A Short Sale Contract is STILL a Contract!

By
Real Estate Broker/Owner with Bryant Tutas-Tutas Towne Realty, Inc BK607690

Florida As Is  real estate contractHi folks. Allison Stewart wrote a very good post this week titled WALK THIS WAY... CAN BUYERS JUST WALK AWAY FROM A CONTRACT?. Allison’s post is talking about Buyers who feel they can just walk away from a Short Sale transaction and get their deposit back because they are just tired of waiting. They feel the contract is not binding.

Here is my opinion on why Buyers feel this way. They are misinformed.

A Short Sale contract is no different than a regular contract with the exception of the 3rd party approval contingency. This contingency is related to the Lender approving the “Short” NOT approving the contract. The lender has no authority to approve the contract since they are not a party to the contract.

They do however have the authority to approve or disapprove the Seller’s request for a “Short” payoff.

A contract is binding and legally enforceable when:

  1. It has a legal purpose
  2. The parties are legally competent
  3. The offer has been made and accepted
  4. There is consideration
  5. The parties have willingly consented to the terms


There may also be contingencies in the contract. Contingencies are: Conditions which must be met if a contract is to be performed.

Some contingencies may be to protect one of the parties:

  1. Survey
  2. Inspections


Some contingencies may need to be removed in order for the purchase to be completed:

  1. Title
  2. Short sale approval
  3. Financing


The Short Sale approval is just one more contingency in the purchase contract. And just like any other contingency it should have a time period to be removed.  

If it can’t be removed in the time allowed then the parties can either extend the time period or cancel the contract and return the escrow deposit.

If it can’t be removed at all because the Short Sale was denied then the contract becomes  “null and void”. The Seller is now unable to perform. This is no different than when the Buyer’s financing is denied. He too is now unable to perform.

Folks....this stuff is NOT complicated. It’s Real Estate 101. Stop trying to complicate matters by treating the Short Sale as anything other than what it is…..a contract contingency.

If your Short Sale listings are not closing. Get training. You’re doing something wrong.

If your Buyers are getting frustrated then you are not setting the right expectations.

These are my thoughts. What are yours?

***I am NOT an Attorney and this is not legal advice. I am however a Licensed Florida Real Estate Broker and this IS my opinion.

Bryant Tutas
Broker/Owner
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker
http://CentralFloridaShortSales.com

http://ShortSaleSuperStars.com

***The content of this blog is solely my opinion***

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 Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales,  Orlando Florida Short Sales, Celebration Florida Short Sales, Winderemere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Michael Crawford 08/16/2009 08:56 AM
  2. ASHEVILLE 1031 SIGNATURE PROPERTIES specialists in - LAND,INVESTMENT ACREAGES, AND LUXURY HOMES 08/16/2009 02:17 PM
  3. James Bath 08/17/2009 07:39 AM
  4. Debe Maxwell 10/13/2009 11:00 PM
  5. June Piper-Brandon 10/14/2009 09:47 AM
  6. Nathan Tutas 11/23/2009 08:44 PM
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Ambassador
1,886,576
Nestor & Katerina Gasset
International Properties and Investments LLC - Wellington, FL
Realtors, Wellington Florida Homes For Sale

Oh one more thing, for agents who say they want me to put my listing in pending status when the seller and buyer sign but want to walk away for any reason, ARE YOU SERIOUS?

First of all, none of my listings EVER go pending until all the contingencies are removed.

We submit one offer at a time to the short sale lender, we continue to market because IF the buyer walks or like usual these days can not get a loan, we need to have a back up offer in place. We take back up offers. Our job is to keep our seller from getting their house foreclosed on and if that does not sit well with buyers agents, than OH WELL! My job is NOT to make the buyer happy, my job is to work for our seller.

This is one of the biggest fights I have with our Board and MLS. They are all in favor of buyers and buyer agents and there is no advocate for my seller who is losing their home! Katerina

Aug 19, 2009 12:03 AM #156
Rainmaker
235,073
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

BB- just confused why you keep saying these are board addendas. If the forms is from the California Association of Realtors and our office requires its use, I'm not seeing where we have a choice. Apparently there are major differences from state to state.

Aug 19, 2009 12:17 AM #157
Rainer
55,803
Sean Barber
Charles Rutenberg Realty - Saint Petersburg, FL

Here is the thing - and I do not know if this has been address becasue I only made it halfway through the comments.

A seller in pre foreclosure does not have the wherewithal to stand up in court or in arbitration and fight for a thousand or few thousand dollars earnest money. They are usually insolvent to begin with and flirting with bankruptcy options. This one glaring fact alone allows these buyers to walk all over them and violate the short sale contingency without penalty. Getting the house back on the market and finding another contract to stave off foreclosure is usually more pressing than fighting with a buyer who is not going to help you consummate a deal.

