Home Buying in 95677>Question Details

Sadbuyer, Home Buyer in 95677

Can a seller of a short sale keep a deposit of a fha loan? Other issues too, please read on.

Asked by Sadbuyer, 95677 Wed Dec 15, 2010

8 months ago we put our offer for a short sale was accepted We were to pay half in cash and the other half was FHA We made a $5000 deposit to the escrow company to be held until close. The seller also wanted us to purchase a patio cover that was attached to the house for an additional $3000. So it's time to remove our contigensies, which we did based on a FIRM commitment letter from our lender, saying the funds were ready to be payed. Two days before close and after we removed all of our contigencies the lender says they were unable to finance the loan. So at this point we felt screwed.. We get another loan approval but at this point it's 2 days before close, which they needed more time to finance. The sellers refused to accept the extension unless we gave them $1300 for them having to move out of their SS home early. We agreed too only after we get a commitment letter from the new loan company.

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If a buyer wants to concentrate their search on short sales, that is the buyers choice. Not my first choice.
For the buyer that prefers short sales over traditional or REO sales, they can seek out Ken, who thinks short sales are the best type of listing to look at. Or they can look up Ute's profile. She knows they can be trouble, discloses that knowledge, and knows that some are worth the trouble and many aren't.

Me, I like buyers that are willing to give traditional listings and inherited property listings a look. Sometimes, the low hanging fruit IS the tastiest.
0 votes Thank Flag Link Thu Dec 16, 2010
Jim Walker, Real Estate Pro in Carmichael, CA
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Did you at least get your check for $3,000 back from your broker or is the release of that money also in limbo? If so, you'd be looking at asking for $8,000, which exceeds the maximum small claims court claim ($7,500) and you may be looking at having to mediate/arbitrate if buyer and seller initialed alternative dispute resolution paragraphs. I am not a small claims expert. Just thought I ask the question and bring up the issues.
0 votes Thank Flag Link Thu Dec 16, 2010
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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had a conference with the broker today and all that he advised is that we start the small claims suit. He says he feels like we should win but hasn't really enforced anything within his office, between his agents. He also says that because the home is a short sale the listing agent will list the property as a "active, release clause" This is a Keller Williams broker and agents. We will be switching agent as well as real estate companies based on this experience
0 votes Thank Flag Link Thu Dec 16, 2010
I think the degree of negotiation power a buyer has depends very much on the definition of "negotiation" and to which negotiation we are referring. There is the negotiation with the seller and then there is the negotiation with the short sale lender. The only true negotiation power the buyer has in my opinion is with the seller at the outset of the transaction to work out the terms of the contract with the seller. What's going on between the listing agent and the lender can in most cases hardly qualify as negotiation and the buyer has not contact with the short sale lender and therefore no negotiation takes place at all between the buyer and the short sale lender. If the buyer is serious and smart, the buyer will invest in inspections before the lender has made a decision. If the inspections reveal property conditions that the seller is not willing to accept, the buyer can make that known and ask to have the issues addressed in the form of an addendum to the contract and most likely as a reduction in price, provided the property condition does not jeopardize the qualification of the property for the loan for which the buyer will apply. If no agreement can be reached between the buyer and the seller, the buyer might as well cancel and move on as there is no point in waiting for the lender's approval. Unfortunately, many buyers don't want to do inspections until after the lenders have approved the short sale and the seller has accepted the terms of the short sale approval. In my opinion, waiting that long is a gamble because many times, timej is our enemy and having to resubmit for approval because of defects that are discovered after the first approval was issued is just not desirable. Ideally, the property condition is known by the time the interior BPO and/or appraisal is scheduled. That's my opinion and I realize it does not happen in most short sales, but if the buyer wants maximum negotiation power, the buyer has to do due diligence investigations early. I understand that there is no guarantee that the bank will approve the short sale and the buyer may lose money spent on inspections, but that's the risk you take by making an offer on a short sale. If the buyer wants to do nothing until the bank made a decision, the buyer needs to understand that it may adversely affect the outcome of the short sale. If I were a buyer I would rather know sooner than later whether I have a deal. What good does an approved short sale do for a house that I don't want because of the property condition. That's just my two cents on the topic of the buyer's negotiation power.
0 votes Thank Flag Link Thu Dec 16, 2010
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Sadbuyer, the reality is that your agent should have seen the red flags of the transaction. I comletely disagree with Jim's assessment that buyers should only buy short sales as a last resort. It is actually pretty funny that an agent would say to a buyer "stay away from over half of the available inventory" because they are bad bad bad... In truth, you get disclosures with a short sale you do not with a bank owned home. You can get discounted pricing due to deferred maintainance. You DO have negotiating power as well. I have worked both sides of short sale transactions and know this for a FACT. You can run into plenty of problems and issues just the same with a Conventional Sale or any other type.

