Home Buying in Los Angeles>Question Details

Anthony, Home Buyer in California

How to do I Cancel Escrow on a short sale property ?

Asked by Anthony, California Wed Aug 27, 2008

How to do I Cancel Escrow on a short sale property ? We have released all contigencies and signed loan docs and was supposed to close escrow yesterday. Everything on our end (Buyer's End) was good to go and we were ready to buy our lender was ready to fund but there was a delay (approval on short sale) on the seller's bank and we are now 1 day passed escrow closing date.

Seller's agent listed the property in mls description that this was an approved short sale but as it turns out it's not. In fact that is the reason for the delay we are waiting for short sale approval.

Now I'm having second thoughts on going thru with purchase due to the reason that I think we overpayed, we are paying all closing cost, hoa fees increased, and the rate on our loan was a little bit higher. Are we still obligated to purchase the house ? would there be any legal implications if we don't ? (eventhough it's the seller's bank fault that we did not close on time) are we actually out of contract ?

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still confused I understand that the banks forms are in their favor not the buyers BUT if they set a date and they(being the bank seller) agree to it in writing aren't they obligated? I understand the problems of dealing with banks and i realize it is the buyers choice to do so or not but just don't want them to be able to agree to one thing (such as a close date) in writing and then be able to change their mind without consequence. On another note it is interesting to read these comments about banks that make buyers wait and won't budge on their price - I think buyers that move on are doing the right thing - why complete a sale with a bank like that? I hope when they move on to the next buyer in line that they pass as well - eventually the bank will have to lower their price in order to sell.
1 vote Thank Flag Link Wed Aug 27, 2008
Anthony
This is a great post.

First, you need to talking with your REaltor and their broker ASAP. This is not uncommon, however you make some very good points. It very well may be that the home has declined in value. The question may be "how bad do you want it?".

Second, it is not uncommon with short sales to have timelines and deadlines disregarded by lenders. That's why you need advice from the professionals IN the transaction, not professionals from Trulia. They know the history, what the other aspects are of the sale.

I was just talking with my clients about a home that they had made an offer on two months ago. Countrywide finally got back to the buyers in front of them. Those buyers had to wait six months for a response, had to obtain new financing, and the appraisal came in at $525K. Countrywide won't sell for the appraised price, they want the higher price of the original offer made back in March. So the first buyers walked away, not the listing agent called me and asked me my buyers want to move forward.

I spoke with them yesterday and they said "We offered a low price in May, why would we offer more now. The value has dropped further. So the property will probably go into foreclosure.

You may have to way how much you like the home versus the true market value. Your REaltor should be the best person to advise you.
1 vote Thank Flag Link Wed Aug 27, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
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Hi Anthony, you are in a contract. There is a short sale addendum, and if it is fully executed, I believe you are still in a contract. Closing dates are not normally subject to cancellation, they just get moved out sometimes. 1 day is not really a big deal, I've seen closings go as long as week after it supposed to close, although it made for a sticky situation for movers etc... it all worked out in the end.

Get reassurance from your agent. He/she should be able to answer these questions for you. I would ask you to go back to the thought process of why you bought this property in the first place.
Hang in there.
0 votes Thank Flag Link Wed Sep 3, 2008
Hi Anthony, you are in a sticky situation. I always recommend my buyers not remove all contingencies in a short sale because of the level of risk involved. Please consult with your agent for professional advice.
0 votes Thank Flag Link Tue Sep 2, 2008
Anthony,

The bank can take as long as they need even after the scheduled escrow closing date. The Short Sale Addendum you signed covers this situation. Just hang in there and ask your broker to contact the lender on a daily basis to see what else needs to be done.

Best,
Yona Bello
Web Reference: http://www.YonaBello.com
0 votes Thank Flag Link Wed Aug 27, 2008
I would talk to a attorney, but based on my experience, if you are past the the original closing date listed on your purchase contract, the seller (in this case is the bank) are in breach of contract and now the contract should be declared null and void.

The closing date written into the contract is a condition of the contract, the seller was obligated to close on or before that date. If a written request was not granted you don't have a contract. Also from my experience, you don't have a bank approval, if you did, they would be pushing for a closing date. Once approved the banks want to close asap.

Definitely consult an attorney!

Hang in there, if you did your homework before submitting an offer, you should be fine. These deals just take a long time to complete. Be patient!
0 votes Thank Flag Link Wed Aug 27, 2008
Anthony,
How do I Cancel Escrow on a short sale property? You have to complete a Demand to Close Escrow then Cancellation of Contract. Your Realtor can do that for you.

Are we still obligated to purchase the house? would there be any legal implications if we don't?
You are not obligated to purchase the house. You can back out. You may potentially loose your deposit and have to pay escrow for the work they completed. If you really don’t want the house anymore you may want to take a chance. Chances are you will be able to get your deposit back.


(eventhough it's the seller's bank fault that we did not close on time) are we actually out of contract ? No, you are not out of the contract. Buyer’s normally sign a short sale addendum when submitting an offer on a short sale. The short sale addendum states the lender may amend close of escrow to approve short sale. This opens the door for them to extend the close date. The addendum also states that you are on the hook for any costs you incur whether the short sale goes through or not.

What about if the person (buyer) became incapacitated during escrow and can longer fullfill obligation? With the proper medical documentation you will be able to cancel the contract.
0 votes Thank Flag Link Wed Aug 27, 2008
Hmmmm... I got a good question... What about if the person (buyer) became incapacitated during escrow and can longer fullfill obligation? ie. mental breakdown, hospitalization, job relocation (ehh), death of spouse...

I think of any of those issue or similar came up, leverage might be on the buyers side... In that case, a lawyer would need to jump in...
0 votes Thank Flag Link Wed Aug 27, 2008
Rest assured if its a Short Sale or REO the addendum to the contracts are ridiculously long and never in the buyers favor. Seller will not release you and why would they. They sold the property, to you. You might be able to squeeze your agent for some cash but aside from that.....

The only time I have seen a seller/builder cancel is when they let their guard down and got emotional. I would not cancel your movers just yet...
0 votes Thank Flag Link Wed Aug 27, 2008
i have a similar question if the seller did not close due to their fault then aren't they responsible? In other words what is the recourse for the buyer? Does it really matter if the buyer wants out or not? Aren't these offers contractual? Sorry for so many questions just trying to figure out how to protect ourselves in a similar situation - what is this 24 hour demand notice? Isn't that giving them a second chance - if all agree to a closing date and one doesn't perform aren't they in default with compensation going to the other party?
0 votes Thank Flag Link Wed Aug 27, 2008
Anthony, many times buyers go through some type of buyer's remorse. Make sure you are making the right decision by consulting with your Realtor. Many times these delays can be a blessing in disguise or they can hurt you. Do a market analysis and go over your contract. Most of the time if a seller is not performing than you must give them a 24 hour demand to perform. They might still hold some of your funds to cover escrow and title fees plus you are already in the hole for the inspection and appraisal. Then the seller might make the cancellation difficult and hold up your deposit also. Speak to your Realtor about your options. They might have a relationship w/ escrow and can get your fees waived.
0 votes Thank Flag Link Wed Aug 27, 2008
If I was your agent, I would not let you cancel. Buyers Remorse is not a good enough reason. If its in escrow, the bank approved the deal. You had a window of opportunity to complete your due dilligence. How much do you think you over paid? If you paid all the closing costs, you must have agreed to it.

Now is a great time to buy if you are looking at long term appreciation.
0 votes Thank Flag Link Wed Aug 27, 2008
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