Home Buying in Long Beach>Question Details

Anthony, Home Buyer in California

What happens if we don't close escrow on time due to delays on the sellers bank? This is a SHORT SALE

Asked by Anthony, California Tue Aug 19, 2008

Everything on our side (buyer side) has been taken care of, contigencies have been released and loan docs have been signed.

Is the seller in breach of contract ? can we back out of the contract? who is going to pay all of those escrow fees?

Also If they (sellers bank) don't close on time we don't want to back out of the contract completely because we still love the place but can we re-negotiate on the purchase price? (I'm thinking the value of the property has gone down)

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There are a couple of very important questions that need attention here.
1. The lender that makes the loan does so with certain criteria, particularly time. You don't provide any specifics, so in general:
- if the amount of time between signing the final loan docs (your responsibility) and the seller's duty to sign over the deed to the property (which serves as the collateral for the loan) exceeds a certain point, the lender will need to re-cast the loan, probably with a higher interest rate (rates are going up).

2. Seller in breach? Maybe. I do not offer legal advice. You need to talk with an attorney for legal advice. If one party does not fulfill their obligations then it would seem to me that they are in breach.

3. Paying escrow fees? The apportionment of fees should be noted in your HUD 1. Look at the them, ask your escrow officer if you have questions.

4. Decline in value. You do not provide any time frames, so let me explain. If you opened escrow in March, and six months later the seller is still not proceeding with the sale, then you may have a couple of problems:
a) the property probably has declined in value
option A - the lender does not re-appraise the property, funds the loan, you close escrow, you own it.
option B - more likely the underwriter requires a re-appraisal, it will show a decline in value. In my particular market properties on average are losing about 0.9% per month.
If the property is reappraised at a lower value:
i) the lender may ask for you to kick in a higher down payment to make up the difference
ii) you can ask the seller to lower the price to the appraised value
iii) you might be able to cancel because value is one of the characteristics of the property, which has changed from the time you opened escrow. Talk with your Realtor about this.

It is not uncommon for short sales to drag on, not uncommon to have values decline, so all parties should be aware of this possibility.
0 votes Thank Flag Link Wed Aug 20, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
Anthony you are already getting a good deal if it is a short sale, thats why they call it short, you get the property for much less than the original owner owes. What you are trying to do is get a BETTER deal, well that time has come and gone! The bank is not going to give you a better price on the property, if it is taking longer it is because they need to cross their T's and dot their I's before closing the transaction because it is a short pay off. If you have already signed loan docs chances there is an approval but something else is holding it up and that is up to your relator to find out! Things don't always go according to plan, but be happy you have gone this far many buyers get in to escrow and never see loan docs because there is no approval at all.
0 votes Thank Flag Link Wed Aug 20, 2008
When your offer was accepted and the short sale was approved, what timelines did both parties agree to? Is the lender really late at their end?

Your agent should have already set expectations in terms of short sales. There's nothing "short" about them; it is totally unpredictable dealing with asset managers, etc. This is not the same as a regular sale where everything is buttoned up in terms of timelines.

If you got a really good price on the property compared to current market values (remember that the seller had paid more for the property than what you're buying it for), it may be worth the hassle to wait it out for a few days. But by all means, get the agents to follow up. Sometimes, the delay is due to the lender needing more documentation, etc. to be processed and approved.

You can suggest to your agent to prepare a Notice to Seller to Perform (NSP) the contractual action to close escrow. If seller does not take the specified action, Buyer may cancel the Agreement.

I don't think this is the time to renegotiate the purchase price since your offer has already been approved at a certain price. If you do, it's like starting the short sale process all over again. Or are you getting buyer's remorse? You don't incur escrow fees until you close escrow, but you are responsible for paying for your own inspections and appraisals since the service has been provided. The seller/lender will not reimburse you for those not unless that was agreed upon in the contract.
0 votes Thank Flag Link Tue Aug 19, 2008
Was the short sale addendum checked so that the clock starts once the lender has approved the short sale? What was the expiration date of your offer? You used a Realtor, correct? Depending on the expiration date...the contract may have already expired.

As far as escrow fees...there should be none. However...if your lender went ahead with an appraisal...and inspections were done prior to lender approval.....you will need to pay those fees. Your Realtor should have advised you not to proceed until you had lender approval. You may also have lender and notary fees if you've signed docs. I'm shocked your lender sent docs to escrow without a valid contract.

I would talk to the Realtor about reimbursement if you were not advised properly.

Not knowing the entire situation, I cannot offer legal advice. I would ask a lot of questions of your Realor and lender immediately!

Oh...the Realtor below is referring to a bank owned home....two different situations....
Web Reference: http://www.cindihagley.com
0 votes Thank Flag Link Tue Aug 19, 2008
Cindi Hagley…, Real Estate Pro in San Ramon, CA
What a tricky question. Surely the property hasen't depreciated that much while you were in escrow? Did you buy well? The banks often charge a $100 per deim if buyers don't close on time. Breach of contract is a legal question. All valid contracts have an expiration date in Arkansas. That type of transaction is usually completed on bank specific forms. Call your attorney and read your contract carefully. At the end of the day you said you love the place, so is it worth the paperwork over an extended/delayed close?
0 votes Thank Flag Link Tue Aug 19, 2008
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