Home Buying in Pleasant Hill>Question Details

Carolyn Roll…, Home Buyer in 94597

Are buyer and seller still in escrow if the approval date for a short sale price has passed, or is the contract automatically cancelled?

Asked by Carolyn Rollins, 94597 Mon Nov 21, 2011

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This is more simple than everybody seems to be making it. The answer to your question is simply NO. A contract using the standard CAR from RPA-CA and SSA (short sale addendum) is NOT automatically cancelled or voided once the deadline for bank short sale approval has come and gone. One agent below also said that it is not automatically extended as well but that is dead wrong. Your contract MAY be cancelled by either party (look at SSA paragraph 1d) but it is not automatically cancelled and unless one of you delivered a written cancellation to the other party, than that contract is still enforceable. The key here is this. If the seller sold the house to another buyer without first canceling the contract with you then the seller basically sold the house to two people. If your agent was also the sellers agent I would say that agent made an incredible tactical error and didn't represent your best interest. Even if your agent didnt represent the seller your agent still did not represent you correctly as he/she should not have allowed you to accept the idea that the seller sold the house to someone else without first canceling your contract. I hope there are agents reading this post. If the CAR forms were used there is NEVER an instance were a contract is automatically cancelled. That is known as a passive contract and we haven't had those for over 10 years. ALL cancellations require an active written cancellation even if a deadline has come and gone. Most cancellations require mutual agreement too. The passing of a deadline simply means that it no longer requires mutual agreement and at that point then oly one party is needed to cancel. But it still needs to be done in writing every time. Otherwise you have a situation like this one in which you have one party who is left scratching his head wondering what happened.
0 votes Thank Flag Link Tue Nov 22, 2011
Breaking it down here. If you asked for an extension to close, depending on circumstances the Seller did not have to agree, however they would have to serve you a Demand to Close Escrow (for DCE). See paragraph 14E in your contract . On that form however, that notice can been deemed "served" as long as your agent received it , initialed it as to the date and time he/she received it and sent it back to the sellers agent. I would ask to see that form. And ask to see when your agent notified you of the notice. This is where you probably need to have a sit down with this agent's broker. Bring your contract, and timeline of events. Cancellation is never "automatic," notice has to be served. Either with a "notice to perform," or by the demand to close escrow. To keep it clean however, a cancellation should be mutually signed by both parties. Release of deposit needs to be mutually signed. I'd be surprised if the agent used the same escrow company to close the deal if there was an unresolved deposit still in escrow for the same home.

My advice. Ready your contract thoroughly. Talk to the agent's broker. Then take it up a notch (attorney or DRE) if you still feel it was unfair or unethical.

I will say though, if what you say is you got the approval from the bank in July and still not closed by September - you said 3 month escrow... that is way too long. Escrow length normally is 30, and no more than 45 days in most cases.

Again, we're not attorneys here and we don't know the nuances or reasons why your escrow was taking so long, but perhaps the sellers rejected your extension, served you/your agent the demand to close escrow, and then canceled it when you could not perform. That likely was perfectly within their rights. Again, if in good faith you were just a week or so from closing, that is one thing, but if it was dragging on for 3 months, as a listing agent, I probably would've advised we moved on way before 3 months. On a short sale, not only are you dealing with deadlines on approval letters from banks, but sometimes racing the foreclosure clock. A 3 month escrow is not "typical" so something else may have been going on, and it is difficult for all of us to sit out here and guess as we do not know the situation.
0 votes Thank Flag Link Tue Nov 22, 2011
Wow, that sounds so frustrating and doesn't sound like your interests were best represented. If you want to find out why you lost the transaction, you may want to speak with a real estate attorney and get clarification from the manager/broker of your agent.

My advise is to move on and get a realtor you trust and who has your best interest in mind. There are many short sales out there and you may end up with an even better property.

Good luck to you,
Suzanne Looker
0 votes Thank Flag Link Tue Nov 22, 2011
Our replies are a bit out of sync in this format. I'm still confused as to why you needed to extend from an approval date of July to October..or later? That doesn't sound right.. When was your offer accepted? Did you receive the short sale approval letter from the seller in July?

What your agent did sounds sneaky, and wrong, but without the details, one can only assume. If she was representing you,and the other buyer, she would have made a commission either way. So what you're saying she did doesn't make sense unless your escrow looked like it wasn't going to close. Was she also representing the seller? Dual agency, while perfectly legal if disclosed, can be full of all kinds of problems and agent liabilities...So can representing more than one client for the same property.

