When do you place short sales under contract??

A simple question - When do you put a short sale "under contract"... It's amazing that there are so many thoughts - answers about this - It s/be easy but it's not - at least in the eyes of most realtors. 
Thanks for the question - We struggled with it as well until we attended a Mass Assoc of Realtors webinar on the subject.  It was noted that 1) the seller (owner) still owns the home and needs to sign the offer before presented and 2) once that's done, the listing needs to be flagged as under agreement (but you can accept add'l back up offers) - You should NOT continue to accept offers and present them in a multiple offer situation UNLESS they came in together - You need to proceed with the offer you have until the bank finishes its process -  This simplifies things for us - Straight and Forward!

HARVEY--First off, I would have signed the contract before starting to wait for the lenders answer. The truth of the matter is that if you don't have a signed contract, the seller can pick someone else to buy that home. They are under no obligation to sell it to you.

Many lenders will not consider a short sale unless there is a signed contract submitted with the short sale package to the lender. If the lender is processing the short sale, I would assume that there is another contract submitted to the lender. Please be clear, the lender does NOT accept your offer. The lender only approves the sales price. The sale of the home is between you and the seller.

ANONYMOUS--In order to get the best outcome for the Seller we need to have the lenders needs met. Our Sellers are counting on the lender accepting the short sale in order for them to get themselves from under the burden of a foreclosure. So, I believe that in order to serve our Sellers we absolutely need to be concerned about the lenders needs. If we are not then we are not representing the needs of our clients. I think if more agents show their concern for the lender we would get more short sales approved and more of our clients needs met.

Consumers drive out of their way to save 5 cents a gallon for gas. Why does everyone believe that lenders are going to agree to lose thousands of more dollars than they think they should. Everyone is out to make the best deal they can. If we accept this and try to meet everyone's needs then the seller wins.

HARVEY--Again, there is no law that you must be in contract or have a 10% down payment. There is no LAW. The amount of the down payment is more for you and your mortgage lender depending on how much you are planning to refinance. It is usually a requirement for the lender to have a signed contract in order to process a short sale. They want to see that so they know that their work is not being wasted and there is an imminent sale. The procedure to submit several offers to the lender is counter productive for al parties and it seems you're dealing with someone that does not understand the entire process.

Harvey, I would not be surprised if they had another contract in to the lender and those folks got tired of waiting and walked away. You guys seem to be next in line and now they need a signed contract for the lender to continue. I would try to get it in writing that your contract is the only one submitted to the lender to pretect yourselves from waiting around and not get the house.

Let me be very clear. THE LENDER DOES NOT DICTATE WHAT CONTRACT THEY WILL ACCEPT. THEY ONLY GIVE THEIR APPROVAL TO ACCEPT A LOWER AMOUNT THAN WHAT IS OWED TO THEM AND AGREE TO ACCEPT THAT AS FULL PAYMENT. THE PURCHASE CONTRACT IS BETWEEN THE SELLER AND THE BUYER. PERIOD.

You can link to my page and call if you'd like.

Experienced Short Sale Specialist--The letter has the name of the person with the right number the they are seeking. If you send three contract with different numbers, they will chose the highest number. Although it has their name on it, the determining fact is the price. If you send three contracts at the same time they will request YOU give THEM the party that will purchase the property. In that instance the agent will go back to the other parties and see who will sweeten their deal.

Why don't you tell us who you are. I'm there are many people who could use your expertise and knowledge. It's a shame you want to participate anonymously

Everyone has their own opinion. It's too bad you won't put your name to it. It's good advice that you gave to Harry who is pondering his situation and asking for help. The same person that is telling him to be careful of these blogs won't put their name on it. Everyone will make up their minds on who has more legitimacy.

The three contracts was a scenario to illustrate my point to you, I guess it went over your head. Sorry!

I shouldn't spend any more time answering to someone that doesn't sign their entries and resorts to calling others names.

Harvey said:

Hi all. I have a question that sort of pertains to this topic. First of all, thank you for all the info regarding short sales. Its extremely helpful. 

We are potential buyers for a house that has not yet been approved for a short sale.  We made an offer on the house, and the Seller's accepted. The Seller then submitted their paperwork to the bank to be considered for a short sale. The bank received the paperwork, and sent an appraiser out to the property. We have not yet heard if our offer was accepted by the bank, or if the short sale was even approved by the bank.

