Home Buying in Milpitas>Question Details

acrd, Home Seller in Milpitas, CA

Buyer backed out just after the short sale approval. Its all cashdown with no (zero) contigencies contract. What are my options?

Asked by acrd, Milpitas, CA Sat Oct 6, 2012

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Even if the short sale contingency period had not expired and you have the buyer's deposit, you're likely just going to put the property back on the market and return the deposit. If you tried to claw the deposit for yourself, you'll probably spend 2-3x the value of the deposit on an attorney to defend the deposit in a short sale.

If you're curious about that option or you like to file for specific performance, then prepare to open your wallet to your attorney to the tune of about $1K per week for 4-8 weeks, or longer.

Be wary of any suggestions to automatically turn to an attorney.
Web Reference: http://www.archershomes.com
3 votes Thank Flag Link Sat Oct 6, 2012
Depends. What does it say in the short sale addendum? How much time did you have to get the sale approved? Most probably you have to put the property back on the market.
Web Reference: http://talisrealestate.com
1 vote Thank Flag Link Sat Oct 6, 2012
Short sale is approved well within the time mentioned in the contract. Can I get the deposit money?
Flag Sat Oct 6, 2012
Hi arcd,

This may be coming to you a little late as it looks like you have moved on, which has its own rewards.

Everyone who has commented has done so without all the facts only you and your Realtor® are aware of.

For example:
Was a Short Sale Addendum used?
Was the Buyer provided written confirmation of the Lender’s Short Sale approval by the end of Short Sale Addendum contingency deadline?

Both are key elements, and as such, your actions should be made in consultation with your Realtor® and any other professionals you see fit to involve!

Reality Check:
First and foremost, as this is a Short Sale with possible Fed/State tax implications, don’t be penny wise and pound foolish. Rather than the Buyer’s deposit, your focus should be on the close of escrow so you can move on; especially given the tax exposure if COE slips into 2013.

Given the Federal Mortgage Debt Relief Act of 2007 expires 12/31/12 any deficiency amount will be a taxable event for you provided the act is not extended into 2013. The consensus is this Act won’t be extended in 2012; however, “sometime in 2013” is a possibility. Keep in mind CA’s tax treatment will also be driven by the decision and timing of any extension, or not.

Bottom line: don’t bet on it!

I too agree with Michael’s comments. If the deficiency protection of the Debt Relief Act is not enough of a motivator to move forward quickly, the total expense (both in time and legal fees$$) going through the legal process may well be.

There may be another possible option:
Assuming the most recent CAR purchase contract was used, Para 26C(1) allows Small Claims Court action. CA SB 221 (became law as of 1/1/12) increased the Small Claims Court jurisdictional limit from $7,500 to $10,000 with two caveats:

A) The jurisdictional limit of the Small Claims Court will remain $7,500 for claims of bodily injury resulting from a car accident if the defendant in the action is insured and the insured’s policy includes a duty to defend, and

B) The Small Claims jurisdictional limit will remain $5,000 for suits brought by entities such as corporations, limited liability companies, partnerships and the like.

Personally, I would be very interested to know from a legal professional if you can release the deposit “without prejudice” to move forward and place the property back on market quickly; after which, you subsequently file a Small Claims action. Ask you Realtor® to call CAR Legal for an opinion regarding this topic, the entire transaction; and/or, if you feel it’s necessary, a legal professional.
“without prejudice” See http://en.wikipedia.org/wiki/Prejudice_(legal_procedure)

-Steve
0 votes Thank Flag Link Fri Oct 12, 2012
All,

Thanks for all the responses and useful insights. I've moved on and put the property back on the market.

Again, thanks for all your support and guidance. Much appreciated...
0 votes Thank Flag Link Thu Oct 11, 2012
You don't state what party you are to the transaction. The subject is "home buying". I could read into this that you may be a seller. You also may be the Buyer, or even one of the agents to either.

My standard answer is going to be "WHAT DOES THE CONTRACT STATE?". If you have a short sale addendum there are usually contingencies in there and it has to do with factors of time. Without being a party to the transaction we can only guess what your options are.

What ever was written into the contract also dictates the options. So read the contract. If you don't understand the contract, talk with the Broker of record or one can have a real estate attorney explain the contract to you.

In any event, one course of action is for the parties to move forward.

All the best to you.
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Sun Oct 7, 2012
Reading some of the comments below I’m reminded that while we use title companies here in NorCal to run escrows, on the East Coast they use attorneys – therefore it’s common to see comments from East Coast agents suggesting attorney interaction. There’s a huge difference between east and west methodologies: therefore, any recommendation or suggestion that an attorney be involved (while correct in many areas on the east coast) is simply not part of normal West Coast practice. It’s one of the problems encountered when agents answer out-of-area questions.

