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When does my Earnest Money Deposit (EMD) get deposited on a Short Sale?

By
Real Estate Agent with eXp Realty - The Stangler Group SL3253494

When you enter into a contract with a seller that is "short selling" their house, you have a place in the Virginia Regional Sales Contract to add a "Short Sale Contingency Addendum to Sales Contract".  What is a short sale you ask?  A short sale occurs when the seller's proceeds are less than necessary to pay off the outstanding balance of liens secured by the Property (ie. mortgage(s)).

When you put an Earnest Money Deposit (EMD) on a property, usually that money is deposited upon contract ratification, or when all parties have come to a meeting of the minds (signed off on all the terms of the contract).  With a short sale you have to choose when you deposit your EMD.

You normally have two choices:

1.  Deposit your EMD upon contract ratification.

2.  Deposit your EMD upon written evidence of approval of short sale by seller's creditors (or 3rd party approval).

Why would you choose one or the other?  There are always so many different circumstances with writing a contract that may affect the outcome of whether your contract is accepted by the seller.

If yours is not the only offer on the property and you are committed to waiting for 3rd party approval, choosing to deposit your EMD at ratification may make the seller feel that you are more serious and committed to seeing the transaction through to the end.  It may be the one thing that sets you apart from the other contracts they are reviewing.  But, it can be time consuming to get your check back if the offer doesn't get approved by the bank(s).

Some people don't want their money held up for months on a trasaction that may never happen, so they may choose to deposit the money upon written evidence of 3rd party approval.  The check is still held by one of the parties, but isn't actually "cashed" and deposited until that time.  If you don't get 3rd party approval, the check is simply returned to the buyer.

If you are thinking about writing a contract with your agent on a Short Sale Property, make sure you have them explain all of the options you have concerning your EMD.

If you are looking for a home and don't have a Realtor, give me a call.  With the number of short sales on the market today, there is a good chance you may be writing an offer on a short sale property and you will need a Realtor to help you through the process.  I would love to be that Realtor!

Your housing needs are my Priority!

Pam Stangler, Long & Foster Realtors, 305-433-1036 or pamela.stangler@LNF.com

Posted by

Pamela Stangler Realtor with eXp Realty.  Yourkeysrealtor@gmail.com, 305-433-1036.

Laura Forman
RE/MAX AEROSPACE REALTY www.LauraSellsBrevard.com - Melbourne, FL
Your Brevard Premier Property Specialist

I write it up for the EMD to be provided upon 3rd party approval, and the buyer does not write the check until then.  However, if there were competition for a particular property, the EMD would be provided sooner to improve their offer.

Jan 26, 2011 02:47 PM
Billie Hillier
http://702IsHome.com - North Las Vegas, NV
Savvy Home Realty Solutions

This is something that is confusing to buyers (some want to wait until the bank accepts the offer and not the buyer) --- good post.

Jan 26, 2011 02:58 PM
John Pusa
Glendale, CA

Pamela - Thank you for the quality information on when does earnest money deposited on a short sale. Excellent blog.

Jan 26, 2011 04:04 PM
Pamela Stangler
eXp Realty - The Stangler Group - Cudjoe Key, FL
Florida Keys

Laura, I just wrote one that we deposited upon ratification and we got the contract!  Usually the choice is upon 3rd party approval, but sometimes it is just necessary.

Billie, most buyer's don't even know there is a choice!

John, Thank you!

Jan 27, 2011 01:33 AM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

Great post.  However, the length of time folks have to wait to get the EMD back is not actually months.  It's returned as quickly all parities sign the contract release and a check can be cut.  Simple.  And they still have to sign contract releases if they are bailing on the contract if they hadn't depositied the money anyway, so I say, why wait?

Jan 27, 2011 08:23 AM
Pamela Stangler
eXp Realty - The Stangler Group - Cudjoe Key, FL
Florida Keys

Chris Ann....Sorry, I meant months as in when they are waiting for an answer from the bank.  Then, when they choose to move on, it might take then a little while to get it back.  It does read very confusing, thanks for clearing it up!

Jan 27, 2011 09:23 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

If I can get away with it, we'll use a promissory note, and then after the bank approves AND the buyers still are interested, we'll deposit the EM with escrow, and continue.  #2 for me!!

Jan 28, 2011 07:04 AM
Anonymous
John

Just have a question for you to think about. 

Once the EMD is cashed and held by neutral third party (usually escrow or attorney), the contract is valid in Virginia. (Standard Practice) The only other standard practice is a note that is used instead of a cashed check in escrow for you to have a valid contract.  

Here lies the issue. If the check is not deposited or a note is not in place then do you have a valid contract?

 

Aug 06, 2011 04:50 AM
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