How do you handle the EMD going into a short sale? Do you refund the EMD if the buyer walks or do you have a form signed by the buyer and seller upon inception of the contract as to the disposition of the EMD if the buyer walks?
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On the buyer side, I go with EMD to be deposited after lender written approval, because a SS is nothing until then.
On the seller side, I release ALL EMD back to buyer if they cancel. Because, seller is not entitled to EMD, all proceeds from SS go to lender, who is entitled, but only if sale is completed. Alas, if seller was to keep EMD, they would be obligated to turn it over to lender, since it is a part of sale proceeds, not a sum collected to hold property for buyer off the market while closing is arranged and could be liquidated damages for seller if buyer backs out.
In the SS, the seller awaits lender approval as the contingency, and this is what is keeping the home off the market, not the buyers offer.
If someone out there has a valid arguement against my position, I would certainly like to consider it. I can't be right all the time, just most of the time.
You stated that the binder is "part of sale proceeds." At the point of cancellation of contract, the sale has not closed and the binder is not a part of proceeds. The Seller is the owner of the property, not the lender. What do you do with the binder money? Do you send it to the short sale lender? If there is a 2nd, do you send any money to them?
What does buyer gets if seller will not do their part to facilitate the close becasue of shortage on what the 2nd wants to realease the lien. Sellers also need to be educated that their is a great benifit for them to close and not use the system just to buy extra time living rent free. I would never hold buyers or seller hostage for 2-3K. Happy clients is the best in the long. run.(Word of mouth travels far and fast.)
Bottom line is disclosure. The buyers have to be educated up fromt in advance of signing the contract that there is nothing short about a short sale. The process can take up to several months to complte. The buyer should have a timeline that they are willing to wait for an approval. Once that deadline is determined, it is up to the negtiator and agents to provide timely updates on the status of the short sale. If you reach the deadline and there is no approval in sight the buyer can and should be able to walk and receive his deposit back, or sign an extension which is reasonable.
Educating the buyer and a lot of times buyer agent as to short sale transactions is critical and keeps everyone on the same page. Now, if there is an approval and you are under contract and the buyer walks not because of contingencies on the contract but rather because the buyer is no longer interested, than they should loose / forefit the deposit.
Hope this helps.
Carmine R Biello Jr.
Do those of you who insist on significant EMD provide any sort of time-related "out" to your potential buyers?
For the SS we bought (which we were of course told would close within 90 days and ended up taking 6.5 months), we could get out after 90 days, and then every 30 days thereafter. Knowing that we could get out helped a lot, especially when we got to 120 days and hadn't heard ANYTHING from the lawyer who was doing the negotiating.
Also, we just sold our old house to a couple that had to be out of a rental six months after contracting to buy a SS and had been waiting almost 4 months for a SS approval. Again, their contract gave them an out at 120 days, which they used so that they could buy the house we were selling.
So I'm curious -- do you just think that if someone puts an offer in on a SS, they shouldn't have any ability to terminate the process after a certain period of time? What sort of information do you give buyers about the average length of time it takes ... and also about the longest time it's taken to close a deal? Do you provide them with statistics on the percentage of SS's that you actually close?
The problem truly professional SS agents have is that there are a lot of agents who don't know what they are doing, who've left a lot of potential buyers feeling burned by the process. Mostly because they aren't clear about just how long it might take.
We do 90 days, and then if the buyer wants to continue, we also do 30 day extensions. Most short sales will take that amount of time. some more some less.
The reasons agents aren't clear on the time line is because we don't have a crystal ball, and there are MANY factors that influence that time line from paperwork, to bpos, to servicer changes, etc. It's impossible to give an exact date, so most of us give a rough date that we are pretty sure we can get the deal done in and then PREP the buyer if we have to extend. The buyer should know what is going on most of the way.
Smitty: Can you please explain? I just got an FHA approval. BA and lender went MIA for about 1 week, and come to find out buyer does not qualify. All the time that I was giving them updates on the process, they couldn't find this out? I do send an addendum when considering an offer, with "house being sold as is, and to send EMD to title within 48 hrs. No loan contingency box checked on the contract. Can seller legaly keep all or part of this deposit? Thank you
Rochelle, I don' t know. You'll have to check with a lawyer, but i would say YES. We have our buyer's get a commitment within 45 days of execution of P&S and if they can't get it executed, we keep EMD.
We've had full commitment in hand and when approval comes if buyer doesn't close we keep the deposit.
I am curious. WHO told you that the buyer doesn't qualify? The Buyer?
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