they want us to go to contract on a short sale before the seller's bank approved our offer. is this?

Asked by Maria, Baldwin, NY Thu Aug 27, 2009


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Kathleen A. Scanlon’s answer
Kathleen A.…, , Rockville Centre, NY
Mon Jan 18, 2010
Purchasing a distressed property whether a short sale or an REO (bank owned property) presents its own set of difficulties but can also provide the reward of purchasing a home substantially under market value.

Most Lenders will not consider a short sale without a full package submittal, which typically includes the seller's financial documents, a fully executed contract of sale, proof of funds or a mortgage pre-approval, a preliminary HUD-1 Settlement Statement, among other documents.

As a seller's attorney, my firm normally includes contractual language that makes the contract contingent upon the short sale approval. Further, if there are violations and open liens, I want the short sale bank to approve their payment as well. There are times that the lender will deny payment and I try to avoid having the Seller on the hook for such a payment. The reason they are short selling their home is because they lack assets. I also make the contract "as-is" and vacant at closing because, of course, there is often no money to be put in escrow for repairs or post-closing possession.

As a purchaser's attorney, I want my client to put as little as possible down on contract. That down payment can be tied up for months waiting for short sale approval. I also want a time frame where, if there is no approval, my client can cancel and get her money back - the problem being - you don't know how experienced the person negotiating the short sale really is. I have seen some egregious mistakes on preliminary HUD-1 settlement statements that grossly understate what the true cost to Seller (and ultimately the bank) is going to be to close and give clear title.

As you can see, it is essential to choose representation that is experienced in distressed asset transfers. Short sales are not for neophytes whether realtors or attorneys.

Good luck!
0 votes
Paul Garrett, Agent, Oceanside, NY
Tue Sep 1, 2009
Yes. A fully executed contract & earnest money deposit is part of the package that is presented to the bank to help get your offer accepted. In my experience, short sales usually take between 3-4 months depending on the bank and their negotiating policy. If the seller has the right agent and attorney, it can be a very smoothe process, but will take longer than a regular transaction because of the additional items required by the bank.
0 votes
CamilleD, Agent, Wantagh, NY
Sat Aug 29, 2009
This is standard. However, you are buying this house as is and
if I were you I would not hire anyone to inspect or anything.
You have to figure $30,000 fix up money minimum.
Also ask the seller's agent if they have spoken to
the bank and if the bank is agreeable to the price they have
it listed for or maybe they don't know about it. This will also
lengthen the deal. Your down payment will be held in escrow
too, until they come to a decision.
Then hire a short sale attorney and cross your fingers. If you don't hire
a short sale attorney you are literally blindly doing this deal,.
because most of these deals don't go through.
It is better to go after a foreclosure.
Camille Dandola, Charles Rutenberg Realty
0 votes
Anna M Brocco, Agent, Williston Park, NY
Thu Aug 27, 2009
Yes, and also make sure that you have an attorney that specializes in short sales--be aware that they are sold sold as is no matter what the engineer's inspection report may say; they do take a little longer to close especially if it involves more than one bank.

0 votes
Bethany Mart…, Agent, Baldwin, NY
Thu Aug 27, 2009
It may be realistic to go to contract on a short sale that has not been bank approved however it is very dangerous for the buyer to do so. You will have spent your own money on non reimburseable items such as a home inspection; an appraisal; a termite report with absolutely no guarantee that you will actually ever be able to purchase the home. I have seen short sales take 2 years to complete and others that never close. In this case, Buyer Beware!
0 votes
Dawn Kuhn, Agent, Marco Island, FL
Thu Aug 27, 2009
Usually the buyer makes an off er to the seller on a short sale with the knowledge that the contract is contingent upon the banks approval. If the Seller accepts your offer it still must be approved by the bank in a short sale. Yes it is realistic to go to contract.
0 votes
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