I recently joked that real estate agents do not have those cuff bracelets that Wonder Woman donned. You know, the ones that were indestructible and fended off errant bullets. And, while I am certainly not advocating that agents shoot one another, we do need to do things to protect our clients (either buyers or sellers) when fielding offers on short sale transactions.
If you are a listing agent who receives offers on your short sale listings, you need to put everything in writing before sending the offer to the bank. While the bank does have veto power (particularly when it comes to purchase price and fees), you need to protect your seller. In many cases, the seller has no money to contribute to the short sale transaction, so you will need to be clear on who will pay for things if the bank does not approve them.
For example, what happens if the buyer wants a closing cost credit and the bank does not approve the closing cost credit? What happens if there are unpaid HOA dues and the bank does not want to pay them? What happens if the bank does not want to pay for Septic Tank Certification? Will the seller pay? Will the buyer pay? Issues, such as these, need to be stipulated (in writing) at the very beginning of the transaction and not as an afterthought once the short sale is approved.
Buyer’s Agents Protect Buyers
If you are a buyer’s agent who is making offers on short sales, you will also want to protect your buyer (with or without Wonder Woman’s bracelets). For example, a buyer’s agent may want to put a deadline on the short sale negotiation period because the buyers will only be willing to wait two months for the approval. Another buyer may be so in love with the subject property that the agent will want to be sure that the buyer stays in first position when (and if) the bank provides a counter offer. To protect this buyer, a buyer’s agent may want to stipulate that escrow is opened immediately in order to assure that the buyer maintains first position.
While many components of a purchase contract are subject to negotiation, contracts are not meant to be broken and terms and conditions are not meant to be changed at the eleventh hour. Wonder Woman’s bracelets were for protection. The real estate contract is also made for everyone’s protection. Use it wisely; try to make your terms and conditions bulletproof.
Sidebar: I am a California girl despite the fact that I do not have the stereotypical blonde hair. All my advice is based on my experience working short sales in the State of California. If you live elsewhere, be sure to become familiar with the laws and rules for your state.
Sheila Rasak
September 6, 2010 at 12:15 pm
Another great blog, Melissa! I must say that there is a portion that I don’t completely subscribe to as I feel it could be a hornet’s nest.
As in a “regular” sale there is room for give and take. Let’s say the seller is completely cash poor. If you clearly stipulate from the get go that the buyer will assume all costs of HOAs, etc. and you haven’t completely realized what the lender is willing/unwilling to pay for you may just be tightening the noose around your seller’s neck.
I’ve done quite a few short sales and can tell you that there are lenders out there paying taxes, homeowner’s dues, AND repairs that aren’t even disclosed in the home inspection and the buyer never asked credit for ($3,000!).
While I can’t state that short sales are actually evolving, I can certainly say the game gets changed each day and each lender has a different set of rules. Once established, the lender will also shake up those rules depending on who your negotiator is, their experience on the job and countless other factors.
Again, another excellent blog! Thank you for writing such informative material.
Charles Mackenzie-Hill
September 7, 2010 at 3:26 am
(While many components of a purchase contract are subject to negotiation, contracts are not meant to be broken) This sentence I wish was printed on top of the contract. I don’t think we have had a contract yet that some party hasn’t tried to change at the eleventh hour . Great post . Thanks
Allison Ables
September 7, 2010 at 12:43 pm
There are so many games played on all sides of short sale transactions that it makes me feel as if there is no contract.
Rob McCance
September 8, 2010 at 10:48 am
Good post, good points.
I recently had a short sale fall out because the bank would not concede on the $7k in HOA that was due. Can’t blame them, they were already conceding around $90k on the loan itself.
The HOA in it’s infinite wisdom decided not to concede as well and instead chose to leave the home vacant, with nobody taking care of it and nobody paying HOA, back OR forward.
Made a lot of sense to me.
That was my one, only and last short sale transaction. I avoid them like the plague that they are.
Kathleen Scanlon
September 10, 2010 at 10:28 am
With regard to short sale contracts and draftsmanship, I am wholly uncomfortable with the thought of real estate agents drafting and modifying these types of contracts. My suggestion to you is have a real estate attorney draft the contract which will save you possible headaches down the road and from getting sued by a disgruntled purchaser.
Rob McCance
September 10, 2010 at 10:35 am
Agents are not supposed to be modifying their contracts anyway. That’s called practicing law.
What I do on iffy stuff is just make the due diligence period (something we have in GA) really long. That way, no matter what bump in the road comes along, you can always terminate for any reason within that period.
If you get close to the DD period ending and still have too many variables, you can extend it or terminate.
Some states probably don’t have the DD period.
Melissa Zavala
September 10, 2010 at 11:28 am
In California, we use a standard contract and there are pages in the contract where we just put a check mark in a box (For example, Buyer or Seller to pay x or y.) This post stems from my experience with California contracts, and ability to use an addendum to clarify situations that arise later in the short sale transaction. I was not advocating for rewriting the contract. Maybe I should have been clearer in the blog post. Sorry.
Kathleen Scanlon
September 10, 2010 at 5:09 pm
Another suggestion is to ask a friendly real estate lawyer to prepare a Short Sale Rider to be attached to the contract. This is our typical short sale contingency clause:
15. SHORT SALE CONTINGENCY: THIS CONTRACT IS SUBJECT TO THE SELLER’S CURRENT MORTGAGEE(S) ACCEPTING A SHORT PAYOFF REQUEST, INCLUDING ALLOWING PAYMENT OF SELLER CUSTOMARY CLOSING COSTS, REAL ESTATE COMMISSIONS, OPEN TAXES AND ANY AND ALL OUTSTANDING AMOUNTS AND LIENS AGAINST THE SUBJECT PREMISES, AND APPROVING THE TERMS OF THIS
CONTRACT OF SALE, AS PRESENTED, AND ANY RIDERS THERETO. IF THE MORTGAGEE(S) SHOULD DENY SUCH REQUEST OR DISAPPROVE ANY CONTRACT TERMS HEREIN, THEN THIS CONTRACT SHALL BE DEEMED NULL AND VOID AND THE SELLER’S SOLE LIABILITY SHALL BE TO REFUND THE DOWNPAYMENT PAID HEREUNDER, IF ANY.
Buyer acknowledges that these approvals can take up to, on average, at least 6 weeks to obtain and as such, shall maintain and keep all mortgage commitments and credit approvals current and shall grant Seller a 30 day extension on the closing date, if necessary, as long as Seller is pursuing such short payoffs in good faith.
Again, laws differ in every jurisdiction and this may not cover your situation in your personal jurisdiction.