The short sale approval letter, read carefully.
Once a servicer approves a short sale, everything rests on the approval letter. Approval letters vary by servicer, investor, and state: some sellers receive a deficiency waiver, others do not, and terms are negotiable within limits. This guide walks what an approval letter typically covers and why the listing agent should verify every term before the file moves toward closing.
What an approval letter typically covers
Approval letters are not standardized. Different servicers, investors, and states produce different letters with different clauses. The items below are what a listing agent commonly finds and should read carefully on any approval. The approval is tied to a specific offer, so each term should match the deal as it was submitted.
Approved sales price and required net
The price the servicer will accept and the net proceeds it must receive. Any change to the price or terms can reopen the approval.
Closing deadline
The date by which the sale must close. Deadlines vary and extensions may be possible, but they must be requested early and in writing.
Commission
The total commission the servicer will permit, which may differ from the listing agreement. Confirm the split and any caps.
Seller contribution
Any closing cost concessions the seller is allowed to make, and any limits on them.
Junior lien allowance
The amount, if any, the senior servicer permits to be paid to a junior lienholder from the proceeds.
Relocation assistance
Whether the approval includes any cash for the seller's move, which varies by program and investor.
Deficiency and release wording
Whether the approval releases the seller from the unpaid balance, and the exact language. A release of the note or debt is separate from the approval itself. See the deficiency guide.
Buyer and resale restrictions
Any restrictions on who can buy or how soon the property can be resold. These vary and can affect the transaction.
Required documents and conditions
Any documents the seller must provide before closing, and any conditions that must be met. These can include payoff statements, updated income evidence, and signed affidavits.
Why the listing agent should verify the terms
An approval letter is a contract-like record, and its terms bind the path to closing. Reading it once and assuming it matches the deal is a common source of trouble. The approved price may differ from the contract price, the closing date may be tighter than expected, and the deficiency language may say less than the seller hoped. Each of these is better caught before closing than at the table. This is also why the process does not end at approval: the terms must be confirmed and carried through.
A caution on deficiency language. Some sellers receive a deficiency waiver in the approval; others do not, and the wording varies by servicer, investor, and state. Whether a release covers the note, the deed of trust, or the full balance is a factual and legal question. Confirm the exact wording in writing, and refer the seller to a qualified attorney or tax professional for individual situations, as the deficiency guide explains.
Loan programs shape the approval
The investor behind the loan shapes what the approval can contain. The FHA and VA frameworks each carry their own approval expectations, and conventional and portfolio loans differ again. Reading the approval letter with the correct program in mind helps an agent know which terms to expect and which to question.
Related resources
- Short sale offers
The offer the approval is tied to. - The short sale process
Where approval sits in the full timeline. - Short sale deficiency and debt release
Reading the deficiency and release wording. - FHA loans
The FHA approval framework. - VA loans
The VA compromise sale and approval. - Short sale closing checklist
What happens after approval arrives.
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