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Dance When You Receive Short Sale Approval

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Short sale approval letters play hard to get.

Short Sale Approval LettersHave you ever seen a happy dance? It’s probably not as well choreographed as anything on Dancing with the Stars. In my mind, it’s a little Irish jig that someone might do if they are victorious. I’ve done lots of jigs. In fact, each and every time I receive a short sale approval letter, I dance another Irish jig. But… my dance is frequently interrupted.

Obtaining short sale approval letters is stressful. Obtaining approval letters takes time–sometimes so much time that everything else in your schedule can go by the wayside. Sometimes we have to beg, plead, and practically offer our first born in exchange for the long-awaited short sale approval letter. Other times, that letter just comes through the fax machine unannounced.

No matter how you get your approval letter, one thing is for sure: you must check and double-check all the details of that letter immediately upon receipt. Never assume that the letter is correct–that it has the correct name of the buyer or the seller, that it has the correct loan number or the correct net amount due lender. You must carefully check all of this before moving forward. These letters frequently contain errors, so your attention to detail is vital at this stage of the game.

One thing that I always recommend is that you carefully review your short sale approval letter before putting on your dancing shoes.  Specifically, have the escrow or title officer compare the approval letter to an updated estimated settlement statement. Although an estimated settlement statement is always sent with the short sale package, the dollar amounts and lien release information sometimes changes during the course of the short sale term. Because of this, it is vital to “crunch the numbers” in order to assure that the short sale approval letter works for the short sale transaction.

Here’s a list of items to review before dancing:

  • Buyer’s Name Many approval letters are buyer-specific. If the buyer’s name is on the approval letter, is it spelled correctly? Are all buyers listed?
  • Seller’s Name Assure that all of the sellers’ names are listed on the approval letter and spelled correctly.
  • Loan Number Confirm that the loan number on the approval letter matches the loan number on the mortgage statement.
  • Second or Third Liens Confirm that the letter references other liens, if necessary.
  • Net Amount Check that the net amount is realistic given your purchase price. Compare to an estimated settlement statement.
  • Fees Paid The approval letter may specify fees to be paid by the bank. If so, assure that the bank is paying all necessary fees.

Now, sadly I do not always practice what I preach. I have been guilty of dancing an Irish jig each and every time that an approval comes into my inbox. That’s hundreds of jigs this year—so many that I am beginning to get blisters on my feet. Then, when the dance is over, I sit down and check out the approval letter—only to learn of an error or a correction that needs to be made.

So, the next time that you receive an approval letter, slow down, and take a deep breath. I congratulate you. Obtaining that letter is a big milestone. But, do not pull out those dancing shoes until you are sure that you have what you need to close the transaction.

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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18 Comments

18 Comments

  1. Freda Kalina , CDPE

    November 17, 2010 at 12:00 am

    When I receive a short sale approval letter, the first thing I do is check everything out. I learned this after going thru the mistake of just thinking everything would be fine on the approval letter and finding many errors later.

  2. Kelsey Teel

    November 17, 2010 at 9:23 pm

    Great article, that principle can be applied in many aspects of life. For example, the football player who scores the winning touchdown, does his back flip victory dance, and then realizes there was a flag on the play.

    This is a good checklist for all agents participating in short sales to keep on their desk. Anything to avoid that feeling of immense excitement that is followed by a tremendous letdown. (I hate that!)

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Coaching

Disputing a property’s value in a short sale: turn a no into a go

During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!

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magic eight ball

It’s about getting your way

Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?

When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.

After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.

Value Dispute Process

While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.

  1. Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
  2. Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
  3. Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
  4. Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
  5. Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.

It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.

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Coaching

Short sale standoffs: how to avoid getting hit

The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:

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short sales standoff

What is a short sale standoff?

If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.

Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.

Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.

How to Avoid the Standoff

If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.

Here are some ideas for how to get out of the situation:

  • Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
  • Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
  • If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
  • Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
  • In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.

One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.

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Coaching

Short sale approval letters don’t arrive in the blink of an eye

Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.

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Short sale approval: getting prepared, making it happen

People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.

Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.

Experience dictates that agents that learn about the short sale process
have increased short sale closings.

Short sale education opportunities abound

There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:

  • Classes at your local board of Realtors®
  • Free short sale webinars and workshops
  • The short sale or foreclosure specialist designations

As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.

The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.

Don’t take on too much

And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!

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