Home Buying in 95054>Question Details

Mallika, Home Buyer in 95054

Short sale - escrow account

Asked by Mallika, 95054 Tue Nov 1, 2011

We have put a bid on a short sale in Sunnyvale, CA. Our agent is asking us to put 3% of purchase price in escrow account until bank approves it. Is it common? And how long does it take to get the money back if we find something else or decide to opt out later.

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Harold Sharpe’s answer
I do not know how your contract was written or if a Form SSA ( Short Sale Addendum ) was used.
On a short sale addendum used in the state of California on most short sale transactions to aid in how this is usually done,.... usually the buyer holds their monies until the short sale is approved. However, Listing agents are tired of BUYER BAIL and with good reason. Some buyers have 22 offers out there awaiting for a short sale to be approved somewhere. By having skin in the game circumvents this. I can understand the seller wanting a buyer who is willing to put 3% down, but everything is a negotiation. As a buyers agent I say 1% tops,... as a listing agent I say 1-3% in escrow held to show they are NOT a BUYER BAIL and willing to wait 45 days for me to get a short sale agreed upon to start the escrow time periods. If the seller has not procured a short sale contingency removal in 45 days then the funds should be asked for by the buyer and the seller should be on it to release the funds. The problem is sellers lose track of who they are and how it helps to have a buyer and think if they hold the buyers deposit it may somehow help. They are already under stress from short selling their property as it is.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Sun Nov 6, 2011

CJ has provided an excellent post (Thumbs Up!) from the "seller's position" and one or more of the influences contained in her post may be why your Agent is suggesting an upfront deposit. Again, ask your agent the "why" question and then determine if you believe this person is working in your best interests.

"...how long does it take to get the money back if we find something else or decide to opt out later."

Let me provide the “quick answer” and then provide some “follow-up”:

“quick answer”

Para 14F of the CAR RPA states:

"If Buyer or Seller gives written notice of cancellation ….A Buyer or Seller may be subject to a civil penalty of up to $1,000 for refusal to sign such instructions if no good faith dispute exists as to who is entitled to the deposited funds (Civil Code §1057.3)." The Seller must release the deposit within 30 days per Civil Code §1057.3"

( Civil Code §1057.3 can be found at http://law.onecle.com/california/civil/1057.3.html )

So, once you submit the cancellation notice the Seller has 30 days to sign the escrow release or be subject to the penalty.


According to my discussions with the CAR Legal hotline, when a SSA is used there are two diametrically opposed legal theories that come into play if the SSA's waiting period has not passed.

Question posed:
The SSA, Para 1A, provides for a “date certain” deadline (in days) that the Buyer can modify as far as seller providing proof of lender(s) acceptance. What is the liability of the Buyer when a cancellation occurs before and after this “date certain?”

Answers received:

After the “date certain”:
Once the “date certain” has passed without lender(s) confirmation the Buyer may cancel without liability.

Before the “date certain”:
There is controversy here based on Para 1 that provides a 45-day (unless modified by the Buyer) period in which to obtain lender approvals. On one hand, this seems to indicate a cancellation cannot be made until the “date certain” passes; however, on the other hand, if I as a Buyer find something about the property that materially affects my willingness to buy it, why should I be made to wait? There are various CA Civil Code sections, dating back to 1872, under PART 4. MAXIMS OF JURISPRUDENCE 3509-3548 that conflict with making a Buyer wait in these circumstances. (These items were specifically cited by the CAR's RE Lawyer: 3532.-The law neither does nor requires idle acts, and 3533.-The law disregards trifles.

Per the CAR Lawyer, there has been no legal case brought to the court that has provided legal precedence concerning this situation. I was told the Seller could be damaged if the buyer pulled out of the transaction before the "date certain" and then subsequently had to sell at a price that was lower than what the original buyer had offered. In any case, pulling out before the date certain seems to have the possibility of introducing exposure.

