April 12, 2011: This topic of pre-approved short sales has been coming up over and over in the past few weeks, and it deserves more attention. A pre-approved short sale generally refers to a short sale with a sales price that has been approved by the mortgage servicer. For example, in HAFA, agents and short sale sellers are provided in writing with a pre-approved purchase price that is good for 120 days.
Bank of America also has a Cooperative Short Sale Program whereby they will also provide a pre-approved sales price. However, the word ‘pre-approved short sale’ might be a misnomer when discussing these programs.
It Depends Upon What You Mean by Pre-ApprovedNo short sale is totally approved until an approval letter is received that has the buyer’s name on it. Once in a blue moon, a mortgage lender may issue a short sale approval letter without the buyer’s name; these letters are few and far between. And, even in those circumstances, the mortgage lender still requires a copy of the purchase contract and the estimated settlement statement for their review and approval.
What about all of those pre-approved short sales that you see advertised in the local MLS? Generally, agents advertise a pre-approved short sale if they have already received short sale approval and the buyer has moved on. A few years back, most of the lenders would substitute the new buyer’s name very quickly on a short sale that had already been approved—just as long as the deal met the same terms and conditions.
Not so much any more.The Equator system (used by Bank of America and a slew of other lenders) requires that every new short sale be resubmitted and that you start from the very beginning. Not such a bad thing, because frequently different and improved terms and conditions are accepted the second time around. Wells Fargo and many of the other lenders will also close the file if the buyer walks and the short sale evaluation process begins again—sometimes taking an additional two months to approve the new buyer.
The term ‘pre-approved’ short sale, as you can see, has been used very loosely of late. So, if you are representing a buyer and hear that a short sale has been pre-approved, you will probably want to do a little bit of investigating. What kind of pre-approval is this? Has the price been pre-approved (as in HAFA or the Bank of America Cooperative Program)? Or, was the short sale already approved at a specific price and will the negotiator have to start from scratch?
The implication is that the pre-approved short sale will result in a quick closing. And, while that may, in fact, be true, it’s important to do your homework and learn the terms and conditions of the so-called pre-approval. Even though Easter is just around the corner, no use putting all of your eggs in one basket—especially one that may have a hole in it.
By, Melissa Zavala