Short Sales: Buyer’s Bonanza or Boondoggle? by Real Estate Estate Attorney Peter N. Brewer ~ Part 2 of 3
by Peter N. Brewer, Esq., The Law Office of Peter N. Brewer
The banks usually insist on being presented with any competing offers that are received by the listing agent during the time the bank is considering the short sale application. To the buyer this means that they could be contractually on-the-hook for months, only to have a better offer beat them out at a late date.
The buyer should ask about both the lender’s and the listing broker’s policy on backup offers that may be written during the approval period. Some lenders may not want backup offers, as it might slow things down, keeping the bad loan on their books. Some listing agents may wish to discourage backup offers (if permitted by the seller and the seller’s lender) because they may cause the pending deal to fall apart – thus no commission.
There are a couple of things that a buyer can do to minimize the disadvantage to them of backup offers. One thing is to consider carefully the date that the buyer inserts into the contract for automatic expiration of the contract. In a non-short-sale transaction a buyer usually puts in something along the lines of 24 to 72 hours that the seller has to accept the offer or it becomes null and void. In the short sale contract the buyer can require the seller’s acceptance within such a time period, but must allow a much longer period for the bank’s approval. I am suggesting that the buyer consider carefully how long they are willing to be in limbo, contractually committed while waiting for the bank to make up its mind.
Another thing a buyer can do is to include a term that if a back-up offer is presented to the bank during the approval period, the buyer must be informed and has the right to be immediately released from the contract. That way the buyer can move on if it appears that the competition for the property is getting too keen. Alternatively a buyer could include a term that in the event of a backup offer at a higher price the buyer has the option to match the higher offer.
A buyer may wish to ensure that contingencies remain open and the time within which contingencies must be removed will commence upon the bank’s approval of the short sale. That way if circumstances change during the waiting period, the buyer will still have the opportunity to withdraw from the deal if unacceptable conditions are discovered.
You can contact The Law Office of Peter N. Brewer at 350 Cambridge Avenue, Suite 200, Palo Alto, California 94306, phone: (650) 327-2900 , or on the Web at www.BrewerFirm.com.
Peter N. Brewer, Esq., is a California real estate attorney with thirty years’ experience, and is the owner and managing partner of The Law Office of Peter N. Brewer, in Palo Alto, California. The firm serves the legal needs of homeowners, real estate and mortgage brokers, agents, brokerages, title companies, developers, investors, and other real estate professionals and their clients.