The Seller's attorney told our broker that 'BY LAW' we have to sign a contract (obviously with a contingency for 3rd party approval) with the Seller now and put 10% down, which I assume would go into escrow.  We havent signed anything yet, and we would like to wait until we know for sure if they are approved for the short sale, and if our offer is accepted (the Seller accepted our offer).

What is our course of action? If you were our broker, or attorney, what do we do?

Thank you so much in advance.....

My answer is rather simple.

1.  to have a valid contract you must have a document that sets forth the essential terms of the agreement in writing and signed by the parties.  There usually must also be some monetary consideration (there are exceptions not worth mentioning here).  So the "by law" is actually a written statute that comes to us from old English common law that has beed codified - it is called the Statute of Frauds, which basically says that contracts for the sale of real estate must be in writing to be binding.

2.  The lender does approve the combination of the contract and the proposed settlement statement (showing how much the lender is going to net).  The lender sets forth what its net must be, what the maximum closing expenese must be, what the broker fees and other advisor fees will be.  From what I have seen some lenders identify the contract buyer and some don't - they just reference the selling price and the net parameters and give a deadline closing date.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com

HARVEY--Don't worry, there are no arguments. There is great uncertainty with many aspects of the market and many people are frustrated when their opinions aren't universally accepted. Sometimes people emotions get the best of them.

Harvey, I believe you read the answer from Richard above, he happens to be the resident lawyer in these short sale blogs and I think he answered some of your concerns. There is no LAW that you need to have 10,000 in escrow. On the other hand, lenders are seeking for the buyer to have at least $1,000 in escrow to further consider procesing a short sale. A HUD is a breakdown of expenses to be paid by the seller and buyer in a closing, that is a requirement of the lender. In my area, that is NOT signed until all parties are ready to close and consummate the transaction.

I don't think "railroaded" is fair, it might be more of a case of pressuring. In a normal short sale there must be a signed contract, with escrow submitted to the lender in order for them to begin the processing of the short sale. From the outside, it seems there was another buyer that walked away and you are now the first in line. Do you have a Realtor?

Vince--The rule in the Massie office is that when buyer and seller have a ratified contract it becomes a contingent contract with a kick-out (third party approval), thus we can accept back-up offers.  As we all know, if a better offer comes in the bank wants to see it so the fun begins....

PATRICK,

A lot of the answers to questions, we already know the answers. Fall back to your knowledge of real estate and the answer magically appear.

Everyone seems to react as if the lender has any say as to what contract is accepted and submitted. They don't, they are there to process and make a determination (based on their bottom line) as to their acceptance of the contract in hand. Of course they want to see everything that comes across the table, they want the most they can get. BUT go back and think what you would do if the lender was not involved. What would you do if your Seller accepted a contract and two weeks later a higher offer comes in? You couldn't do anything because the home was already under contract. The Seller didn't have the legal right to cancel his current contract and go with the higher offer. Why do agents think that a Short Sale is different?

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Vincent,

I've only scanned over a lot of bad advice here.  As always is the problem on ActiveRain, many of these questions depend on knowledge of the state statutes and MLS regulations. 

First, ratification is when you have a expressed (meaning written) meeting of the minds, this goes back to archaic law brought over from an entirely different country. (Statute of Frauds)  When the Buyer and Seller (the principals) agreed to the terms, you have ratification - once the instruments have been executed and delivered UNLESS the principals have agreed to relegate to the lender's decision.  Two local Brokerages in your market are now using "subject to" clauses in their addendum's. 

I've spoken extensively to these brokers and they agree that when their addendum's are used, the buyer is free to search out other homes and the seller can collect other offers to purchase, until the lender accept terms. Thus this "subject to" clause makes the offer to purchase more of a letter of intent. (I happen to think when you capitulate and allow the Lender to become principal you're doing a disservice to all involve - that's just me)

Now, for the real question - When you do show it as "under contract" or "contract with kickout"?  Virginia Administrative regulation 135-20-190 specifically states that you may not advertise (as in MLS) that a home is active or For Sale if it actually isn't.  Because the Seller gives the Buyer equitable title upon ratification, it is no longer for sale.  MRIS MLS rules also underline and support this requirement to show the true status.

So, unless you have understanding of the principals (lenders ARE not principals) you may not show the property as active once the contract is ratified.

You can find more extensive writings from myself and a local attorney at www.FAARForum.com

Great question, I just wish more agents would ask instead of pretending to know and doing it wrong.  Regardless of the advice here - you should ALWAYS consult your broker and legal counsel before taking any action.  I typically believe in the counsel of peers, but people who are not licensed in your state, practicing under your MLS rules and being bound by your company policy are not peers.