I’ve read the question a few times and it sounds to me like it was a cash transaction – if that’s the case, there would not be a lender involved. That might also be the reason there are no contingencies – it’s not uncommon in cash transactions – especially in multiple offer situations where inspection reports are provided up front.

There are two common practices here in the Bay Area when it comes to the deposit – and either option is usually spelled out on the Short Sale Addendum:

Option 1: Put the deposit in escrow only AFTER the short sale is approved by the lender.

In this option, there is absolutely no recourse if a buyer bails out of the transaction at any point because there is no leverage in the form of a deposit. If this is the case, put the property back on the market as quickly as possible, get another offer at the approved price and terms and submit it to the lender – they may accept the new offer or they may want to start over again.

Option 2: Put the deposit in escrow as soon as the offer is accepted and BEFORE the offer is submitted to the lender for short sale approval.

In this case, there is a deposit so you’d think there would be leverage – however, since it’s a short sale, there really is none.

In the case of a successful short sale, all the proceeds (including the deposit) go to the lender approving the short sale. No proceeds from the sale (or failure of a sale) can go to the seller (unless it’s a HAFA approved transaction) – including the deposit. If you obtain the deposit and then attempt to give it to the lender approving the short sale, they will simply return it. If, as the seller, you attempt to keep it, you can cause other significant problems.

There is another issue here as well – in a short sale, time is of the essence: if you don’t get the short sale approved in a reasonable time, the property will be foreclosed. Therefore, you don’t want delays of any kind. When a buyer walks away from a short sale, you need to get the property back on the market as quickly as possible. If you try to go after the buyer’s deposit, you’ll need to sign a Cancellation of Contract form that specifies that the deposit goes to the seller AND you’ll have to get the buyer to sign off on it. The transaction is not over and you cannot enter another transaction UNTIL the buyer signs the cancellation. If the buyer disagrees that you have a right to the deposit, they can refuse to sign the cancellation knowing that, since you cannot remarket the property, at some point, it will be foreclosed, the transaction canceled, and their deposit returned.

Your recourse? None.

Our recommendation? Get the property back on the market as quickly as possible and, if there is a deposit, get it back to the buyer as quickly as possible as well. You'll need them to sign the cancellation to release the deposit - don't delay.
0 votes Thank Flag Link Sat Oct 6, 2012
I have a hard time believing if a CAR purchase contract was used that there were no contingencies in place.
It is also possible that the expiration of his offer expired in terms of the short sale addendum or the approval did not come back exactly to his offer.
Like mentioned before, if he backed out right at the approval you probably don't have a shot keeping his money.
And whoever his agent is that let him put money into escrow without an approval should be fired.
0 votes Thank Flag Link Sat Oct 6, 2012
Well, I agree with Michael, great advice, you always want to keep things as simple as possible and still get the transaction done. With the property already approved advertise that and put it back on the market.
Good Luck!!

At your service,
Allyson
408-705-6578
allyson@homesbyallyson.com
Certified Distressed Property Expert
0 votes Thank Flag Link Sat Oct 6, 2012
Michael Cheng's answer was spot on. The simple truth is you cannot force a buyer to buy at the most you can retain earnest money and even that as Michael points out can be difficult, time consuming and costly. Move on, find another buyer and promote the property as being a pre-approved short sale.
0 votes Thank Flag Link Sat Oct 6, 2012
Michael hit on many good points and made such a strong argument that i'm going to have to scratch what i suggested earlier. All things considered: You should do exactly what he and Elena recommended: Just put the property back on the market and find a new buyer.

It shouldn't be too difficult to attract a new offer--you already have an approval.

You'll likely be able to close with a new buyer sooner and with less frustration than taking that cash buyer to court.

Unless the contract specifically stated that the earnest money deposit would be non-refundable, then its easier to just give it back and keep it moving. The question you would have to answer if you were to go after that deposit is: What financial losses have you experienced as a result of this buyer walking away from this deal?

Good Q&A. Micheal nailed this one.
0 votes Thank Flag Link Sat Oct 6, 2012
If what ypu're saying is all correct, then you're entitled to the earnest money depsoit at the bare minimum.

This is a really good case for an attorney to sink his or her teeth into.
0 votes Thank Flag Link Sat Oct 6, 2012
When does the contract expire? Have an attorney look into whether you would be able to compel the sale.

Seems you might have a case so long as the lender provided you with an approval letter BEFORE the contract expired.

There should have been one contigency in that contract: subject to lender approval (or whatever verbiage the lender required).

Its not so easy for a cash buyer to weasel out of a purchase. Your attorney will have a field day with this one.
0 votes Thank Flag Link Sat Oct 6, 2012
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