Enduring the short sale approval process is one of the toughest parts about selling your home to avoid foreclosure. Because you owe more on the mortgage than the home can sell for, your lender has to voluntarily agree to take a loss. The lender's decision-making process usually takes at least several months. Once you receive short sale approval, you can expect the sale process to move more quickly and smoothly, although certain events can hinder closing.
You have short sale approval when your lender -- or lenders, in the case of second mortgages and home equity lines -- provides you with a letter stating the short sale terms. Approval conditions include a minimum amount of net proceeds the bank must receive from the sale; the date by which the sale must close and any costs the lender is willing to cover to make the deal happen. Upon approval, your home is s officially in escrow and the property's listing status changes. Multiple listing service rules about short sale status vary, but in general, the home's status changes to "pending" once you have approval.
Because short sale approval is not guaranteed and getting a loan involves paying for an appraisal, short sale buyers usually hold off until approval before they begin the loan process and inspections. Upon approval, contract time lines begin and the buyer must secure his loan and commit to purchasing the home according to the sales contract terms. An appraiser for the buyer's lender walks through your home to determine its value and a home inspector or other types of inspectors and specialists may inspect for termites, check mechanical systems, roofing, plumbing electricity and other features.
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At closing, you must sign the deed which conveys ownership of the home to the buyer. You also sign the lender's short sale approval letter, which shows that you acknowledge that you are a willing participant in the the short sale and abide by all of the lender's terms. You must be willing to move out of the home before or upon closing. The attorney or escrow agent handling the short sale transaction must send proof to the lender that all terms, including net proceeds and allocation of settlement fees, meet the lender's guidelines. Once the lender verifies this, the transaction can close.
Problems can arise after short sale approval that can delay or prevent the short sale close. The buyer may not gain loan approval or decide the home's condition is unsatisfactory, and back out of the deal. In some cases, this may require a new short sale letter, re-starting the approval process. When secondary lenders provide a closing date that differs from the primary lender's approval, or the buyer fails to meet the closing date, you may have to seek a new approval from the lender, giving the buyer more time.