Okay, I’m not going to go into detail about the decisions that banks make that don’t make sense.    That’s not what this post is about.  Rather, as I think about the new Bank of America Short Sale 3rd Party Authorization form that is soon to be required, I am reminded of a few other things that we cope with in short sales that don’t make sense, such as the following:

One Must Be Licensed

Someone, somewhere said that in order to negotiate a short sale payoff, one must be either a licensed real estate agent or an attorney.  This makes no sense to me.  A real estate sale and a debt settlement are independent of each other.  When you sell your house, the proceeds satisfy the security against the property.  If you owe more than your house brings, payment of the difference is negotiated by the seller and the seller’s lender.  This is the short sale.  In my opinion, the only part of the transaction that requires a real estate license is the sale of the home.

Hypothetical:  What if the seller of the home puts his house on the market as a For Sale By Owner property, finds a buyer, then negotiates with his lender a short payoff of the note, and closes the deal without the use of a real estate agent?  Does he need to be licensed to do so?  Does he need to be an attorney?  This would be absurd.

Hypothetical:  A seller of a distressed property who is horrible at negotiating has a buddy who he knows is great at handling people on the phone.  He puts his house on the market without the use of a Realtor, gets an offer, has his buddy conferenced in on every call to the bank, and closes the sale for less than is owed.  As a thank you, the seller, after receiving his next paycheck, takes his buddy to San Diego for the weekend…clear consideration for the help he gave.  Does his buddy need to be licensed?

It seems the difference between needing a license and not needing a license is consideration.  What doesn’t make sense to me is what a real estate license has to do with settling a debt.

Expiration Dates on Approvals

I suppose I can understand that a lender, after issuing an approval, would want to create urgency to ensure that the deal is closed, however, it doesn’t make sense to put a time limit on closing a short sale for a property that has no pending trustee sale date scheduled.  In fact, closing deadlines are already set by the purchase contract and the Short Sale Addendum to the Purchase Contract.

If we miss the closing deadline due to the buyer’s lender having some sort of problem along the way, and there’s no pending auction date, what difference does it make to the bottom line if we close a week later?

Actually, there is a small difference if there are prorated taxes involved, but if the original HUD-1 that was submitted for approval placed closing far enough out, then the taxes will already be padded, and as a result, if closing happens earlier than the original HUD-1 states, the bank will actually increase their bottom line.

Buyer’s Agents and Lenders Asking for Approval Letters

While it’s been common practice for seller’s to provide buyer’s agents with approval letters, it’s not necessary.  The only argument I’ve heard FOR this practice is that the approval letter is like the Pre-Qualification letter, and as such, should be provided as evidence that an approval has actually happened.

Screech!  The contract isn’t written that way.  While the Pre-Qualification is indicates as an included document on the purchase contract when the buyer submits their bid, the Approval Letter is NOT an incorporated document.  It can be written into the contract as a required document, but it’s not part of the standard contract.  The only evidence that a buyer needs to prove that the short sale has been approved, is the AAR Agreement Notice which is specified in the Short Sale Addendum to the Purchase Contract.

Lines 22 and 23 are clear:

Agreement Notice:  If Seller and Seller’s creditors enter into a short sale agreement, the Seller shall immediately deliver notice to Buyer (“Agreement Notice”).

That’s it.  It doesn’t say “THE” Notice…it says notice, and that’s what the Agreement Notice is, which states:

Seller hereby delivers this Agreement Notice to Buyer pursuant to lines 22-23 of the Short Sale Addendum to the Contract. Seller and Seller’s creditor(s) have entered into a short sale agreement pursuant to which creditor(s) have authorized Seller to sell the Premises to the Buyer for less than the loan amount(s) secured by the Premises (”Short Sale Approval”).