A recent court case underscores a recommendation I have been making for agents involved in short sale cases.
The homeowners contracted with a real estate agent to sell their home. With the drop in market values, the agent helped the homeowners understand that they could still sell their home as a short sale.
The homeowners agreed and the agent went to work listing the property and 
seeking buyers. They finally obtained an offer from a cash buyer, which looked great and had a good chance of being approved.
As we all know, this past spring short sale processing by the servicing lender and the secondary market investor (SMI) slowed to a standstill. The contract terms made the contract terms binding and subject to third party lienholder approval of the short sale within 120 days. Other terms were the customary subject to inspection, and the state form provided for easy exit fromt he deal by the buyer.
On day 95, the buyers backed out, claiming they had driven by the house for an inspection of the exterior and found it unsatisfactory. They also claimed that the short sale addendum allowed them to back out of the deal.
The seller clients were livid. It was now too close to the scheduled foreclosure sale. They were unable to find a replacement buyer and the foreclosure was completed. The seller clients sued their agent. They claimed that the agent had a responsibility to make sure the contract was binding or otherwise they would have rejected the offers until they found a buyer willing to be bound to the agreement. Since multiple offers were not accepted, the agent was unable to prove there would have been another buyer had the contract been binding.
For this reason, our firm has encouraged agents to have their client sellers sign a Binding Contract Waiver in the event the buyer walks. There is greater liability in short sale cases because of the extreme result if the short sale fails, in contrast to normal sales. The Binding Contract Waiver places the seller clients on notice of the possibility that a buyer may be able to get out of the deal and the seller clients would be unable to claim they did not know the risks.
We recommend that you all, as a matter of course, ask your seller clients to sign a Binding Contract Waiver in every short sale to prevent this potential area of liability.
Best wishes,
Ken Lawson JD
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