If you were to pull out of the transaction before the “date certain” and assuming you use the most recent CAR RPA, you would normally have a duty to use Mediation and Arbitration as a means of resolution (Para 26 “Dispute Resolution”); however, if the deposit amount is within small claims court limits, you can go directly to small claims court via Para 26C1 (also see the Liquidated Damages clause contained in Para 25).

On that note:
On July 8, 2011, Governor Jerry Brown signed Senate Bill 221 into law. SB 221 increases the Small Claims Court jurisdictional limit from $7,500 to $10,000 with two caveats. First, 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. Second, the Small Claims jurisdictional limit will remain $5,000 for suits brought by entities such as corporations, limited liability companies, partnerships and the like. Since the new legislation does not include an “effective date,” it is assumed that SB 221 will become law on January 1, 2012.

2 votes Thank Flag Link Wed Nov 2, 2011
Mallika -

I must say I am a listing agent that has requested on behalf of the seller 1.5% deposit upon acceptance on a short sale offer and 1.5% when bank approves. This is because, my experience tells me when buyer's are willing to write a check they are more committed to the process and are potentially less likely to keep looking at homes and cancel the minute something else sparkles around the corner.

I have also discussed the option with my buying client (and some have decided to do so) to place half now and half later when competing against other offers on short sales. Sometimes showing commitment helps get your offer accepted, particularly when previous buyer's have walked on an offer and time is running out for the seller.

I agree with the points below from well respected agents as well. I am not sure how much your deposit is earning in savings these days but the principle idea is there. I also see short sale approvals getting faster with certain lenders. The reality is every short sale is different and approval times are unpredictable in spite of many best efforts to obtain approval asap.

With that said, find out more about the short sale if you can. Who is the lender, one or two or three? Do they have BPO? Is it a portfolio loan or investor? MI or not? Have they had other offers fall out and why? Is the listing agent handling the negotiation or a third party? Is it HAFA? Is there an HOA involved? How long has seller been delinquent? Is a Trustee sale date scheduled? How much is the home short? So many things I would evaluate as the buyer's agent before I recommend a deposit in advance of lender approval.

On your question about how long does it take to get your money back; if the check has cleared the escrow company and the seller signs the release in a timely fashion, you should be able to get your money back within a week of canceling. There is no advantage to a seller facing foreclosure to sit on your deposit because they want to get a new offer into escrow asap.

In the end, it is your money and you have to decide if you need the competitive edge of depositing before approval and whether it is worth it sitting in escrow. Hopefully, your agent will help you work through all the options.

On a similar note, I am seeing more short sale agents ask for physical investigations/inspection contingencies be completed on acceptance by seller. Again, if your not ok with the physicality of the home, why should the seller and agent work hard for an approval just to see the buyer walk after 3K of termites are found. Every agent has been burned one way or another on short sales and looks for way to minimize timelines, buyers walking, and foreclosure for their sellers. Completing inspections up front can be up to $1000 which you do as a buyer do not get back if you walk. Again, the kind of risk the come with offering on a short sale.

Your agent's job is to know your goals and look our for your best interest in regards to purchasing. A short sale has its risk of time for the buyer and the inability ( many times) to negotiate repairs after a long wait. They are not all deals but some are and some are worth the wait.

Best of luck.
2 votes Thank Flag Link Tue Nov 1, 2011
I don't know how to respond to an answer to me question here at this site so I am responding to my own question. First if all, thanks to everyone who responded. We had given a $5000 scanned check to our Agent but he said they won't cash it. But suddenly he started asking us to put 3% in escrow and sent us this email which his agent sent out.

