I must disagree with the post that the bank has to ratify the contract. Our legal counsel has stated that this is incorrect. This is a common misconception in the industry - the sellers have ratified an agreement with an individual with a contingency on receiving third party approval. Rules and regulations within the state view this as a ratified contract, or CNTG/NOKO, since the buyer has faithfully adhered to the terms of the contract. The seller has no rights, unless added to the contract, to kick a buyer out. The bank's acceptance of the shortage has nothing to do with the agreement between the buyer and seller - if they reject the amount that is being proposed, they reject what the seller is offering, not the buyer. The seller is the one proposing to the bank the amount, not the buyer. The buyer is proposing to the seller what they will be willing to pay. The "Subject to 3rd party approval" is a negotiation between the seller and the bank - the buyer is not involved in that at all. If the bank makes a counter, it is through the seller. The seller just words it as the bank will accept this...
Don't over complicate this process. If the property should have sold for more, then the bank will ask for that amount. But a ratified contract is between the seller and buyer, and their is no kick out in these transactions, unless noted in the contract. There are many variables here that no one can really speak on unless they have seen the actual contract. Simply going off of standard procedures is where my opinion comes in on the subject. I do however know that you do not need the banks approval to ratify the contract. Vivianne said one thing that is dead on - think of the bank approval just like the appraisal clause for a buyer. The bank has to approve that as well - but it does not mean that a contract can be kicked until the contingency is met.
Jimmy Mulhern

By LAW, contract is between the Seller and the Buyer. ONLY. Once the Seller accepts the Offer, the contract is ratified and the Sellers are bound by their own signature.

Depending on how the contract is written, The Seller CAN accept back up offers (CNTG/KO). In this case, since te Seller "agreed" to pre-settlement occupancy, it's safe to assume that the Seller understood the sale was "final" and there cannot be other offers accepted.

Of course, the proplem is compounded by the fact that the contract was SUBJECT to a Lender approval - even though the contract is between the Seller and the Buyer and it was ratified, the Lender may choose NOT to agree to the terms of the contract. It is a third-party approval contingency.

It is exactly the same way that a BUYER may get out of the contract based on contingencies written into the contract.

It is impossible to say anything definite in your case without having the contract in front of me.
However, it appears that the contract was poorly written and the conduct of the selling agent was unprofessional and inexcusable. All real estate agents must keep all documents from 3 to 10 years for tax and E & O purposes.

Next time when you purchase, use a real estate agent who is also a REALTOR.
REALTORS are held to higher educational standards and Code of Ethics.

It seems to me we have all missed one key part of this puzzle. You reference "they" several times in the body of your question, but "they" is never defined. A short sale requires not only the sellers approval, but also the approval of the lender holding the mortgage, as they must agree to accept the "short" amount. Now, if you have a copy of the contract ratified by both the seller AND the lender in question, you have a case, and should run to a good, local Real Estate Attorney. If, however, as I suspect, the only the sellers signed the contract, there really was no ratified contract. Many times in short sales, the lender has many offers. If you still feel you had a ratified contract, I am happy to recommend a few Real Estate Attorneys that you may contact. In any case, I do not think it was the Realtor's place to destroy your documents. I would at least register a complaint with his/her broker of record at your displeasure of that action. I hope things work out in your favour! Jim

People have posted it already so I want to just agree that there should have never been a pre-settlement occupancy agreement. Sounds good in theory, but nothing but trouble follows these. For every one case that was positive there are 4 or 5 that were not.

However, did the sellers ever deliver a signed/ratified copy of your contract offer? If so then you are ratified with them pending bank approval and have rights to the home since you would have a ratified rental agreement. Don't be confused about the short sale part - the bank has to approve releasing the lien on the home, but does not ratify the contract, the sellers do. Think of the bank approval as a contingency just like a home inspection. It's not always about them being shorted, sometimes they work out repayment plans, which don't delay anything.
If you have a ratified copy, I suggest you ask your agent to turn it over to your broker and contact the DPOR in Virginia. If you do not have a signed copy, then a verbal agreement is meaningless.

Jimmy Mulhern

Disappointed,

You cannot force the Lender to approve your offer/contract if the Lender choses not to approve - after all, the Lender is the one who is receiving less money than it is owed to them in the short sale transaction.

However, you do have a case against the Seller and the Listing Broker.
You are entitled to your EMD and possibly other damages, unless your contract says otherwise.

It is unfortunate you had to go through this.

My quick reaction is...There should have never been a pre occupancy agreement in a short sale... ! I don't know your circumstances, but someone should have told you how unstable short sales are! I would not IN A MILLION YEARS sit back and watch a client of mine, rent a short sale...before closing.....

Many short sales go to foreclosure when they are actively listed as a short sale, and no one knows it!

I am not an attorney, obviously, but if you had a ratified contract (signed by everyone) and you had not defaulted...sounds like you have a contract.... I would contact an attorney.... or the broker of the listing agent...

This market has brought some very interesting twists and turns..and this is a new one on me.......

Konnie Mac

Oh my Goodness, I understand your frustration and why you've reached out to others for advice here on Trulia. Actually your question has the power to help so many people understand the process of Short Sales. Thank you for asking it!

You asked is it legal that the seller choose to sell to someone else after you had a ratified contract? I cannot advise you on your case because you have a Buyer Agency agreement with your Realtor, however as a consumer you do have the power to file a complaint if you feel strongly enough about your case http://www.dpor.virginia.gov/dporweb/enfocomp.cfm

Now here's my question to you.
Do I understand you correctly? You were going to move into the home, pay rent until the short sale was appproved by the bank??????

Here's what I can share for everyone reading this post:
Short Sales contracts are between buyers and sellers and an offer is Ratified. However the offer is always contingent upon third party approval. ( the bank has to agree to the offer). So this is the part everyone home buyer must understand. There are no guarantee's when dealing with a short sale purchase.
The process can take weeks however on average it can take months. Then the lein holder(s) can change the terms raise the sales price above what you can afford, reduce the amount of closing costs agreed upon, request the sellers sign a note which they do not agree and the home can ultimately go to foreclosure. The only short sales we have some control over are Approved Short Sales.When looking for a home, if you see these words in the remarks section of the listing, run quick. That is a home that can settle in 30 days or sooner!
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The idea of a pre-oocupancy seems like a win/win for both the buyer and the seller. It is an emotion fix to help both parties out so to speak. You get to move into your home of choice,the seller gets rent from you. However, so many things can go wrong. There is no way your Realtor, The Listing Agent or the Seller can guarantee that the short sale offer as written and the agreements made between buyer and seller will be agreed to by the lien holder.

Would I allow one of my clients to pre-occupy on a short sale transaction. NEVER!




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Disappointed,

This sounds like a most distressful situation......one that should be referred to an attorney sooner than later.

Good luck

I hope you have copies of all your contracts and everything you signed. It sounds like it is time to get an attorney involved. It is not legal to sell a property to two people ay the same time.
By the way I would be scared to let my clients move into a short sale before closing and there is no way I can believe that someone is going to rent a short sale property for a year before closing. The lenders normally want to be paid off before then.