Besides if they are not even making their payments, shouldn't the forfeited escrow go straight to the primary lender? Depends on who you ask, right? LOL

Thanks for another excellent post.

Aug 19, 2009 01:17 AM #158
Anonymous
Anonymous
Sheila Scruggs

I have done some 'short sales' here in Tennessee. I use a TAR form here that gives the bank ( you fill out the number of days) so many days to approve the ;short sale' or the sellers or buyers can back out. Also i use anither form that the buyers and sellers sign telling them what a 'short sale' is.

Sheila Scruggs

Century21 Hendershot Realty

www.hendershot-realty.com

East Tennesse, Monroe County, Tn.

Aug 19, 2009 08:46 AM #159
Rainmaker
237,724
Roger Johnson
CENTURY 21 American Homes - Hickory, NC
Realtor - Hickory NC Real Estate

No BB, no confusion about board addenda and state law.  I was just making a comment that states do have varying laws governing short sales.  Add to that that there are many, many different board addenda and it makes it difficult at best, and next to impossible at worst, to have a good discussion on the topic as it will vary from place to place.

You're right, you don't have to use the standard contracts and addenda.  Heck, you can write a contract on a napkin if you so choose.  Well, the seller/buyer can.  As a NC RE agent, I can't write ANYTHING, contract-wise.  Only the buyer, seller, or their attorneys can do that.  Since the seller probably isn't going to pay for a custom-made contract, and I'm sure not going to get one done up and recommend it to sellers, I guess we're stuck with those board contracts.  Me, I'll stick with contracts that have been made to protect all parties, including me, vs. custom made one that I may have to defend in court.

Add to that that many companies require that their agents use state-approved, or board approved contracts, and the whole conversation on the subject becomes a moot point, regardless of your feelings for or against.

Even without our addenda, I would argue (if I were buyer's agent) that there is no valid contract between the parties UNTIL such time that a formal written approval of the short sale by the seller's lender is given because the seller simply cannot deliver on the contract until it is given.  If a contract is not valid, then it becomes a voidable contract, which of course, can be voided at ANY time.

Some of the comments here want it both ways.  As a seller's agent, they want a valid contract with the buyer tying up earnest money BUT they also want to be able to market the home as "for sale;" not pending or under contract.  Whatever your laws, or board rules, I don't think that it should be a double-edged sword for the buyer, tying up their earnest money and still allowing others to make offers.

Aug 19, 2009 03:09 PM #160
Rainmaker
1,088,067
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Jenny, I keep pointing it out because my opinion is that our boards are harming the public by putting out addenda that defeat the purpose of having a binding real estate contract. It just shows their lack of understanding of the short sale process. And....there are many agent that confuse an addendum with law. Just read through these comments and you'll see what I'm referring to.

I completely understand that you may not have a choice in the matter and have to do as instructed by your Broker.

Roger, We just have to disagree about the validity of a short sale contract. By your train of thought a buyer's financing contingency also keeps a contract from being valid since they can't close either unless their lender approves the transaction. if this is the case then why do we even waste our time writing contracts? There seems to be no point since either party can just walk away anytime they chose with no recourse.

What would happen if your buyer spent time and mloney on a transaction in anticipation of closing and all of a sudden the seller just changed their mind and deciced to sell to another Buyer? Would you be OK with that? It's no different than when buyers just walk for no reason.

Aug 19, 2009 06:00 PM #161
Rainmaker
182,118
Richard Daskam
Keller Williams Realty - Signal Hill, CA
Your Real Estate Consultant

Wow, what a great response!  What I am seeing is the listing agents are not sending out counter offers after the short sale lender approves the final HUD with the final, approved costs they will pay for. 

As you said, a contract is a contract, so unless the buyer agrees to pay for the "hoa transfer fee" or the "Termite Inspection" then you no longer have a meeting of the minds.  The buyer agreed to a certain set of costs and if the lender refuses, the seller/listing agent need to put those changes in writing and get the buyer to agree, or allow that buyer to cut loose and go to another buyer.

Many times I think it is the uneducated short sale listing agent that is the cause of problems!

Aug 19, 2009 11:57 PM #162
Ambassador
327,988
Karen Hurst
STONEHURSTREALTY.COM - Warwick, RI
Rhode Island Waterfront!

As with anything else, many of the differences are specific to the local state. In RI, we now have a pending to Short Sale status, meaning that an offer has been accepted by the seller and is pending the banks approval. 

