Tuesday, May 26, 2009

Short Sale Approval Expiration...

Dodged a bullet this week on one of my short sales.

For those of you who have not noticed, it seems like everyone and their mother is refinancing right now to take advantage of the low interest rates. Great. This has pushed loan processing, underwriting, document drawing, and funding timeframes out because lenders have not added staff to meet the increase in volume...each step is taking several business days to complete, making 30-day escrows for purchase transactions pretty tight.

Erin, why is this a problem?

Generally speaking, when a short sale lender approves a short sale, per my experience about half the time the short sale lender allows 30 days from the date of approval to close the transaction...the other half of the time, they allow LESS than 30 days to close the transaction.

So...I have a short sale listing that received approval from the short sale lender on April 28th. The approval expires on May 28th. Cool, right?

In theory, that should be adequate time to close this escrow. The buyer's agent was really on the ball, however the loan officer for whatever reason did not share our sense or urgency. The appraisal was ordered within a couple days, and the buyer's loan went into underwriting within less than a week of the short sale lender's acceptance. Under normal circumstances, underwriting would have taken 3-4 business days, and documents would have been drawn and sent to escrow within another day or so. In this case, it took 9 business days to underwrite the loan. Then, as if that were not long enough, it then took 5 business days to draw loan documents.
The loan officer's attitude? "Oh - no big deal. The short sale lender will just grant an extension to expiration date on the approval documentation." WRONG!

Loan documents were FINALLY received by Placer Title on Friday after the buyer's agent and I escalated our efforts and went above the loan officer's head.

So tell me...what do you think would have happened if the buyer were unable to close escrow on time? Extensions to the expiration date of a short sale by the short sale lender are NOT AUTOMATIC. Some short sale lenders will require you to start the process over if you can not close on time. Some short sale lenders will charge you a per diem penalty for each day past the expiration if you can not close on time...I have seen this as high as $200/day. If there is a Trustee Sale date set for a day soon after the short sale expiration date, some short sale lenders will allow the property to foreclose.

The moral of the story? Don't test these waters. Do everything humanly possible to close on time. Buyers - make sure your lender is prepared, and has a complete file so all that is needed is an appraisal to turn the file into underwriting.

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