(Short Sales and Loan Applications) Recently several lenders have indicated that they are not allowed to submit the Purchaser’s loan application for approval until there is a “short sale approval letter.” What this means is that after all the time required to obtain short sale approval, only then will the Purchaser’s lender submit the application to their underwriters. If the Purchaser has agreed to apply for the loan after “contract ratification,” then a lender who will not submit the loan application until short sale lender approval may cause the Purchaser to breach the terms of the Contract.
Prior Tucker Tips have discussed the benefits of obtaining loan approval early as a strategy in negotiating with the short sale lender. Basically, with prior loan approval, the short sale lender knows as soon as they issue the approval letter, the closing can occur.
Ask the lender for the Purchaser if there is any policy regarding loan applications for short sale transactions. If they can not submit the loan application until short sale lender approval, then ask for a special exception. Perhaps the lender can obtain conditional loan approval, subject to receipt of the “short sale approval letter.” As there are already enough problems with short sales, it’s best not to have the Purchaser’s lender create a new problem. Everything can usually be worked out if we all communicate and resolve potential problems early.