Home Buying in Danville>Question Details

Kim, Home Buyer in Danville, CA

How does short sell work?

Asked by Kim, Danville, CA Mon May 20, 2013

In a short sell situation. I wire earnest money in a trust account per my agent requirement, if I walk out before the bank approve the short sell. Can I get my deposit back? The old days, it only requires to hand a check, the check won't been get cashed until the bank approves the short sell. Now it requires us to wire the earnest money to the trust account when we write the offer even though we don't know whether the bank will approve the short sell or not?

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6
Kim,
We will just assume that the money is held in escrow account with a title company. Given where the market is, you should be able to exit gracefully here. Your agent should have kept in place a number of escape clauses for you to back out legitimately. One of this would be the bank going over the time you committed to wait for the approval (in the short sale addendum mentioned in a previous post). Escrow will only release funds if both selling and buying party agrees, so if you decide to pull out prematurely, the seller can refuse to allow escrow to release the funds. Our suggestion is to wait out the time commitment you made and if the bank goes over, you are free to pull out with the deposit. If you really want out of the deal, just wait for the bank to reply. Most of the time, the bank will want something else added or taken off your offer, and when that happens, that is TECHNICALLY A COUNTER, and you can get out of the deal at the time. You are only stuck if the bank approves your offer as submitted (very very rare), and even so, you should still have inspection and other contingencies to get you out of it.
Good luck!
-Raymon and Christine
0 votes Thank Flag Link Wed Jun 5, 2013
Are you sure it was a trust account, not an escrow account? If it really was a trust account, this is not normal practice. Carl explains it very well below. If it really was a trust account, I suggest calling the agent and / or the agent's broker/manager to ask for clarification.
0 votes Thank Flag Link Mon May 20, 2013
The problem centers around the time it takes:
The Buyer goes-in knowing that it will take an intermidable about of time, and no matter how many times we tell them that they have to be patient; they are NOT!
0 votes Thank Flag Link Mon May 20, 2013
Kim,

The prior two answers are both absolutely correct. I will add that I hope your agent used a CA Association of Realtors purchase form CA-RPA and a Short Sale Addendum form SSA. If so then you can look at the very first paragraph of that two page SSA and there will be a standard time frame (that can be changed). This will tell you how long of a commitment you made to stay in the deal. Typically it is 45 days but that number can be changed. This means that you agreed to remain patient and allow the seller and his/her agent at least 45 days to get the sale approved. You should not be walking away before that 45 days is up.

Of course all contracts can be different but this is the most typical way to write an offer on a short sale. And as always, if you are unsure you should consult legal counsel. Good Luck
0 votes Thank Flag Link Mon May 20, 2013
Many agents have started this practice because they grew tired of getting an offer, waiting for approval and then discovering that their buyer was long gone. Getting the deposit up front ensures that (1) the buyer is more serious about staying in the transaction and waiting for the approval and (2) notifies the listing agent the second the second a buyer decides they don't want to wait any longer.

The money should be deposited in an escrow account with a title company, not a trust account. Your contract should be written in such a way that you can get the funds back if you decide to cancel or the short sale is unsuccessful.
0 votes Thank Flag Link Mon May 20, 2013
Clauses for cancellation and escrow refunds should be stipulated in the contract you signed.
0 votes Thank Flag Link Mon May 20, 2013
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