As time goes on we in the industry are seeing more and more short sale listings popping up. And as time goes on I continue to be amazed at the lack of consistency in how agents handle short sale buyers. I for one take the straight forward approach. Let state that I am not an attorney and my comments are simply a suggestion based on 22 years experience so always consult and attorney for legal advice.
Let's start with the basics...what a short sale? A real estate short sale is a form of agreement between the seller of a home in the beginning stages of foreclosure and their lender, allowing the home to be sold for less than the existing loan balance outstanding. The mortgagee would accept less than the loan amount in order to avoid a foreclosure proceeding. This short sale would result in a substantially discounted purchase price for the buyer of the home. The buyer would then proceed with the purchase of the home much the same as in any conventional realty transaction.
Next it is important to note that Michigan law treats a short sale contingency (requirement that the Seller's lender approves the sale) the same as any other contingency, meaning that unless you sign something to the contrary (assuming the agreement is signed by the Seller) no other offers can be accepted or presented to the lender without disposing of your offer first.
Why is that important? Simply... if you sign an agreement allowing the property to remain on the market and allow the listing agent to continue to present other offers, then in that event you could find yourself trumped by another offer after waiting months to get an approval from the Seller's lender.
How do you protect yourself? Here is how I do it when I represent a buyer:
1. Always make sure you get the seller to sign the agreement contingent on the short sale approval of course. DO NOT sign anything that allows the property to remain on the market. Check your states statute).
2. Make the effective date (the date the clock starts ticking on the inspection and financing) to state that the "effective date shall be the date on which the Purchaser has acknowledged in writing receipt that the Short Sale has been approved by the Seller's lender".
3. Make sure the closing date on the agreement (i.e. ‘the closing shall take place ____ days from the effective date of this agreement) will be appropriate for the type of financing you are seeking.
4. Make sure the inspection period also starts from the effective date.
5. If you can add a provision that states that the Purchaser reserves the right to withdraw this agreement
6. Lastly always make your offer fair and reasonable. Ridiculous offers will likely result in the seller declining to accept your offer with the provisions above and who can blame them? Most of the time the listing agent only has one chance to keep the home out of foreclosure so don't get greedy.
If you cover all of these bases you will have likely end up owing a nice home at a reasonably discounted price and in the process help a distressed seller out from under their home. Feel; free to contact me with any questions.
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