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Clement Thom…, Home Buyer in Apex, NC

What protections do buyers have in short sales?

Asked by Clement Thomas, Apex, NC Sat Aug 17, 2013

My question is that I am very concerned that my short sale seller is merely using the short sale process to extend the amount of time they can remain in the home until the bank forecloses and they are forced to leave. The seller has demonstrated their lack of motivation to sell by refusing showings and not really cooperating with our agent. It was a bank pre-approved short sale and they did qualify for HAFA. The seller has accepted our offer, there are two liens against the house and first bank approved and now waiting for second bank.
It would be horrible for our family if we packed up our things and prepared to move at closing and suddenly learn that the seller had filed bankruptcy, and has no intention of moving.
1.) What protections do buyers have in short sales?
2.) Is it true that a seller can back out of their contract to sell after it has been approved by the lender, escrow is opened, and claim protection under bankruptcy?

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Your situation is one of the reasons I work with an attorney, SAFAssist, on every short sale. That way my buyers and my sellers have access to legal advice without any extra charges. I cannot give legal advice but what I can tell you is any sale is a gamble, and short sales are even more so. Hopefully the gain you'll get by buying a short sale will offset the hassle and possible repairs you'll end up doing on the property.

Bottom line is you as a buyer need to have a Plan B. I tend to think like an investor and one of the things investors bake into their calculations are holding costs and repairs. In this case, I'd figure on a week maybe two of the house being empty before move in. In fact, I wouldn't pack and move until the house was empty and I had the keys. Once I had the keys, the first thing I'd do is change the locks. Again, thinking like an investor. And I sure wouldn't plan on moving in the same or next day after closing. At the very least, you want a cleaning crew in there, because short sale sellers have no obligation to leave the place even broom clean. Changing the locks will probably cost $150 and make ready cleaning $200. So you're in $350 plus holding costs during the time the house is vacant before you even start to think about painting and flooring and repairs that are probably needed due to neglect.

This is okay if you've planned for it. So think what would a savvy investor do in this case, and plan accordingly. If you find your offer is high for the risks you are taking, you may want to renegotiate accordingly.
0 votes Thank Flag Link Sun Aug 18, 2013
You're questions are truly best answered by your closing attorney, however until you've received a contract back signed by the sellers lender, then you are free to walk away at anytime. I would doubt that the sellers prefer bankruptcy and you're learning why short sales are anything but short. It's possible that the second lien holder will not agree in which case your contract will be terminated by the Sellers lender.

Again I would advise you to speak with your closing attorney.
0 votes Thank Flag Link Sat Aug 17, 2013
Clement Thomas,

Talk to your agent on how short sales work then before entering into a contract to buy have a discussion with your attorney pertaining to your questions. We are not attorneys and can not give legal advice.
0 votes Thank Flag Link Sat Aug 17, 2013
Look at the Short Sale Addendum that is part of your contract. It says that the buyer or seller can terminate the contract until the short sale is approved by all the lien holders i.e. in your situation the two loans on the property have to be approved for a short payoff. After that, the contingency for the short sale approval is removed and it is like a standard contract. After both of the lenders approve the short sale, you may be able to force the seller to complete the sale by filing a lawsuit for specific performance, but you will need to consult an attorney for that. The seller probably wants to complete the short sale and prevent the foreclosure because it is considerably better for their credit and their ability to buy another house in the future. I am the teacher of the short sale class for continuing education that is approved by the NC Real Estate Commission, my short sale book is in its fourth edition and I have been a speaker on short sales at four national conventions so far this year. In "short", I understand how they work. You can ask your agent to call me if I can be of any assistance at 919-812-5111. Tim Burrell
0 votes Thank Flag Link Sat Aug 17, 2013
I have to advise you to consult an attorney to review this situation.
Typically in a short sale, banks can continue to receive offers or foreclose at any time. Until you have all the bank's addenda signed by all parties, I believe anything goes.
In this case you have approval by one bank but not the other so no solid contract in my opinion.
Once both banks agree and all additional addenda are finged by all parties, you have an enforceable contract.
But again I advise having a real estate lawyer review any documents relating to this sale as I am not an attorney and am simply giving you an opinion based on my experience.
0 votes Thank Flag Link Sat Aug 17, 2013
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