A Short Sale Contract is STILL a Contract.

Hi folks. Allison Stewart wrote a very good post this week titled WALK THIS WAY... CAN BUYERS JUST WALK AWAY FROM A CONTRACT?. Allison’s post is talking about Buyers who feel they can just walk away from a Short Sale transaction and get their deposit back because they are just tired of waiting. They feel the contract is not binding.

Here is my opinion on why Buyers feel this way. They are misinformed.

A Short Sale contract is no different than a regular contract with the exception of the 3rd party approval contingency. This contingency is related to the Lender approving the “Short” NOT approving the contract. The lender has no authority to approve the contract since they are not a party to the contract.

They do however have the authority to approve or disapprove the Seller’s request for a “Short” payoff.

A contract is binding and legally enforceable when:

  1. It has a legal purpose
  2. The parties are legally competent
  3. The offer has been made and accepted
  4. There is consideration
  5. The parties have willingly consented to the terms

There may also be contingencies in the contract. Contingencies are: Conditions which must be met if a contract is to be performed.

Some contingencies may be to protect one of the parties:

  1. Survey
  2. Inspections

Some contingencies may need to be removed in order for the purchase to be completed:

  1. Title
  2. Short sale approval
  3. Financing

The Short Sale approval is just one more contingency in the purchase contract. And just like any other contingency it should have a time period to be removed.

If it can’t be removed in the time allowed then the parties can either extend the time period or cancel the contract and return the escrow deposit.

If it can’t be removed at all because the Short Sale was denied then the contract becomes “null and void”. The Seller is now unable to perform. This is no different than when the Buyer’s financing is denied. He too is now unable to perform.

Folks....this stuff is NOT complicated. It’s Real Estate 101. Stop trying to complicate matters by treating the Short Sale as anything other than what it is…..a contract contingency.

If your Short Sale listings are not closing. Get training. You’re doing something wrong.

If your Buyers are getting frustrated then you are not setting the right expectations.

These are my thoughts. What are yours?

***I am NOT an Attorney and this is not legal advice. I am however a Licensed Florida Real Estate Broker and this IS my opinion.

Bryant Tutas
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker


***The content of this blog is solely my opinion***


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Comment by Bryant Tutas on April 27, 2010 at 7:23am
Nicholas. It is a binding contract as long as it has been signed by all parties i.e. Buyer and Seller. However I am not a tax accountant. I don't think the IRS has made definitive ruling on this but in my opinion you are good to go.
Comment by Nicholas Owen on April 26, 2010 at 9:39pm
Is the contract waiting on short sale approval considered "binding sales contract signed by April 30, 2010" as far as the 2010 tax credit go?

I had a contract signed back in Feb. Short sale just got to Phase II. I hope we can get the closing done before June 30.
Comment by Bryant Tutas on August 23, 2009 at 7:02am
Stephanie, Agents need to understand that they are playing games with people's lives. Getting foreclosed on because of this foolishness is terrible.
Comment by Stephanie Lim on August 21, 2009 at 6:42am
This kind of behavior makes me NUTS! I've had a short sale go to foreclosure because of this reason!!! The buyer's agent did not tell us that they were "buying a different home" until we called them with an approval. They had found a foreclosure for less and were closing on it in a week. We were never sent any type of contract OR binder release.
Comment by Wendy Rulnick on August 20, 2009 at 6:07am
Bryant - I am sorry to hear that! It is unbelievable that this misconception is still out there!
Comment by Bryant Tutas on August 20, 2009 at 4:55am
I have had 3 buyers walk this week. This foolishness really needs to stop. One agent sent me an email saying the buyer was withdrawing his OFFER. I had to remind her it was not an offer it was a contract and the buyer is in breach. The agent hen mentioned that he had OFFERS on 10 short sales but was only buying 2. Mine didn't get approved fast enough.
Comment by Wendy Rulnick on August 16, 2009 at 8:12am
Bryant - Succinctly stated! It sure is a contract, seems like common sense, so I am not sure why this causes so much confusion!


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