"We placed the property on the market because to be honest Mr. XXX we do
not think that this is going to work out . I have tried to be more than fair
but as a BROKER I know, and you guys should know that we could call the DRE
and have a complaint filed because of that deposit . You see, the client
signed the contract and you as a Broker know better than to leave the
deposit out . This is kind of ridiculous that the deposit would be held two
weeks . I also when I explained it to my client that there was no deposit
yet what do you think he said? We have a fiduciary relationship with the
clients that is in our Agency Disclosure . I am not trying to be a jerk but
from our side we have to do our job . This is not being done on your side
the escrow company can pick up a deposit check within 4 hours what's the
problem here ? If this were your client and would you allow an agent to do
this and jeopardize getting a legitimate offer ? This is just wasting time
because the bank requires a copy of the escrow receipt from the escrow

I seriously do not understand this forwarded email. What is trying to tell us about the DRE complaint and all to put the money in escrow. We had just put the bid and signed the short sale addendum. Our agent is saying Bank is requiring a copy of the escrow account receipt.
1 vote Thank Flag Link Wed Nov 2, 2011
I'd like to jump in on this as I have been working mainly as a buyers agent and have done quite a few SS. What the other agents have said is true, I rarely let my buyers put down a 3% deposit on a short sale as I have had them sit for months without approval or the bank forclosed and my buyers were crushed. Here is the thing, if the bank has already approved the price then that is a different story, but noticed I said PRICE not that they approved the seller to do a short sale. I always tell my buyers NOT to fall in love with a short sale property as there are many things that can go wrong and the deal falls through. If my buyer REALLY wants the property then a 1.5% s the usual deposit amount. The other thing to remember is that if the property is really desired and priced well below the market and there were multiple offers , don't think for a second that the bank is going to approve that price. They will do a BPO ( appraisal ) and counter you at a price more in line with the market, so make sure your agent shows you the comps for this home and if they show that your property is WAY below the comps I can assure you that the bank will counter your offer. So now you have wasted months for this property and now the bank wants more money, or you have to come up with additional cash because the 1st will not give the 2nd what they want and the 2nd won't approve the SS until they get what they want which at this point is going to come from you. This does NOT mean that the home is still not a great deal it just means BE PREPARED for it costing you more. Also I NEVER have my buyers pay for inspections until the SS price is approved by the bank as I have had to many SS fall through for a great number of reasons.
I hope that helps, feel free to contact me with any questions.
At your service,
DRE# 01397256
1 vote Thank Flag Link Wed Nov 2, 2011
You have an agent who has a duty to represent you and answer these questions for you. Everything is negotiable. The contract stipulates the terms. When you sit down with your agent to write an offer they should have already had a discussion with the listing agent and reviewed the terms the agent/bank want. Then you as a buyer have the choice to proceed on those terms.

The question that wasn't really answered is how to get the money back out of escrow. This is something that has to be agreed to by both Buyer and Seller. If one party holds it up it could take a while.

Make sure that you understand any contract that you are signing and that you allow your agent to work for you. By reaching out to us you have taken away a valuable piece of information from your agent. Let your agent know that you need more information.

All the best to you.
Web Reference: http://www.terrivellios.com
1 vote Thank Flag Link Wed Nov 2, 2011
Check you contract, you should have filled out a Short Sale Addendum which has a space to write whether you plan on putting the check in an escrow account at the time the offer is made, or held by the broker until the bank approves the short sale. By not depositing the funds until approval, it is easier to back out if the bank is not replying soon enough for you. Either way, though, you don't have to deposit the whole 3% with the offer. Usually you deposit the whole 3% by the time all the contingencies are removed, and then once you remove all you loan and inspection contingencies you risk losing that deposit if you back out late in the game. Best, Terry Bell, Realtor, Santa Rosa, CA
1 vote Thank Flag Link Tue Nov 1, 2011
It is not common to put your good faith deposit into escrow during a short sale. The process can be long in getting approval. The only reason I could see that an agent wants you to put a deposit in escrow is to get a strong commitment from you. If the property is a really good value and you want to put the deposit in, its up to you. But its not a requirement and not commonly done. A short sale can take 3-6 months to get approval unless the bank you are working with is Wachovia. I get approval on those short sales in 3-4 weeks. Good luck!!!
1 vote Thank Flag Link Tue Nov 1, 2011

No, this is NOT common. Unless there's a compelling reason that you have not shared there's really no reason to let your money sit in escrow and not earning interest.

