Wells Fargo to Halt Extensions on Short Sale Deals

Buyers need to close on time, or the short sale transaction may be canceled.

Wells Fargo has announced that its investors, including government-sponsored entities (GSE’s), have requested that they halt extensions on short sale transactions.

Short sales that close by the date on the approval letter are safe from further action it appears. However, if a buyer cannot close on time, the possibility of getting an extension is greatly reduced.

Wells Fargo says that it may grant extensions for in-house loans, including loans acquired from the Wachovia merger, and in cases where the investor allows it. Even so, there will be only one extension granted.  This new policy allows one foreclosure postponement, provided these conditions are met:

• a short sale has been approved by Wells Fargo, by junior lienholders and by mortgage insurers;
• the buyer has proof of funds or approved financing;
• and the short sale can close within 30 days of the scheduled foreclosure sale.

Fannie Mae recently told its servicers to stop unnecessarily delaying foreclosures. They intend to hold servicers responsible for unexplained delays to foreclosures, and that they may assess fines and on-site reviews.

It is unclear how this affects transactions that are hung up indefinitely in the short sale approval process. Often foreclosure auctions need to be delayed at least once while the short sale approval is processed, and while the property is in escrow after approval.

Typically short sale approval letters are extended when there are troubles with the buyer, either because the buyer’s financial situation has changed, the loan requirements have changed, or the buyer just became impatient with the short sale process. This allows either 1.) the current buyer to correct the situation and close the transaction, or 2.) another buyer to step in with the same price and terms as the original buyer.

Although some banks do recognize that they’ll typically get more from a short sale than they would for a foreclosure, the length of time for a short sale transaction to close has become a concern. In areas where market values are still rapidly declining, Fannie Mae has indicated that they would rather foreclose and dispose of the property sooner, rather than waiting for a short sale transaction to close.

What does this mean to short sale buyers and sellers? It seems that more diligence is needed in making sure that the buyer is fully qualified for the loan, has adequate funds for closing, and is aware of all extra costs involved with the home (HOA dues, Mello Roos assessments, etc). The listing agent should also keep constant communication with the buyer’s agent, to assure them that the short sale approval process is still moving along as it should.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate, foreclosures and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.