I tell Sacramento sellers upfront that when they sign a listing agreement with me, I will release them if they change their mind. I am not one of those Sacramento real estate agents who will hold a seller hostage against the seller's will. It's pointless to do. It's bad for my public image, and it's bad for the seller; there is no win-win in holding a gun to a seller's head. Sometimes, sellers have a change of heart, cold feet, whatever, and that's OK.

I recall a few years ago a seller crying after signing a purchase contract. I had sold his Victorian home in Midtown. He was very attached to it. Putting it on the market, holding an open house, handing out flyers, entertaining offers, all of that was sort of fun and not hard, cold reality. After the seller signed the purchase contract, he fell apart. That was reality. It meant he was parting with his home. He couldn't do it, and I didn't make him do it.

Our listing agreements say after we produce a qualified buyer, the seller owes the broker a commission, regardless of whether the seller closes escrow. Some agents enforce that provision. I am reluctant to add insult to injury because that's not what is best for the seller. Believe it or not, we listing agents have a fiduciary to the seller to do what is in the seller's best interest. If a seller doesn't want to close escrow, how is that in the seller's best interest to charge them a commission or push them to do it?

It's a somewhat different story with a short sale. That's a distressed situation with fewer laws, unlike a foreclosure, to protect the seller. If a seller decides not to sell after we receive short sale approval, I will still release them from the listing agreement. However, whether the buyer will release them from the purchase contract is another situation all together. That purchase contract is subject to lender approval. After the lender issues approval, the contract is considered binding.

It's one thing if the seller suddenly wins the lottery and opts to pay off the mortgage. It's another if the seller wants to cancel the short sale because the seller wants to continue making payments on the loan. Sometimes a sentimental reason translates into financial insanity. Of course, if I were in those shoes and suddenly received enough money to pay off an underwater mortgage, I would probably buy 2 homes with that money and rent out the second house instead of paying off an underwater mortgage, but people don't always do things that make financial sense.

I say if you're lucky enough to get short sale approval, thank your lucky stars. You have been blessed. Given a second chance. Released from a terrible financial obligation to get a fresh start. You are fortunate. But I am the voice of reason. Not the voice of sentiment.

If a seller wants to cancel a short sale after lender approval, a buyer could object. A buyer could sue for specific performance. A buyer could sue for damages. Some buyers might take it so far as to record a Lis Pendens after judgment to stop a seller from ever selling to anybody else. Buyers have contractual rights in a purchase agreement. They get just as emotional as sellers. Sellers should not enter into a short sale unless the seller is committed to closing. But since when do we do what makes sense?

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Elizabeth Weintraub is an author, home buying columnist for About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.

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Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice. It could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

 

 
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12 Comments on Can a Seller Cancel a Short Sale After Lender Approval?

JUL
28
224,717 Points 4 Featured Posts Outside Blog Called Shot Master

Hi Elizabeth - interesting topic when a short sale is involved. I represented a buyer on a short sale where the seller backed out on the day we were supposed to close. Buyers considered suing for seller failure to perform. In the end they chose to simply get their deposit back and move on as the seller was insolvent, and the home would likely be foreclosed on by the time it worked through the legal system. Think your approach is a good way to do business but buyers certainly have the right to pursue legal action. Regards Dave
7:51am • #1
JUL
29
667,046 Points 8 Featured Posts Outside Blog Hit Router Called Shot Master

Morning Elizabeth I also know of agents who will demand payment.  In doing so I agree with you they are only hurting themselves.  Enjoy the day
5:23am • #2
JUL
31
158,040 Points 2 Featured Posts Called Shot Master

When a seller gets an approval letter, the seller can still back out because the seller may or may not agree to the terms of the approval letter. The short sale approval letter belongs to the seller and is not a mutual contingency. The contingency is not removed until the seller removes it.

However, let's assume that the buyer has legal recourse, as David points out, most sellers are "Judgement proof". ;)
2:29am • #3
982,673 Points 106 Featured Posts Localism Sponsor Outside Blog

I used to agree with your premise, Satar, until I learned it was not true. If the terms of the short sale approval letter match the terms in the offer, the seller has no legal right to refuse.

Moreover, if you are selling in California, the approval letter must be delivered to the buyer, providing the buyer and seller have signed a short sale addendum, and most sellers and buyers in California sign a short sale addendum. This does not apply to other states.
5:45am • #4
158,040 Points 2 Featured Posts Called Shot Master

"I used to agree with your premise, Satar, until I learned it was not true. If the terms of the short sale approval letter match the terms in the offer, the seller has no legal right to refuse."

Somehow I can't understand the logic of this. So if the approval letter states some verbage about not waiving deficiency or states that the bank can pursue the debt or whatever, the seller has to agree? If the seller determines there are some legal or tax consequence because of the short sale approval letter, they can't back out? I even had a buyer that didn't want to sign the short sale approval's Arm's length affidavit because the buyer's agent and buyer have a relationship.

