WALK THIS WAY... CAN BUYERS JUST WALK AWAY FROM A CONTRACT?

I read every word.  Such a frustrating situation these short sales can present.  I am in one now, where my buyer has (reluctantly) agreed to wait 90 days for the bank.  With all the delays of gettin this offer even into the system, I am wondering what kind of a chance we have that we will mee the time frame.  I beleive the buyer will take it as an "omen" that she is not to buy in Palm Coast and therefore I will have wasted the 6 mths or so I have invested in her transaction. 

I really love it when the buyer wants to argue with the bank or try to "teach them a less" or get a rationale explanation - fat chance!

Hi Allison -- Great post and very informative.  I tell buyers, short sale or not, how earnest money works in detail so there is a relatively little chance of surprise, regardless of outcome.

California has a short sale addendum that allows the buyer to state how long he will wait for bank approval.  After that time, he is no longer bound to the contract if the bank hasn't approved the short sale. 

Additionally, it allows the buyer the option to not put in a deposit or start inspections until after the bank has approved the short sale.

Is this best for the seller?  Probably not, but so many short sales don't close, that it's also important to protect your buyers and try to interview the listing agent.

Allison- it has amazed me over the years how many times I've heard buyers say..."Well I can just get out of it(the contract) later if I want". I want to scream when I hear that. I think it has a lot to do with as Realtors and property owners- we'd rather just let them walk instead of fighting it in court(which takes time, money, etc).

I just had a seller walk, says she thought that she could change her mind anytime before closing. Of course I,m to blame for not telling her that.

The problem is that there are only rules on one side of the transaction.  The banks can do as they please, but the buyers are expected to wait around forever...  Either they both have real timelines with punishment for failing to meet them, or either side can dance away at will...

I really like Lenn Harley's comment.  Especially, this part of it, "However, since there are no guidelines and the buyer's agent is not involved in the communication between the listing agent and seller's lender, the HOME BUYER is protected through the contract and is provided an opportunity, after an agreed upon time frame to WITHDRAW their offer, which is an offer until approved by the third party."

I understand the "short-sale" listing agent's point of view about commitment.  However, I know of too many cases where buyers acted in good faith, got hung out to dry for 8 or 9 months, and still the transaction didn't close, because of the bank.  I think the word "COMMITMENT" is far too one-sided.  No buyer should be expected to commit, place earnest money deposit money into escrow, and then wait for months on end, while other available properties come and go.  Time IS of the essence.

Legally, there really is no contract until signed by all parties, and that would include the bank.  I had an instance of a bank giving us a verbal acceptance on a foreclosure July 9, but we didn't get signed docs back until the 29th.  Part of it was that the bank requires another 8 pages of their own addendums.  The other is prolonged process.  Their language stated that the clock started ticking for the inspcection from the verbal acceptance, I asked for an extension because it was beyond our control.  We got it.

On the other hand, there is a teleseminar on Aug. 18th,  hosted by Bank of America and Wells Fargo on how they are hoping to streamline the system working with Realtors.  BofA plans to have an oline system where both the agent and negotiator have access to the file in progress.  That would be a step in the right direction.  I'll be tuning in.

I agree with the other comments that the biggest hurdle is that banks do not comply with the rules we are required to follow.  Most will not accept offers with time limitations.  There is no 'normal' process we can rely on.  Chartered banks are not required to follow state or local guidelines (as per the Supreme Court).  We desperately need a better process to facillitate quicker acceptance and closings.   Why would any buyer pin all their hopes on one property that they may or may not hear back on?   One of my buyers wrote an offer on duplex listed by a supposed ss expert.  Never once did I speak with the listing agent. She would have an assistant email me updates on occassion. After 5 months we were declined because it was too close to redemption even though it was a cash transaction.  Some properties just won't close.  The problem is that we don't know which those are.

Allison:  Short sales have really brought out the worst in a lot of agents.  Listing agents can still be found that think the banks that approve these things end up signing the contract (there's a clue that the listing agent never closed one of this sales) and the buyers agents who write multiple offers on multiple short sales.  Ugh! 

I had one short sale experience.  The buyer had owner approval, and we waited for third party approval.  After FIVE MONTHS of waiting, we walked.  It was unfortunate, but in the end the buyer did eventually find a property with a completely willing seller.

I felt bad for the property owner, but the bank never did say yes or no.  We kept extending deadlines for a response out of them.  The original deadline allowed 60 days.  We extended at first a week at a time, then a month at a time.

All they would have had to do is give us an answer.

By the way, it was a cash offer, within 1% of three solid comparable sales.

I actually ran this by the Texas Real Estate Commission's legal department.  Twice, to make sure I understood it.  Here, the option period starts running upon execution date of the initial contract and runs for 10 days (or whatever the option period agreed to is) from the amended execution date (once the bank has given written approval).  So, for that entire period of time, the buyer has the right to walk for ANY reason and get their earnest money back; the seller does not.  This is in our Short Sale Addendum which is part of the contract.  

So, yes, a contract is a contract, and in this case, part of the legally written contract is that the buyer can walk and get their earnest money back at any time up to the end of the option period after the amended execution date. 

I agree that except under the standard circumstances buyers should not be able to walk away.  I did have one case though where my buyers did walk away from a short sale, but in that case the period where the bank had to approve the short sale expired, so my buyers moved on to other homes.  The home wound up foreclosed.

I expect buyers to act in good faith, but the bank should also return the favor in terms of approving the short sale.

Seems a joke to have the seller "approve" an offer....because when all is said and done it doesn't matter what the seller thinks....seller signs one offer, two offers, a bazillion offers??  And then they're all passed on to the lender?

What a load of poo.

I interview listing agents now to determine their take on processing short sales....do they pass all offers on to the lender, or just one, and leave the rest in backup position?

If agent says they send all offers in to the lender, then we don't even bother putting in an offer.

But I'm in a situation now w/a buyer where we put an offer in on a listing where agent's school of thought is one offer submitted to lender, the rest in backup position.....only to be told that, when our offer was sent in, lender said NO....we want to see ALL offers.....NO timeline given....listing still shows as active in MLS.....agent did call to tell us last week that a 2nd offer was received and forwarded to the lender, a better offer than ours, which means essentially nothing since so many buyers walk.....so we've left our offer on the table and are still looking around....

Is anyone else out here in AR land anticipating a flood of lawsuits against lenders/sellers/buyers/etc when this short sale tsunami settles down?

And WHY, pray tell, are there not universal rules re how to handle short sales?

When did an offer contract, signed by both parties, not become a contract?

What a mess.

No, you're not wrong.....because if you were wrong that would mean I was wrong and I'm NEVER wrong!  :)

Do you "ALL" - (YALL) have to get THE RELEASE FORM signed by all parties including the broker in charge showing the disbursement of earnest money AFTER a contract has EXPIRED (SHORT SALE... took too long.)  Just curious how other markets handle this matter.