Short Sale Contracts: Keys to Success

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As I walk through the wacky world of short sales (and boy do I do a lot of walking), I have all sorts of experiences with short sale purchase contracts. I’ve seen listing agents who send all the contracts to the short sale lender for review, and I’ve seen buyers use letters of intent as opposed to state contracts. I’ve even seen real estate agents submit the incorrect contract documents without even realizing their error.

With respect to short sale purchase contracts, the most important thing to remember is that a purchase contract on a pre-foreclosure or on a short sale (which may not be pending foreclosure) is a contract made between the buyer and the current borrower on the property. It is not a contract with the bank. Because of this, the seller will need to sign and accept the terms of the contract before the contract is submitted to the short sale lender.

The short sale lender approves the terms of the contract and creates a short sale approval letter. Because the bank accepts less than the full amount due on the note in a short sale transaction, this short sale approval letter is required at closing.

When a property is being sold as a foreclosure, the bank owns it. Under those circumstances, the bank will decide which offer to approve and the bank will sign the contract.

I hear all sorts of stories about agents who submit all offers to the bank and then wait to hear back on what the bank will decide. Having closed hundreds of short sales, I can say that I have never seen the bank do anything but tell me to have the seller make a decision and submit only one offer (generally the highest one) for their review. Oh… make sure that your buyer does not sign with electronic signatures or you will be getting another call back to fix that little problem as well.

Photo: flickr creative commons by taberandrew

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About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

4 Comments

  1. My partner is currently working a short sale deal representing a Buyer. The listing agent claims that he has already submitted six offers to the lender for consideration. Obviously the seller cannot be signing all these contracts, which conversely means he is likely not signing any contract. I agree with your article in that business practices seem to be all over the place, and I really don’t understand why that is the case other than there are many listing agents working short sale properties that have absolutely no idea what they are doing. A pretty scary scenario when you think about the future trailing liability that a seller could walk away with without even recognizing it.

    Thanks for taking the time to write this piece. We certainly need more continued emphasis on the single most important point: It is up to the Seller to select the best offer, and present this offer to his lender. I just don’t understand why this concept is so hard to grasp.

    Vito Boscaino
    New Perspective Realty

  2. Philip Tavano on

    We put in a offer on a property, of which only one other person countered, of which we beat.A contracr was signed by the seller of which they signed off of.The contract was for 120 days, it has been almost 7 months now.I tried to contact the sellers bank to explain the type of house it was, and nobody has sinced put in a offer, and that it is basically a trailer home (700 sq.ft.).But our lawyer says we cannot interfere with the seller and their bank.I just wanted them to know what the property consisted of.

  3. “The short sale lender approves the terms of the contract and creates a short sale approval letter. Because the bank accepts less than the full amount due on the note in a short sale transaction, this short sale approval letter is required at closing.”

    Is the short sale lender the same as the original lender?

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