After months of waiting for short sale approval, the last thing buyers want to hear is that their mortgage lender can’t perform. The mortgage loan officer might shrug shoulders and suggest, “Hey, get an extension on that short sale.” Spoken like a mortgage loan officer who has little experience with short sales.
Controlling the Closing Date
Lenders are used to calling the shots for home buyers. In a transaction that is not a short sale, the buyer’s lender pretty much controls the entire transaction. The lender decides when the sale will close. This is not the case in a short sale. In a short sale, the short sale bank picks the closing date. If the buyer’s lender can’t meet that date, the buyer could very well lose the home altogether. Some banks, under certain circumstances, will extend. Providing it is not a Fannie Mae short sale in default and providing that the bank wants to postpone the auction. Sometimes, banks prefer to foreclose if the auction date is at hand. Some banks will not extend the short sale at all. They are not required to extend if the terms of the approval expire.
Approving an Extension
The single biggest reason a bank might approve a short sale extension is that the bank probably prefers to make the short sale over the foreclosure. Making the short sale must make more financial sense for the bank and be more profitable than a foreclosure. Most banks fall into this category, but not every bank will give an extension to close a short sale. There are some steps you can take to increase your odds that the short sale bank will provide you with the extension. These include setting a guaranteed closing date, getting the signatures of all parties, and providing proof of funds.
Present a Guaranteed Closing Date
Generally, this means your lender has drawn documents and will be ready to fund once you have signed and returned the loan documents. Banks don’t want to write letter after letter only to be told the loan is not quite ready. Be ready first. Then, ask for the extension.
Sign an Addendum Extending the Closing
The short sale bank might want assurance that all parties to the short sale transaction are still on board and ready to close. If your agent can send an addendum to the bank signed by all sellers and buyers, this will prove that everyone has agreed to the extension.
Updated Preapproval Letter or Proof of Buyer Funds
The letter the short sale bank has in its possession might be several months old by the time the bank had issued short sale approval. Show that the buyer is still qualified and ready to close. Prove an updated closing statement. Don’t wait for the bank to ask you for this, send it.
Be Professional and Prepared to Pay
Do not demand the extension, or you may not get the extension at all. Explain the reasons behind the delay and assure the negotiator of the date by which you will close. An extension by the short sale bank is a privilege; it is not a right. Some banks might charge a per diem for every day you run past the original closing date. That fee could be $100 a day or more. It could be a percentage of the net. The terms might already be contained in the short sale approval letter, so it’s wise to review the letter. The best way to deal with asking the bank for an extension on your short sale is to close on time and not need an extension. Some lenders do not understand that the short sale closing date is not always flexible and that they should do their best to meet that time frame. You might have to drum this fact into their heads. And let’s hope that it’s not your dream home that goes to foreclosure because your lender could not close on time. Always give yourself a buffer of a week or more to close. Funding conditions that can’t be promptly met and reappraisals are the norms after HVCC. Delays are sometimes inevitable. Or better yet, when you hear short sale approval is close at hand, immediately start your loan. Would you rather risk losing an appraisal fee or lose the home? At the time of writing, Elizabeth Weintraub, License #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