Bottom Line - A buyer needs to deal with someone that will shoot them straight, work hard and makes it a point to be a student of this difficult business. don't fear a short sale... Fear a tranasaction that is obviously sinking fast and nobody knows the right course to take...

Not sure who your agent is/ was or who the listing agent was... But I would definitely recommend you think long and hard before working with either moving forward...
0 votes Thank Flag Link Thu Dec 16, 2010
Yeap, Jim is hitting the nail on the head. Buyers have no real negotiation powers whatsoever in short sales, but what is really sad is that the first lender bailed at the last minute. None of this would have happened had the lender performed Why did the first lender pull back?
0 votes Thank Flag Link Thu Dec 16, 2010
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Jim Walker I totally agree with you. Not only was this not a great deal (we were going to pay the amount the appraisal came in at) but dealing with these shady sellers and their agent wasn't worth the hassle. I blame the sellers agent more than anyone because I feel she knew what she was doing. Buying a house was already stressful enough but dealing with these issues just was too much. The sellers agent kept saying how upset they were throughout the whole process and kept threatening to give up on it all.

After this we decided not to buy a short sale home. Only issue is there are only so many in the area we are interested in (Rocklin) I hope and pray all goes well but it is sad that lawyers have to come in so often in these situations. What ever happen to ethics with agents? Or even brokers/managers who will step up and say something to producing agents?
0 votes Thank Flag Link Thu Dec 16, 2010
The RE market is dominated by short sales and foreclosures. However, there is also an ample supply of "regular" or "traditional" type listings for sale at any time. I advise consumers to consider traditional listings First, Probate listings second, Foreclosure listings third, and short sales only as a last resort, after all other listing sources have been exhausted.

There is a public perception that short sales are bargains. Sadbuyer's experience is an example of "No they are not bargains!" Enter a short sale as a buyer only if you are prepared to be abused by the seller and / or the sellers bank. Sadbuyer's experience may not be common in the specifics, but it is typical in that the buyers are in the weakest position to negotiate in a short sale than in any other type of sale.
0 votes Thank Flag Link Thu Dec 16, 2010
Jim Walker, Real Estate Pro in Carmichael, CA
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Sounds like seller agreed to extend COE till 12/3/2010 and lender did not approve in a timely fashion. Like I said, lender approval is a contingency of the short sale and lender did not approve of what seller agreed to do. The fact that seller agreed because you could not perform does not matter 1 iota in my opinion as the addendum did not change the terms that apply to return of the deposit in the event of a cancelation of the contract because lender fails to approve. That's my humble opinion based on what you shared here. Again, nothing here should be construed as legal advice. I wish people would have their contracts reviewed by an attorney before they send off anything to the other side. People only think of attorneys when they already have a problem. How about using them to avoid problems? You may want to invest in a prepaid legal plan for as little as $16/month and avoid problems like this in the future. Call or e-mail me if you want to know more about this.
0 votes Thank Flag Link Thu Dec 16, 2010
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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This is what we signed for the December 3rd extension. After this extension the seller then requested another extension which we counter with them voided addendum B2 based on the Loan company requiring it

Addendum B
1. Buyer requests, and seller agrees, to extending close of escrow date to on or before December 3, 2010
2. Buyer agrees to pay through escrow to lst mortgage lien holder XXXX any short sales proceed shortage incurred between November 12 and extended December 3 close of escrow date, to be shown on revised estimated HUD as buyer contribution, deposit or similar language
3. This purchase is contingent upon short sale lender approval of extension and revised estimated HUD
4. This purchase is contingent upon's sellers' acceptance of terms contained in XXX short sale approval letter.

