What is 3rd party approval?

[Bryant Tutas]

THIS WEEK'S QUESTION AND RESPONSE

Hi Broker Bryant,

Thank you for the sample short sale submission letter, I found it to be very helpful. I am currently closing on a short sale and picking up a couple more tomorrow.

I have a couple of questions .... You stated... "Just remember, you are submitting a fully signed and accepted contract and asking the lender to remove the 3rd party approval. You are not asking them to accept the offer. The lender is not a party to the contract."

My questions are:

1. What is the 3rd party approval on a short sale purchase agreement?

2. Why is the lender not a party to the contract when the sellers need the banks approval to pass clear title?

Hi there,

A purchase contract is between the buyer and the owner of the property. Unless the property has already been foreclosed on then the lender is not the owner of the property. They have a lien on the property. No different than if there were an equity line or tax lien on the property. The mortgage is a lien that has to be cleared off at time of closing.

BUT since there will not be enough money left over at closing, to pay the lien in full, the owner of the property is asking the lien holder (lender) to accept less than what is owed (short) and remove the lien so they can provide the buyer clear title. This is a contingency (3rd party) in the contract. Simply put, the lender (lien holder) is a 3rd party who has to agree to accept less money, remove the lien and allow the transaction to close.