5 step: Close
Once all short sale approval letters are in, the banks usually give very short time frame for the closing. Anything from 1 to 4 weeks is common. Extensions can be tried, but this can lead to the expiration of other loan’s approval. So it is best to try to close on time.
First Step To Closing the Short Sale
We usually prepare the preliminary HUD-1 ourselves with support from the title company. As any short sale approval is bound to the preliminary HUD-1 your numbers need to accurate or you face a last minute shortage of funds. The banks usually don’t change an approval just because the outstanding association fees are higher than expected or the closing costs charged by the title company have changed. Somebody would have to absorb that shortage, in most cases either the seller or buyer. If a preliminary HUD-1 is prepared right, there is always some room for unforeseen expenses in the last minute. As long as the net amount for the bank equals or slightly exceeds the approval figures, the bank will finally approve the official HUD-1 and the closing can take place. So it is essential that the preliminary HUD-1 is prepared for a short sale closing.
All Realtor commissions are customarily paid by the bank and do not affect the seller. Any attorney fees of the seller are usually NOT paid by the bank. If you qualify for HAFA, the seller might be entitled for moving assistance costs, i.e. cash on hand at closing for the seller. This is a special situation as usually the seller cannot receive any proceeds in a short sale.
More Than One Loan involved
If this particular transaction involves two short sale lenders or more, make sure all the short sale approval letters match. If one letter authorizes a commission payment maximum and another letter reduces it, you do not have an agreement. Here are essential elements the letters should contain:
- Payment to the second lender.Both the first lender and the second lender letters should specify the amount paid to the second lender, and that amount should be the same.
- Approved buyers.Sometimes buyers want to add other individuals to the deed at closing. Those individuals should be named in the approval letter. You can’t have one letter from the first lender that approves Mary Jones as the buyer, and another letter from the second lender that approves Mary Jones and David Jones as the buyers.
- Closing date. If you cannot close by the earliest date between the two letters, then you will need to get a short sale extension from that lender.
Home Inspection Before Closing the Short Sale
Short sales are typically sold in their “as is” conditions. This is generally interpreted to mean the seller will make no repairs. If your home inspection reveals deficiencies or problems, that is not the seller’s problem. It is yours. Here are the general solutions:
- Accept the home in its “as is” condition
- Cancel the short sale
- Ask the short sale bank to repair. But the bank will probably reject that notion.
Financing a Short Sale Can Delay Closing and why a cash buyer is paradise
There are problems associated with financing a short sale. From the appraisal to underwriting, guidelines are strictly enforced. One little blip can cause a short sale loan to get stuck in underwriting and denied.
You might have funding conditions in that loan. The question could become who will take care of, say, FHA repairs noted in the appraisal? If the seller is selling “as is,” the seller might refuse to comply with funding conditions. But the real world is if the seller refuses to help the buyer meet funding conditions, the short sale won’t close unless the buyer does it. Buyers don’t want to make repairs to a home the buyer does not own.
If the seller refuses to help work out funding conditions, be prepared to tackle those projects yourself. And get permission from the seller in writing. Most responsible sellers will help a buyer clear funding conditions.
So if you can get a cash buyer for a short sale you can save yourself a lot of hassle. No buyer’s banks, no appraisal, no FHA, no repairs and even no mandatory insurance at closing. As I said earlier, internationals buyers usually have cash on hand and if they finance a deal in many cases they use colleral in their home country making the short sale a de facto cash deal. Banks are a pain in the a** to deal with. Some are excellent, some not so much, but they always have problems adjusting themselves to the real world. No wonder, when living in a world where you can gamble and get bailed out by government if you lose. So the best advise for a seller trying to sell a short sale is not to deal with them. I would not recommend not accepting offers with financing, of course I would take it, I would actually take any offer and submit it to the bank.
But if you know of a way where people with equity and cash are interested in buying your home, do yourself a favor and try to take that route. If somebody else pops up with a financing contingency, ok, but try to maximize the chances of getting a cash buyer can avoid many problems. The same applies for investors. As long as they have a solid financing commitment or even cash on hand, the deal should go through. First time home buyers are more problematic and not the premier clientele you should seek for your short sale home.
So if you still haven’t called yet, just shoot an email through our contact form to get the short sale ball rolling for you.
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