Home Buying in 22066>Question Details

Suzanne, Home Buyer in Great Falls, VA

Can a ratified short sale contract, approved by the lender, be 'cancelled' by the seller?

Asked by Suzanne, Great Falls, VA Thu Apr 2, 2009

We submitted an offer on a short sale. After one counter by the seller, we signed the contract and he ratified it by signing as well. We put money in escrow. The primary lender accepted the offer. The price to pay off the 2nd was in the works. All of a sudden, the seller informs the lender he no longer wants to do a short sale in favor of modifying his mortgage. He hasn't been paying for some time although not in default for some reason. He informed his agent of his plans and asked her to withdraw the listing. Questions: After signing a contract, can he simply walk away like this? Why have a contract if he is permitted to do this?

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Suzanne, remember that a short sale is still a sale. The parties to the short sale are a buyer and a seller. The primary lender, the bank, is an affected party, a critical party, however not a "party" in the contract to sell the real estate. They do have the prerogative to approve or deny the short sale as they determine what is in the best interest of the bank and its share holders.

In prior times, there were words called "escape clauses," which stated, IF "this" happens, THEN the buyer [or seller] can void [escape] the contract. Today such words are called contingencies and have the exact same effect: one party or the other can void the ratified agreement. The contract may have a home inspection contingency, an appraisal contingency, a short sale contingency or some other circumstance required to satisfy and complete the transaction. If one of the parties attempts to void the contract without having such a provision in the contract, the most likely beneficiaries will be attorneys.

In the case you presented, it would be good for the seller if he has an "I don't feel like it anymore" contingency. I suspect there was a short sale contingency. I also suspect that, if the buyer's circumstance develops an ability to make payments or arrange for a loan modification, the bank would [1] prefer NOT to take a loss, [2] deny approval for the short sale and [3] modify the loan, the results of which do not produce a write-off/loss to mitigate.

http://www.DennyPhipps.com
1 vote Thank Flag Link Wed Sep 16, 2009
I feel you must have a short sale addendum attached to it and the SS approval letter was not yet delivered so I guess nothing much. But I feel the pain, the thing is lenders themselves are calling the folks to modify even though SS is in works! They want homeowner to keep the house and in your case they probably offered him good terms that were better than renting for them.

But this is becoming more common in this market.
Regrds,
Monika
703 626 3327
Web Reference: http://www.Realtygeeks.com
1 vote Thank Flag Link Thu Apr 2, 2009
I imagine that there was a date that the contract would expire if it didn't close due to the final third party approval did not going through. I was on the buyer side recently on a deal where the lender came back in the final week or so with a demand for another $5k. My buyer walked and we found something else. If I list a property and my seller accepts a contract subject to third party approval and the lender refused to approve the short sale, the sale would not happen. Your's is a little different in if it was subject to a short sale but the short sale wasn't denied and the seller just changed their mind (if I'm reading your post correctly??). That's something to talk with your agent and attorney over and let us know what the outcome is!
0 votes Thank Flag Link Thu Apr 2, 2009
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