Non refundable EMD if the buyer walks?
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?
Replies to This Discussion
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Permalink Reply by Smitty on
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I think it depends on the reason they walk. So for instance, we have buyers do inspections up front. If they don't want to continue after the inspection is done, will release emd. We would rather offer a lower price into the lender, but I have no problem if they aren't ready to deal with certain issues, but if I have approval in hand and the buyer walks forget it. We keep emd. If we cannot clear the liens or come to an agreement on the short sale, of course emd is returned. I think you have to figure out when the return of emd is appropriate.
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Permalink Reply by Kristy Hamilton on
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I am not a realtor or an attorney. I negotiate short sales for a Florida real estate law firm. The majority of the realtors on files I work, collect the binder deposit based upon the short sale approval. I have had selling agent's (agent for Buyer) forget to collect the binder at that point. If I were to become a real estate agent listing a short sale, today, I wouldn't accept a contract without binder based upon contract acceptance - not short sale approval. I have heard all kinds of excuses for Buyer's to "walk" once we have spent numerous amounts of time and work to obtain short sale approval (not to mention other prospective Buyers that the listing missed). Just what is "Buyer's satisfaction" at time of inspection? If a Buyer no longer qualifies for the loan due to job loss, provide a letter from the lender listed on the prequal letter if you want your binder returned. If a Buyer has some money invested in the short sale, I believe we would have less "buyer walking" issues. That being said, there are also times when we cannot predict a negative outcome when, during a title update, a new lien/judgment surfaces that is legitimate and does attach to the property. If we cannot get the new lien worked out, the Buyer should have their binder returned. Sorry for the lengthy response, but there are so many variables to consider.
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Permalink Reply by Joseph Alfe on
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We do not allow any EM to be extended beyond sellers acceptance. We often have attorneys insist on EM at lender acceptance, but that is not permitted and its a deal breaker. We get a lot of "wait...can we talk about this..." when we say no and send the check back.
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It should all be clearly stated in the contract. I have purchased a few SS properties for investment and have not ran into too many issues but I have an attorney that reviews all my offers.
Being in Miami, I have to say majority of the contracts on SS have ZERO EMD. Zero. I have never put a cent down. I only do cash sales, so usually I put 0 EMD on seller's acceptance and 10% on lender acceptance upon my review of the lender's terms.
The contact is typically very "loose" in a sense that it gives the buyer AND the seller a chance to walk away without penalty.Yes, I have an inspection clause in there saying I can walk after inspection if it's not satisfactory. It can be anything. It can be a dead ant laying on the countertop. But since it's always an AS-IS, you do that to protect yourself. Even if I want to write in some more reasonable threshold like a 3% repair limit for walking away, the bank won't accept these added clauses anyways.
On the flip side, the sellers also have a non-binding clause to walk away. Most times their attorney will throw in a "Seller will not contribute 1 penny towards closing cost", so they will expect the lender to absorb the seller's attorney fees, commissions, buyer's title insurance, title search, prorated property taxes etc...so the lender comes back with a NET, you take that and the buyer's offer and there is a gap of $298.27, the seller can walk and the buyer will need to eat that cost, or they both walk.
So yes, they both have out clauses that could be abused. For this reason, I have seen in Miami in the last few months agents take 4. 5 backup contracts on a SS. It's crazy.
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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.
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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.
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Permalink Reply by Rochelle Castro on
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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
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I am curious. WHO told you that the buyer doesn't qualify? The Buyer?
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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.
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Permalink Reply by Carmine R Biello Jr on
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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.
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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.)
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As others have stated I thnk it depends on the circumstances. As a recent "almost buyer of a SS that DID get our EMD back, I would say there are times when the seller can't or won't perform. We were a cash buyer on a condo. I would be generous if I said the LA was incompetent. Approval in, cash in escrow, all papers in and signed, HOA demand comes in with $6000 in delinquency that LA didn't know about, even though it was in the Prelim (we even asked about it early on when we got the prelim). We were assured no problem. Long story short...seller didn't perform and we missed out on some good properties while waiting 3 months on this one.
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