SHORT SALE CONTRACT ADDENDUM FOR 2010 - THE GOOD AND THE UGLY

With no skin on the game. . when is a buyer a buyer?

Richard. I had many discussion with a couple of the brokers that were on the panel that helped draft the FAR SS Addendum. My opinion from those conversations is that they truly don't get it. The only reason the form exist, that I can establish, is to protect Realtors(R). It does nothing else but confuse the issue.

The FAR/BAR is a much better addendum. This is the one we use.

The FAR addendum gets shreaded and countered. The same goes for the FAR Purchase Contract.

Good explanation - I wish Georgia (GAR) provided such a comprehensive addendum.  We have just a simple paragraph in standard clauses.

Real estate contracts require legal capacity, legal purpose, no duress, a date, identification of the parties, identification of the property, and ... (drum roll) ... 

CONSIDERATION.

Without a deposit there is no consideration, hence the contract cannot be ratified.

In the Old Dominion, the Commonwealth of Virginia that is, when the contract is ratified the consideration must be deposited in a trust accound within 5 business days.

A short sale contract is properly contingent on approval by the seller's lienholders.  Contracts are typically contingent on many things.

It is a lot better to be holding a ratified contract with an identified contingency or two than to be holding some pieces of paper discussing a potential contract if the seller's lienholders approve. The latter is but a glorified offer.

As Lenn Harley noted, however, not all brokers in this area practice this way.

I wish some RE attorneys would weigh in on this. It was my understanding that the lien holder was not a party to the contract, so for the lien holder to reference the SS addendum seems invalid. But, the banks have the attorneys fighting for them... 

Richard - Thank you for highlighting our Florida forms! I would love to know how "paid in full" does not forgive indebtedness? A LOT of approval letters state paid in full. There is another item on on of the new Florida short sale addenda that bothers me (two versions are still available online) "Seller hereby authorizes Seller's Lender to provide Buyer and Buyer's Broker... with information stating the status of the Seller's application for approval of a Short Sale." I doubt it is enforceable, but why the heck was that put on there!?  It seems to give authorization on the seller's account.

The buyer has to have skin in the game or they will walk away. I believe the banks are handling short sales better today than two years ago. However, I am stil seeing the banks foreclose on many homes in Arizona. Is it more profitable for the bank to foreclose on a home vs. short sale?

When the Florida Association of Realtors came out with the new "FAR/BAR" forms last autumn, our brokerage decided to adopt these new forms in place of the "FAR" forms we were previously required to use. I think the FAR forms will eventually fall by the wayside. Having 2 sets of contract forms out there was just too confusing.

I think the problem exists everywhere. Our CAR contracts are far from perfect as well. In an attempt to fix problems, they inserted defaults that cause even more problems because contracts can be slated toward the buyer if boxes don't need to be checked. Because agents miss checking boxes and go for the signatures. But I agree on deposits. No deposit, then you're not a buyer, and that deposit is going into escrow.

that is a great post and some great information

thanks for sharing it

Richard- I like the "g" addendum much better. As you know, we refused to use that old farce of an addendum which in no way protected our sellers. We still get agents every week telling us their buyers do not want to put down earnest money deposits! I tell them that I have already made it clear to our sellers prior to taking their listing, that we won't work on a short sale without earnest money from a buyer. We already have cards stacked against sellers in the mls- having to put the listings CTG and having to disclose so much about the short sale, etc. So you know, it is only fair that the seller gets to approve the deal the short sale lender wants to make and that the seller has the earnest money should the buyer default. Katerina

I'm not reading the ambiguity into para. 5 that you do; I read it as a laundry list of distinct possibilities that the seller is acknowledging -- your interpretation assumes each item is related, but I don't read it that way. I'm sure a court will hand down an opinion on the language one day.

As for FARBAR, while it addresses the EM$ issue, it still leaves the inspection issue until lender approval, which is likely months from effective date -- how foolish it is to take a property off of the market for six months without knowing if the buyer actually wants it.  We require ALL inspections up front - we will not go to contract with a buyer who is unwilling to put $300 worth of "skin" in the game up front for their inspection. --JM

Richard,  great post.  I would never take a contract from a buyer without "good faith money".  It's usually a waste of everybody's time.

Thank you for sharing.

Marsha Moontoya Mayer- Realtor

I have thought about the short sale situation many, many times on the last couple years and I just don't know that there is a totally fair solution. From the Sellers standpoint, it isn't fair to have them take their home off the market for 3-6 months only to find out the buyer walked away. Sellers are pouring money into the property every month and losing out on credit repair on the back end (years from now). 

From the Buyers standpoint, it isn't fair to make them wait to 3-6 months on a transaction that has a 10-20% chance of being successful. It also forces buyers to buy homes at today's prices that they won't get to use for another 6 months. THat was THE MAIN problem we had in AZ in 2008 when prices were cratering - buyers would put in an offer and a month later pirces were down 5% and the buyer had no reason to stick to the deal. Who knows if the bank will approve this seller (who may have the assets but wants to walk away) or forgive their deficiency? The new form allows the Seller to cancel the deal after approval if it doesn't meet Seller's approval. Is that fair? Didn't the buyer just waste 3-6 months on a deal only to have the Seller cancel it for reasons that frankly, he should have known about many months before?

In AZ the Short Sale Addendum is very similar to the 1st document - no deposit until approval, time periods don't start until approval and the buyer is explicitly permitted to walk away at any point prior to approval. That said, many, if not most, agents/brokers are re-writing it in one way or another. Some will insist on immediate deposit of the earnest and lock the buyer in. Some will insist the buyer pay fees for negotiation companies. My broker has an amendment that (much like your 2nd form) allows the Seller 3 days after approval to cancel the contract for any reason - tax, legal, etc.

I have only worked with a few short sales so far but every one had a deposit at the time of acceptance by seller and was deposited with title company. I know it is not a long track record but they all eventually closed!

Richard - FAR should just hire you to write these and all issues would be solved.

On my listings: Buyer must make a deposit and do inspection at the time of contract execution. Very few buyers walk away this way... they are committed to buying as much as my sellers are committed to selling.

The problem I see with buyers doing the inspection up front is that the bank may be one of the ones "from outer space that you mention in another blog"  that won't approve a reasonable offer and the buyer is out both time and money.