2 Short Sale Tips To Avoid

If you are an agent working with a seller of a short sale or the seller yourself, you are very happy when the short sale approval letter finally arrives from the lender. Oh no. Then you read the letter, and there in black and white, are provisions inserted in that approval letter that essentially just killed the same deal the lender just approved. What happened?

Well let's start by looking at a couple of these strange problematic provisions, they can look like this:

Example #1

"There are to be no transfers of property within 30 days of the closing of this transaction. Escrow instructions must contain a clause that if such a transaction takes place then the title/escrow company must notify __________(lender). (What is all that?)

So let's understand this, the lender just approved the short sale but says that the property cannot be re-sold within 30 days from the date of the short sale transaction. Ok, so far so good, but now the lender wants to hold the settlement agent responsible for notifying them if that takes place!! As you could imagine, not many title insurance companies would be interested in insuring this transaction. So unless your buyer is paying cash and does not want an owner's policy (yikes) your deal is dead.

Example #2

"If the property was acquired by any means of fraud, _____________(lender) 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."

Just so we are clear, what the lender is saying here is that if the seller committed fraud either at the origination, acquisition or selling stage, the lender may come back and undo the sale that just took place. Sorry Mr. and Mrs. Buyers, you're out of luck!! That would be an awful situation. Once again, not too many underwriters will be interested in that deal.


These are just two examples, there are many more. So what are we to do? Simply read the letter very carefully, if you see any language in there where the lender says they can come back and "undo" the transaction for any reason, it will be a big problem.

Fortunately, it is my understanding, that this issue is isolated to just two or three lenders, and it is also my understanding that discussions are taking place between title insurance companies and lenders to address the issue. So just when you thought short sales could not get any more complicated.....

As always, many thanks to Susan Lloyd of Mid Atlantic Title Services for sharing her resources and guidance.