As for the rest..There are many views complicating the short sale process, some of which are simply misinformation. 

I have a buyer in a pending short sale right now.  I have a signed p&S by the buyer only (all else is verbal, which to me means we can keep searching)

Also, if the Seller were to sign it would still be contingent on the Banks acceptance.

We now have a short sale rider in RI that allows us to put dates on the contingencies. Everyone involved has a clear written story of what should be done and when.

Buyer gets their deposit back if any of these conditions are not met.

 

Aug 27, 2009 09:57 AM #163
Rainmaker
289,083
Bob Pisa Downing-Frye Realty
Downing-Frye Realty, Inc. Naples, FL - Naples, FL
Commitment, Service, Satisfaction...

Buyers need the ability to walk away...

The buyer wants to buy a property. How long should they be expected to wait, indefinitley? Our short sale addendum allows the buyer (or seller) to terminate the contract simply by providing notice to the other part after the contingency period expires. It's 30 days by default and I write in 45 days and have had two recent buyers wait three months to hear nothing.

The addendum allowed me to write a termination notification and we moved on to other properties.

Aug 29, 2009 01:03 PM #164
Anonymous
Anonymous
buyer

Is this the same group of realtors that were drinking the kool-aid back in 03',04',and 05' telling me (buyer) I had better buy now or be priced out forever?

You can't seriously be worried about your reputation being damaged when it comes to short sales can you? WAKE UP it's already damaged by your disgusting GREED you displayed during the boom. 

Us buyers are supposed to sit and wait for 4 months? Sorry I don't think so.. the problem isn't the buyers. The problem is banks take WAY TOO LONG to respond! Want proof?

there is a condo I am interested in, it was on the MLS at $176,000. I called up a realtor and made a CASH OFFER of $170,000.

That's right.. CASH OFFER.. guess what? 2 months later STILL NO WORD.. 

Byrant- You just seem all to worried about the bottom line (what goes in your pocket) than anything else.

 

Sep 07, 2009 02:17 AM #165
Rainmaker
1,088,067
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Buyer, Short sales take time. That's a fact and there is nothing the agent can do about it.

I'm not worried about my reputation or the buyer. I'm worried about keeping my seller out of foreclosure. That's my job. Nothing else really matters.

If you want to buy a short sale then you have to wait. If yoyu don't want to wait or can't wait then you need to be looking at foreclosures or regular listings. Your impatience will not get the desal done sooner. That's a fact too.

In my market I make about $1,500 when a short sale closes.  That's after 6-7 months or hard work. I'd hardly say that is worrying about what goes in my pocket.

Was your offer in writing? Did you provide proof of funds? Are you working with an agent? Let me know if there's anything I can do to assist you.

Sep 07, 2009 07:38 AM #166
Anonymous
Anonymous
Kevin

Well said.  You would not believe how many agents, Brokers, Brokers in Charge, Association Board Presidents, I have had to explain this too! Even the SC Board of Realtors has it wrong!  

 

 

Oct 10, 2009 12:17 AM #167
Rainmaker
658,119
June Piper-Brandon
Century 21 New Millenium - Baltimore, MD
Piecing Dreams One Home at a Time

Bryant, this is great information and I am going to reblog it for my followers too.  Thanks for sharing.

Oct 14, 2009 09:27 AM #168
Anonymous
Anonymous
Seller

This short sale addendum is a dream for buyers and agents however a nightmare for everyone else involved.  Unfortunaely for me I did not even realize the consequences of the addendum until the buyer walked.  They just changed their minds.  They had nothing to lose and will get thier deposit back as well.  My agent and I do not agree on this issue as he justifies the fact that all short sales are done with this addendum.  I propose that this is utter nonsense.  Just because everyone does it doesn't make it right.  An addendum that virtually cancells out the most pertinent parts of the contract that it is an addendum to.  What? 

One of the options on the short sale addendum states that "all time periods for inspections, contingencies, deposits, and all other obligations under the Contract shall commence from the date Seller delivers written notice to Buyer that the contract has been approved by the lender". So in my case, the buyers have decided that they do not like one of the neighbors, although the buyer resides in Canada, so they will use the inspections to get out of the sale, and the effective date to get thier money back.  What they intend to do is get the inspector to say that the couple of tiles at the front door are cracked, which I am certain was very apparent before they respectably entered into a legal and binding contract.  I don't think that an inspector is warranted in this case.  Additionally the property is new, in the Country Club, on the golf course, 8 months occupied however vacant now.  Obviously this buyer was not serious about the property and agents are just promising everyone that is on the prowl for a bargain that they have nothing to lose.  Toss as many of these contracts as possible and see what sticks.

