Backing Out of a Short Sale
Excellent Q&A topic I found on Wall Street Journal.com. From my experience, expect to wait 3-4 months for a seller’s lender to respond to your offer on a short sale situation. I’ve had as quick as 3 weeks for an approval, but that’s almost unheard of. The next quickest time was 6 weeks. Maybe there is more to this Question than was published, but please do not expect to hear something as fast as under a month. Patience! Read on:
“Q. We made an offer on a short sale home more than three weeks ago and have not heard back from the seller’s lender. We need to move into a new home soon so our children can get settled before school starts. We are tired of waiting and are thinking of backing out of the deal. Will we get our escrow deposit back?
–San Francisco, Calif.
By June Fletcher, Wall Street Journal
A. As you have discovered, ‘short sale’ does not mean ‘quick sale’. Despite efforts by the federal government to streamline the foreclosure process, it is not unusual to wait for months rather than weeks to hear back from a seller’s lender because there are so many short sales on the market. According the latest figures from Dataquick, short sales made up about 18.6% of all existing home sales in the San Francisco Bay area in April, up from 17.6% a year earlier and 12.9% two years earlier. If the seller accepted your offer, but the lender did not, you do not have a legally binding contract. So you can withdraw your offer. However, the sellers must also sign cancellation of sale and release of deposit documents before your money will be refunded.
You also should check your contract to see how escrow funds are held. Your real estate agent should have protected you with a clause that says the deposit will not be cashed until the bank approves the sale. If that is the case, you will simply get your check back.
If the bank does approve the sale before you withdraw the offer, you may still be able to back out of the deal while salvaging the deposit. In California, the short sale purchase agreement has one contingency clause that allows you to investigate the property, and another for obtaining a loan. If these boxes were checked, and you did not sign any documents that removed these contingencies, you may be able to get back your deposit if you do not approve the home inspection within 17 days or if you are unable to obtain funding at any point in the transaction.
Other discrepancies that could give you cause to cancel the sale include discrepancies in the square footage listed in the sales documents and the appraisal; clouds on the title; and missing fixtures that are attached to the house and so should be conveyed with it, like sinks and toilets. You are also entitled to a refund if the bank decides to foreclose instead of allowing a short sale.
If you decide to make an offer on a short sale in the future, make sure that your contract includes an addendum that specifies that you will be able to cancel the contract and receive your full deposit back if the bank does not respond by a certain date.”
Source: Wall Street Journal Online