Document everything that happened, and go have a talk with the agent's broker. ...or the local association of Realtors if the agent is a Realtor...or the dept of real estate. Or, talk to an attorney. I really think you would need to fully explain your situation for this forum to be able to advise you.

Regardless of all of that, another offer can only be accepted subject to cancellation of the first offer. I don't believe expiration of the short sale approval is an automatic cancellation of your contract. But,an attorney can better answer that.

I'm sorry you had such a bad experience. From what you've told us, it sounds like she really didn't represent you well....Unfortunately, every bad apple makes us all look bad.

Don't give up
0 votes Thank Flag Link Tue Nov 22, 2011
So, awaiting your answer on why escrow didn't close, assuming the timeframe was close to close, but lender didn't fund. You mentioned you did all your inspections, appraisals, etc....but no loan funding. Did the lender change their mind to fund your loan?
0 votes Thank Flag Link Mon Nov 21, 2011
Am I reading this right

You said "Instead, my agent, made another offer on the property with another buyer. This buyer made an all cash offer. We lost the house, after being in escrow for 3 months, and my agent (who no longer is my agent, by the way) sold the house, all cash, to another buyer in two weeks."

This sounds like you opened escrow with the title company even without the short sale approval...or are you referring to the time waiting for short sale approval but not opening escrow? Even if the short sale was not approved, but your offer was accepted, i.e., ratified by the seller, you should still be in contract UNLESS the short sale addendum had expired. Nonetheless, one of you --- either buyer or seller --- could have applied for the extension. Sounds like you did, but nothing came of it. And if the extension was rejected, as a formality, was there a cancellation of contract?

So many unknowns here...

Did you talk with that agent's broker to review and get a clear understanding of what transpired?
0 votes Thank Flag Link Mon Nov 21, 2011
Just read your follow up post. The big question is what is the reason you have not closed escrow yet? Were there problems with inspections or required repairs? any problem with your loan? Your lender should be able to close your loan in 30 days...and should have had plenty of time while waiting for short sale approval to have you ready to move quickly into full loan approval.

You can have the listing agent request an extension...if there's good reason. Without all the information about your situation, it doesn't make sense to speculate..or assume.

If you are within your timelines for contingencies, or even if not, you are still in escrow as the escrow officer has to be instructed by both parties to cancel. The bank is not a party to the contract, therefore cannot cancel it. But, an expired approval is just that, expired. It is no longer valid. However, unless they have good reason not to, they will most likely approve an extension.

If you want to fill me in on the details, I can give you better advice. Send an email to NoDumbQuestion@gmail.com. But, your agent should be able to answer these questions for you.
0 votes Thank Flag Link Mon Nov 21, 2011
C Rollins, again not knowing the nuances (ie did you remove contingencies, have money in escrow, paid for inspections etc) or the reason you needed an extension, this really is probably a question for an attorney. We have a fiduciary duty to our clients. If you did everything in good faith to close the deal and just needed an extension I would agree you have cause for concern... But an attorney can best help you to see if any further action can be taken. If you feel an agent breached their fiduciary, an attorney can help sort it out, as well as you can complain to the Dept of Real Estate.
0 votes Thank Flag Link Mon Nov 21, 2011
To shed more light on my question...just as we were approaching the short sale approval deadline (meaning the price was approved up until that specific date) I, the buyer, signed an addendum to extend the contract. I never saw this addendum signed by the seller (owner). Instead, I was told, not by my agent, but by my lender, that the extension was not approved. However, I don't believe, the addendum was ever presented to the short sale negociater. Instead, my agent, made another offer on the property with another buyer. This buyer made an all cash offer. We lost the house, after being in escrow for 3 months, and my agent (who no longer is my agent, by the way) sold the house, all cash, to another buyer in two weeks. It smells fishy to me.
0 votes Thank Flag Link Mon Nov 21, 2011
Ok, I also just read you newest comment. I was able to close late only because it had no financial effect in the bank's net proceeds. The buyer had to come in with a little more money due to the tax pro ration. Discuss with your agent. It may be able to be saved. Just curious, why hasn't it closed on time?
Suzanne Looker
0 votes Thank Flag Link Mon Nov 21, 2011
If you are talking about the time you have given the seller to deliver a short sale approval letter to you per a Short Sale addendum (which defaults to 45 days if not changed) ...if the time is up, and no approval, this would be grounds to cancel the contract...but it's not automatic. The short sale approval is a seller contingency that is removed when the seller delivers the approval letter to you.