Addendum B2
1. By November 15, 2010, buyer shall deposit with her broker a check in the sum of $3000 payable to XXXXX for the purchase of personal property patio cover, to be held in Broker's trust account and released to the sellers on date escrow closes

2. By November 15, 2010, buyer shall pay to sellers by check in the amount of $1312.62 payable to XXXXX for actual damages and costs incurred as a result of buyer's breach of contract after removal of all contingencies through failure to close November 12. 2010
a) $1500/mo rent, pro-rated at a daily rate if $50 from November 12th, 2010 through December 3, 2010, inclusive, 22 days for a total of $1100
b) $150 for emergency hiring of two movers at $75 each
c) $115/quarter HOA dues (sellers have prepaid through December 31, 2010 as verified by title company, prorated from November 12 through December 31, inclusive for a total of $62.62
0 votes Thank Flag Link Thu Dec 16, 2010
Ok, I had to delete my earlier answer as I just noticed you had provided additional information in the form of an answer. I am not sure I am clear on all the facts and I don't understand how the listing agent thought that this would ever be approved by the short sale lender. Anyway, it sounds like the seller did agree to an extension in writing and the reason why there is no closing is not because you could not close by the original close of escrow date. It's because your lender did not approve the $1,300 going to the seller, which was entirely foreseeable. I am not clear on whether the seller's lender rejected the new offer as well or whether it was just your lender. What I would really want to know is what was signed and resubmitted to the short sale lender for approval. I would hope it was an addendum that, among other things, also contained an extension for the COE date and I would also hope that a new Short Sale Addendum specifying by when the revised offer had to be approved was also executed. Without seeing everything that was signed, we can all just guess, which does not really do you any good. Based on what you describe, the short sale lender never approved the revised offer and I would submit that receiving the approval is a contingency of the contract that has not been met. While the seller can cancel the agreement if the lender does not agree to the revised offer by the time specified in the contract, the seller can't cancel and keep the deposit absent the buyer's default. While you could not close because your financing fell through, I would argue that the seller gave up the right to cancel the agreement because of that when the seller agreed to an extension in exchange for receiving $1,300. It would be a different story if you failed to close because the financing fell through and you already removed all contingencies and there was no extension. Again, without seeing the contract, I can only go by what you shared here.

I agree with Bob Walatka below in that you should be guided by your agent and his broker who know all the facts. Short sales are indeed complex matters and paying close attention to all the details during all the phases of the transaction is crucial. I understand you are looking for answers, but our answers will be inherently flawed because we don't know all the necessary detail.

Good luck.
0 votes Thank Flag Link Wed Dec 15, 2010
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Can you meet with your agent and their manager to review the situation? Some brokerages also have a legal advisor available for the manager to consult with in cases like this, I would think the manager would want to be involved since the company represents both sides of the deal.
0 votes Thank Flag Link Wed Dec 15, 2010
I just called the referred lawyer and he isn't avaible until the 29th of this month. I've scheduled the appointment for now
0 votes Thank Flag Link Wed Dec 15, 2010
Ken is right on the money as far as legal advice goes. I suggest all my clients with real estate questions talk to The Steve Beede Group. Alex Munn there is very knowledgable. However, your agent should be in the mix getting this resolved.
0 votes Thank Flag Link Wed Dec 15, 2010
Stacy has been right on. Legal advise needs to come from a real estate attorney. My understanding is that in a short sale, the borower does not have the ability to hold your earnest money even though you are past your contingencies. If you don't have any luck getting this resolved soon, my recomendation would be that you contact the Law Office for Steven Beede. I've worked with him previously. He is the most knowledgable attorney I have run into with regards to Short Sales. His number is below... Good luck!




Fair Oaks Office

11140 Fair Oaks Blvd. Ste.300
Fair Oaks, CA 95628
(916) 966-2260


--------------------------------------------------------------------------------

Roseville Office
915 Highland Pointe Dr., Ste. 250
Roseville, CA 95678
(916) 760-4238
0 votes Thank Flag Link Wed Dec 15, 2010
Consider contacting the broker owner and or office manger of the realty office, schedule a meeting and voice your concerns--if all else fails, have all related documentation reviewed by an attorney who specializes in real estate--most professionals do offer a free consulation.
0 votes Thank Flag Link Wed Dec 15, 2010
Your agent should be at work informing you and protecting your interests. That's what we get paid to do. You should not have to be looking for answers to your challenge on Trulia. Short sales are complex monsters and each one is different. The one thing I did not see in your communication was that the lienholder(s) had given short sale approval. I saw something down below that nothing was put in Equator until a couple of days prior. I would have to see your purchase agreement and addendums to be able to answer about the deposit. There are several variables that impact that.
0 votes Thank Flag Link Wed Dec 15, 2010
Given that, I would definitely request a meeting with the broker. You need to have a full resolution of this issue and to make sure the contract is officially terminated before you attempt to purchase another property. Your deposit cannot be 'held until another offer is accepted' and I would demand a resolution.