This is a contributing factor as to why the majority of these short sales are not successful.  I have since learned that many times they are approved by the lender only to have had the buyer walk away anyway.  Why?  Because they can.  I have refused to sign off on the cancellation of contract at this time choosing to force the buyer to follow thru on what they started, to get an inspector to do their dirty work.  Oh, and as an added bonus the contract used was an "As Is" contract although the property is new and contains the following clause.  "If Buyer determines, in Buyer's sole discretion, that the Property is not acceptable to Buyer, Buyer may cancel this Contract by delivering facsimile or written notice of such electin toSeller pryor to the expiration of the Inspection Period.  If Buyer timely cancels this Contract, the deposit(s) paid shall be immediately returned to Buyer."  Swell.  

Bryant can you tell me why my agent has asked me to sign off on the cancellation?  It appears to me that no one needs my signature.  All I know is that my property has been tied up as my agent stopped marketing my property once we got the offer from the buyer's agent because he couldn't market it as active........ My agent feels that I no longer trust him and that I feel that he was negligent in not looking out for my interest, although his sentiments are that it is not the case.  I have assured him that I take full responsibility for putting blind faith in someone, anyone else, to do my thinking for me.  In the future, should I be lucky enough to recieve another offer it will be submitted to my attorney for review. 

My agent assures me that if "we" come up with another buyer, the same addendum, with the same clauses will be in the contract.  I have assured him that my signature will not be affixed to the contract. I suppose I will heading for foreclosure.

 

 

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Mar 25, 2010 04:21 PM #169
Rainmaker
1,088,067
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Seller, I completely agree with you on all counts. REALTORS(R) feel obligated to use contracts and Addenda that are prepared by our associations because we are not allowed by law to write contracts we can only fill in blanks. Also, Brokers force them to use the board generated contracts to cover their butts. These contracts are not looking out for you.

Personally I use a Short Sale addendum that was written by an Attorney. We require the deposit at time of contract. We also use another disclosure letting buyers know that of they walk for no reason the seller is claiming their deposit.

Even though agents can't write contracts and most will use board contracts YOU can use whatever contract and addenda you like as long as the buyer agrees to it.

Now even our Florida board generated short sale addendum does give the option of making all time lines start when the contrcat is signed by buyer and seller. I would certainly recommend this. That way the buyer will need to do the inspection right away and remove that contingency.

Protect yourself as much as possible. Buyers still walk. But you at least need to have a fighting chance.

Mar 25, 2010 05:01 PM #170
Anonymous
Anonymous
Seller

Can you tell me why I am being asked to sign a cancellation of contract when the buyer can cancel at his own discretion?

Also, can a FAR/BAR Contract For Sale And Purchase be used in short sales as well or does it have to the the "As Is" Contract?  Do you know the verbage for the addendum requesting the lender to satisfy the mortgage as well as the note?

Thanks.

Mar 27, 2010 07:03 AM #171
Anonymous
Anonymous
Seller

Buyer, perhaps the reason you are still waiting for your short sale answer is because your lender is working on the 500 files that came in before yours.  Oh and by the way, 400 of those are a complete waste of everyone's time because the buyer's going to walk away anyway.  Why?  Because each of those buyers had multiple offers submitted waiting for the best deal to emerge.  Why would they do that you ask?  Because they had nothing to lose when they signed off on all of the contracts that have been manipulated by rediculous clauses making them not worth the paper their written on.  Now look again, can you see the whole picture?

Mar 27, 2010 07:14 AM #172
Rainmaker
1,088,067
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Seller. Any time a contract is canceled a cancellation should be signed. It basically just protects all parities. including the brokers. from someone coming back in the future stating they have a contract. In Florida it also instructs the escrow agent how to release the deposit.

Most lenders want the purchase contract ot be As Is. If a regular Far/bar is used they'll want an As Is addendum added. The reason being is that of the seller has money for repairs the lenders wants it. There may be exceptions to this nut I have not seen one.

I agree completely about the Contracts, that aren't worth squat, clogging up the system. Hopefully as agents get more and more experience this wil change. And of course it will help when lenders start approving short sales faster.

Lenders MUST release the mortgage in order for a short sale to close. Releasing the note is up for negotiating.

 

Mar 28, 2010 05:28 AM #173
Rainer
333,112
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo

Well sometimes i dont know what to think of short sales. They are getting better and then they are not!

Aug 18, 2011 03:10 AM #174
Rainmaker
1,088,067
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Paul. That sounds about right!!

Aug 18, 2011 07:41 AM #175
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Rainmaker
1,088,067

Bryant Tutas

Broker/REALTOR, Tutas Towne Realty, Inc
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