You would technically be "out of contract" if seller has not delivered to you written short sale approval within three days AFTER the seller receives the approval letter(s) from all lenders, but you would still need to deliver a written cancellation of contract to the seller ..the seller can also delver to the buyer a written cancellation if they, A) have not received an approval letter or, B) does not agree to the terms the bank has offered. The time for the approval date can be extended with an addendum to the short sale addendum if both sides agree.

Good luck ~Allison
0 votes Thank Flag Link Mon Nov 21, 2011
As mentioned, what do you mean by contract approval? Is it with both the seller and bank with a time frame attached? I would suggest you clarify what kind of approval you actually have and go from there. If it's with the other two parties, (bank and seller) and the time frame has expired, have the listing contact the bank to try and keep it going. I just closed a short sale after the bank's approval close date without having an effect on the bank's approved net proceeds on the HUD.
If all parties want this to close, you should be able to keep it alive.
Suzanne Looker
0 votes Thank Flag Link Mon Nov 21, 2011
C Rollins, I just read your second message. I didn't realize you had an approval. Once the bank approved the deal, most likely all of your contractual timeframes started. You probably had so long to remove contingencies and so long to close escrow. If you don't close on time, the sellers agent is going to have to work on an extension or new approval w the bank. If the house is in foreclosure though time may be ticking. Since I don't have the details on why you are not closing, I'm not sure I can offer any opinion, but you would presumably have a contractual issue and possibly a default if you are not closing. If you removed all contingencies, your deposit could be at risk but these are questions for your agent.
0 votes Thank Flag Link Mon Nov 21, 2011
You have a contract with the seller conditioned upon the approval of the short sale bank. The short sale addendum (SSA) has a time provision. If you read that, you will see there is no automatic cancelling and no automatic continuation. Buyer and seller at that time should mutually sign an addendum extending the time if that is the desire , or either party may cancel (should be in writing). You can't assume anything once you are out of contract, so get it in writing to memorialize what happens next.

In response to another comment. You do not have a contract with the bank. The contract is between buyer and seller. The bank acts like a contingency. But the best thing I can say is read the contract as it is very clear what happens when timelines pass and how to extend or cancel can b e discussed with your agent.
Web Reference: http://www.diablovalley.net
0 votes Thank Flag Link Mon Nov 21, 2011
My response to the agent Ron Thomas, is that he assumed incorrectly. First of all, I had a contract. The price was approved by the bank in July. However, it was approved only through Sept. We extended until Oct. We paid the deposit, did inspections, appraisal, etc. Please don't assume that buyers don't know what they are talking about. My question is in regards to what occurs when that final date passes, and we haven't closed escrow. The price was only approved for a specific amount of time, so now what? Is the contract automatically canceled? Can my Realtor make another offer for another buyer, before the seller (owner) has signed to release my deposit?
0 votes Thank Flag Link Mon Nov 21, 2011
I hate to sound trite, but you need to read your contract.

I would assume (but you know what they say about those who "assume") that your deal is dead, or at least needs CPR....... ....do you have an agent or an attorney handling this?
If so, what is their opinion of the status?

Good luck!
0 votes Thank Flag Link Mon Nov 21, 2011
Your wording of the question give me great cause for pause:

First of all, there are actually three principles invoved in a Shortsale; the Buyer, the Seller (Homeowner) and the Bank (the actual Seller).

Secondly, you refer to the "Approval Date"; which to my mind is the date that you specified for the Bank to get back to you on your Offer.

Thirdly, you say "is the contract automatically cancelled" acknowledging that you have a CONTRACT.

I can only guess at what is happening here:
You made an offer, the Sellers approved it, and it was forwarded to the Bank. The Bank has not responded and you believe that the Seller's approval created a Contract for you.

My main reason for believing this, is that if you really had a CONTRACT with the Bank, the Bank would not be ignoring you.

I am further guessing that the Bank could still get back to you with an answer.

Have you, or your Agent, contacted the Listing Agent for his interpretation?

Good luck and may God bless
0 votes Thank Flag Link Mon Nov 21, 2011
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