Short Sales and Buyer Deposits – It’s a Pickle
I received a call earlier this week from a buyer's agent whose buyer was purchasing a short sale. This agent was not a happy camper. His buyer had signed a short sale addendum and agreed to deposit the earnest money into escrow, yet somehow the agent had overlooked that little ditty. Now the buyer did not want to put the earnest money into escrow. "This is a short sale," he stated, "and it could take a few months to obtain short sale approval." Additionally the buyer's agent seemed to feel that placing that earnest money into escrow might be some sort of legal breach.
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While I am not an attorney (and I don’t play one on tv), the California Association of Realtors®’ contracts actually have a specific line item where you can stipulate whether the earnest money is delivered to escrow immediately or upon receipt of the short sale approval letter. (So, that kind of leads me to believe that there is no legal breach.)
Many buyers want to continue shopping, and would prefer not to deposit their money into escrow until the lender(s) approve the short sale transaction. You never know when a better deal is gonna come your way, and you may not want to be tied down by putting that money into escrow. Also, you cannot be entirely certain that the short sale lender will approve your offer, so why waste time depositing those funds?
The thing is that it may be a good idea to deposit those funds into escrow. Doing so further cements the buyer's position as first in line for purchase. Also, it sets a tone for a serious transaction. If the seller is close to foreclosure and wants to avoid that, the seller wants to know that the buyer is really going to close: thus assuring that foreclosure is avoided. Also, the short sale processor (the agent) is now going to dedicate hours and hours to the deal. And, why bother if the buyer is just going to walk away when short sale approval is received?
It’s a tough call as to whether to deposit those funds into escrow or not. But, if a buyer is serious and really wants the property, it seems that putting that money into escrow may not be a bad way to go.