"Moreover, if you are selling in California, the approval letter must be delivered to the buyer, providing the buyer and seller have signed a short sale addendum, and most sellers and buyers in California sign a short sale addendum. This does not apply to other states."

You are absolutely correct in regards to the SSA. However, I do not find any value for my seller on the SSA. I will continue to use my own addendum. There were two instances where giving the seller's approval letter to the buyer resulted in a negative situation. From then on, I only send it to the title company and if the buyer wants to see it, I black out all the information not pertaining to the buyer.
12:16pm • #5
982,673 Points 106 Featured Posts Localism Sponsor Outside Blog

I find tremendous value for the seller in the short sale addendum. It's the one real estate document that C.A.R. has devised that doesn't really favor the buyer; although each revision inches closer.

As for verbiage requiring deficiency, that is against the law in California.

Sellers cannot arbitrarily cancel an escrow when they have a legal and binding contract with the buyer. I have discussed  this with lawyers and it comes down to the basics: Buyer and seller enter into a contract, subject to approval. Seller receives approval. Seller is required to perform. Especially when there is nothing adverse in the approval and it meets the terms of the contract, the seller has no argument.

But then there's the real world. Who's gonna sue a seller in this distressed situation?
12:29pm • #6
AUG
01
158,040 Points 2 Featured Posts Called Shot Master

"As for verbiage requiring deficiency, that is against the law in California."

I know we have deficiency as one of my clients was sued by Wellsfargo on a non purchase 2nd loan. We tried to settle the debt and lien, but they wouldn't budge and just released the lien while keeping the option of the debt. After the short sale, they tried to sue to go after the employment income. Client fought back and the case was dismissed and they settled with Wellsfargo.

"Especially when there is nothing adverse in the approval and it meets the terms of the contract, the seller has no argument."

I agree. If the approval letter states that they approve the transaction with no other requests (such as arm's length, flipping acknowledgement, right to collect debt, etc.) then I would think that is technically correct. However, if there are any verbage or additional requirements that reside outside of the confines of the transaction, I would think either party may cancel. Like I said, I had a buyer unwilling to sign the Arm's length affidavit. It was within his right as when the buyer and seller agreed to the purchase contract, there was no requirement for either party to sign any type of document like that.

"But then there's the real world. Who's gonna sue a seller in this distressed situation?"

That is so true.

I wonder what our obligations are once we get an approval. Do we need to communicate that to the buyer's agent? Or do we inform the seller and see what the seller wants us to do? 
3:41pm • #7
982,673 Points 106 Featured Posts Localism Sponsor Outside Blog

Hey Satar: If your client had a deficiency it was due to 2 things: the short sale closed prior to July 15, 2011, and the seller agreed to sign a short sale approval letter without verbiage releasing the seller from liability.

You ask what is the obligation once an approval is received? In the CAR short sale addendum, it says we must give the approval letter to the buyer within 3 days. I also have a written document signed by the seller, a seller advisory, that specifically instructs me to deliver the short sale approval letter to the buyer upon receipt. If you don't have either of those documents signed, then I don't know how you are supposed to handle it as that's not what I do.
6:16pm • #8
AUG
02
158,040 Points 2 Featured Posts Called Shot Master

"Hey Satar: If your client had a deficiency it was due to 2 things: the short sale closed prior to July 15, 2011, and the seller agreed to sign a short sale approval letter without verbiage releasing the seller from liability."

That is correct. Has things changed last year to prevent non-purchase seconds from going after the homeowner? I will look into this. Thanks again for the information.
12:39pm • #9
982,673 Points 106 Featured Posts Localism Sponsor Outside Blog

Has things changed last year to prevent non-purchase seconds from going after the homeowner?

Absolutely, Satar. Where have you been? SB 458 added verbiage to Section 580e of the California Civil Code. Basically, it says if a lender agrees to grant a short sale in California, it doesn't matter whether the property is owner occupied or an investment, it doesn't matter whether the loan is a first, second or third; it doesn't matter whether the loan carries recourse or is non-recourse, that lender waives the right to a deficiency and must release the seller from liability.
12:50pm • #10
AUG
04
158,040 Points 2 Featured Posts Called Shot Master

Thanks again. I stepped away from the business to go and help my wife run hers. So I wasn't able to keep up. You are awesome!
10:36am • #11
SEP
21

Ok so what about canceling before bank approval?  Should still be breach of contract?
10:25am • #12

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Elizabeth Weintraub, Sacramento Short Sale Agent, Land Park, East Sac, Lyon RE

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Broker-Associate at Lyon Real Estate, midtown Sacramento. Selling since 1974. Home Buying Guide at About.com. Sacramento short sale agent.
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Author Bio: Elizabeth Weintraub is a Sacramento real estate broker, author, home buying guide for About.com, a Land Park resident, and a Land Park agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully closes short sales throughout Sacramento four-county area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you.

 


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