Please ask your Agent: Why?

How it normally works:

Your offer is submitted using the CAR Residential Purchase Agreement (RPA) along with the CAR Short Sale Addendum (SSA). Barring any changes via addendums, none of your contingencies (inspection, loan, and appraisal) start and your deposit is not made until you get the bank approval(s). The form provides 45 days for the Seller to obtain any loan approval(s), after which, you no longer have an obligation to proceed with the effort of buying the property if you so desire.

1 vote Thank Flag Link Tue Nov 1, 2011
I would also like to add that in a short sale offer, many times your agent should only submit a 'copy' of your deposit check with your offer / purchase contract, to be held uncashed by your agent. It is important that you are aware of what is going on since you are already at the stage of handing over money. This is a crucial point in your transaction. Have you asked your agent these questions?
1 vote Thank Flag Link Tue Nov 1, 2011
Wow, that email is very strong. So it sounds like the listing agent is wanting the 3%. It also sounds like your "buyers" agent has done nothing wrong. It very hard for agents to jump into transactions (escrow) without all the facts and give you advise. The worst thing is wrong advise on serious topics. However, it is correct procedure to present a copy of the deposit with an offer on a short sale. Usually, no dates start until the bank approves the short sale. However, its all written in the contract. The contract is the bible for your escrow. Whatever the contract says is what we as agents do. The short sale addendum is also a good source of information. If you want to contact me just to answer some questions for you, no obligation, you can call me at 408-315-8965. I also like the advise CJ is giving you.
Sandy Sullivan
Remax Santa Clara Valley
0 votes Thank Flag Link Thu Nov 3, 2011
Your Agent is jumping the gun:
The DEPOSIT check is not cashed until three days after the Contract is signed and the Escrow is opened.

Good luck and may God bless
0 votes Thank Flag Link Thu Nov 3, 2011
Mallika -

Wow - that is such a strangely worded email that I am having a hard time understanding it. : /

If there was no Short Sale Addendum attached to the offer, then I can understand why the seller's agent is expecting the deposit to be placed in escrow. However, a buyer's agent will typically apply a short sale addendum to a short sale offer because it addresses this very issue about deposit and other important short sale related items that the standard offer contract does not.

The email points out that in a standard contract, in the first paragraph regarding the deposit that it must be deposited within 3 days of offer acceptance. And if it isn't a seller has a right to cancel. If the agent representing the buyer is holding the check and not depositing it according to the contract, there could be a DRE related issue because it could be construed as a mishandling of funds.

In my experience, I have never had a short sale lender request a copy of the deposit receipt or check. They want a copy of the offer contract and typically the short sale addendum. Again, hard to say without seeing all that was presented.

Either way, without seeing your complete offer package, it is hard to offer a reason why he said, she said understanding. I would suggest sitting down with your agent and possibly your agent's broker to see if you can get clear answers.


Thanks @Steve
Web Reference: http://www.TalkToCJ.com
0 votes Thank Flag Link Thu Nov 3, 2011
What does your contract say about the escrow deposit ? On the Short Sale addendum, it should state whether your check will be cashed now or if your check is held 'uncashed' until you get a letter in writing from the Seller's bank that your short offer has been approved. Who wrote your offer / purchase contract ? Why do you have to come here for such important information! And I believe that there is more to come in this transaction that will be equally important. Who is representing you?
0 votes Thank Flag Link Tue Nov 1, 2011
There are options within the Short Sale Addendum that deal with this. Check out the web reference below. I wrote a blog specifically on this matter. Let me know what you think.

Best regards,

Eric Soderlund
0 votes Thank Flag Link Tue Nov 1, 2011
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