Surviving the Short Sale Escrow Process

A residential short sale is not the simplest of transactions.  Unlike in a standard sale [i.e. equity sale], realtors in a short sale must first work with a homeowner’s lenders to acquire short saleapprovals before escrow closing can take place.  The realtor will not only have to successfully navigate the homeowner’s loss mitigation department to do so, but often times must operate in the face of a foreclosure looming in the background.  For many files, closing dates are established just days before a foreclosure auction.

In these situations, I commonly get this question thrown my way: “What happens if we need more time to close? The lender won’t foreclose, will they?”

As a short sale negotiator, I always have an eye and an ear on investor tendencies when it comes to foreclosure processing.  In days prior, it was not uncommon to see postponement after postponement being issued once the short sale was fully approved.  Investors were seemingly more reluctant to proceed with foreclosure and incur the associated costs for facilitating such an action.  As a result, realtors began relying on short sale approvals as a security blanket to help stave off foreclosure auction.   In more recent times, I’ve seen a growing trend for investors to choose foreclosure over short sale if the sale is looking like it ‘s floundering and won’t get done.  Requesting more time, and then more time, or requesting buyer change after buyer change, are red flags which eventually induce the investor to simply pull the plug instead of putting in more time, resources and money into processing the file.  After all, the short sale process is a form of Loss Mitigation.

As a general rule, I always encourage my files to close on or before the original closing date established in the lender’s short sale approval paperwork.  Predominantly this date is at least 30 days out from the date of approval issuance, which should give ample time to complete inspections and prepare escrow for closing.  With cash buyers, closing time can routinely be cut down to 30 days or less, so from a short sale perspective, Cash is most certainly King. 

Cases wherein buyer’s are requesting financing, today’s market does make it a bit difficult to manage a 30-day or less escrow close.  With everyone keen on taking advantage of the historically low interest rates, short sale buyers seeking loan financing are competing for limited lender attention.  To make sure my short sale buyer loan applications are processed in 30 days or less, I’m never more than a phone call or email away from the loan officer.  I constantly defer to the loan officer for status, and identify and implement corrective measures the moment I see underwriting fall off course.  Taking a proactive approach to all aspects of short sales is the key to my successes.

If I find the established closing date fast approaching and more time is absolutely necessary, I push the lender to at least show evidence of the following, placed in order from most ideal to least:

1. confirmation of funding

2. confirmation of all buyer’s closing funds wired into escrow

3. confirmation of signed loan docs

4. confirmation of loan docs

Without showcasing any of the above, a short sale lender will be more compelled to deny the short sale and proceed with foreclosure.  But if you can demonstrate to the short sale lender that your listing is on the cusp of closing, as these four statuses do, you are doing all that can be asked – maximizing the chances your short sale listing will get done successfully.