepted the short sale but will still seek a deficiency judgment. As is stated, this is not good news, but it’s not the end of the world either. We will talk about this later.

This picture outlines an example of the instructions that the lender requires to complete the agreement. Of note, is that any payment is required to be certified funds.

This picture contains the meat of the agreement. In the first line, the lien holder states that they will accept $3,000 to release the lien from the property. They also make the agreement contingent upon an contract of $84,000. Any change to the purchase amount will require a new approval letter. The last paragraph includes language indicating that the lender will require the borrowe to sign a promissory note for the difference between the unpaid principal balance and the monies received at closing. In this case, the lender wanted a promissory note of over $29,000 to be signed at closing by the borrower in order to allow the sale to proceed. We negotiated a total pay-off of the loan for the borrower for $5,700 (which the seller paid). This represented a settlement of about 22%.

This screenshot displays the deficiency judgment language, credit charge off language, and the expiration date. I hope that this posts answers some of the questions from the beginning of the thread. And, just remember, when you get the first written response from the lender, the negotiations are just beginning!


source: shortsaleblogger.com

Fort Lauderdale Real Estate Blog and Homes For Sale
Rory Vanucchi
RoryVanucchi@gmail.com