Stacy Carter
Associate Broker
Better Homes & Gardens Real Estate Metro Brokers
0 votes Thank Flag Link Wed Dec 15, 2010
I just got off the phone with my realtor and she said the agent will be changing the property we attempted to buy from "for Sale' to something else. These two agents, the selling and buying agent works for the same company. I am a little surprised that the manager in that office hasn't stepped in and pointed both agents in the same direction. I believe the selling agent will hold our deposit until she has another acepted offer in escrow. Today we put in another offer for a Bank Owned house but was a little more hesitate to include a deposit.
0 votes Thank Flag Link Wed Dec 15, 2010
As a side note, (in general) here are a few things to avoid in the future.

In a short sale, the negotiation of the purchase and sale is between you and the seller, initially. Then it is subject to bank approval. To avoid complications, once the contract is submitted to the bank, you really should try to avoid making changes to it. The bank is basing their approval on the financials, and if you change that, it has to go through the process all over again.

The patio cover is either a.) part of the house and included in the purchase price or b.) personal property which should be conveyed through a bill of sale. As personal property, they can't force you to buy it. As part of the home, it's up to you if you wanted to pay an additional $3,000 for the house. It should not be called out separately, and in this case, the seller wouldn't be getting the proceeds anyway.

Lenders do not typically like "allowances" or any monies or credits for things that are not typical. Paying a penalty for missing a closing date is certainly outside the norm, and I'm not surprised the lender would not allow it. The $1,300 is an amendment anyway, and in a short sale, as mentioned previously, should be avoided at all costs. Not to mention, I don't see the justification.

Good luck with this. Let me know how it turns out.

Stacy Carter
Associate Broker
Better Homes & Gardens Real Estate Metro Brokers
0 votes Thank Flag Link Wed Dec 15, 2010
Sorry, I responded too soon. So, it was the $1,300 that caused the financing to fall through?

Regardless, this is certainly the time to bring in your agent's broker as well as a recommended attorney. There's a lot of money at stake, and I wouldn't want to take any chances.

Stacy Carter
Associate Broker
Better Homes & Gardens Real Estate Metro Brokers
0 votes Thank Flag Link Wed Dec 15, 2010
Stacy please read the follow up post I made, There wasn't enough room for me to post everything orignally , so i had to post as an answer
0 votes Thank Flag Link Wed Dec 15, 2010
Here's the hail mary pass...find another lender. They might be able to pull this off fairly quickly. I've seen some do it in 5-10 days. Look at your contract for a clause that grants you a unilaterial extension (usually up to 7 days) for closing date.

The $1,300 seems extremely unreasonable and just a way to get money out of you. If they're in a short sale, most likely they haven't been paying their mortgage, so it sounds like they want you to pay their first month's rent at their new place. They'll have to pay it eventually, so I wouldn't agree to that.

If your deposit is "earnest money" AND you are unable to close the transaction, the seller may be entitled to the funds. Since it's held in escrow, it's protected by the escrow agent, and will only be dispersed to the entitled party. You might be able to make an argument that the seller's were unwilling to grant an extension, which caused the breach of contract.

Ultimately, you'll want to seek the advice of an attorney who can review the contract in detail to determine your actual situation.


Stacy Carter
Associate Broker
Better Homes & Gardens Real Estate Metro Brokers
0 votes Thank Flag Link Wed Dec 15, 2010
So sellers request another 3 weeks so the bank can accept the new offer. It goes to underwriting and they reject it based on the addendum that says we were going to give the sellers $1300, because it was a short sale. Time expires, the listing agents doesn't put anything into equator until 2 days before the new close date. So sellers then ask for another extension. We agreed to this new extension only if the sellers voids the $1300, which was required by our loan company. The sellers decides not to sign it and the deal is now off. we send the sellers a cancelation contract and they didn't sign that either. The sellers are now trying to keep the deposit and has already relisted the property as "for sale" in mls. Is this legal? Can they refuse to seign the cacelation and put the property back on the market without resolving escrow? Are the short sale seller even entitled to a deposit, since they are not allowed to profit from a short sale?
0 votes Thank Flag Link Wed Dec 15, 2010
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