Thursday, March 15, 2018

How to fill out a Short Sale Addendum

I have a new short sale listing coming on the market in the next few days, and it seems that over the last few years, other agents and buyers have forgotten how to do them. In the time period from 2007 - 2012 or so, it seemed like ALL my listings were short sales. I know them backward and forward, how different types of short sales work, how different mortgage companies and banks process them, and more. Short sales are not a huge part of our Sacramento real estate market anymore...but they are still out there.

So - here is a primer on how to fill out a Short Sale Addendum (C.A.R. Form SSA) and what it means to buyers and sellers.

First, this form must accompany any offer on a short sale listing. This document establishes that the property is being sold subject to the mortgage company's approval of a payoff for less than the amount owed, defines timelines and other parameters in conjunction with the Residential Purchase Agreement. Generally, the SSA discloses that there is no guarantee of approval, that the buyer and seller pay incur costs that are not recoverable in the event the mortgage company(ies) does not approve the transaction, and that the parties may want to obtain tax or legal advice. Aside from that, there are three fillable components that may change the dynamic of the short sale transaction that I want to cover.

Paragraph 1A: SHORT SALE APPROVAL - this timeline indicates the period in which the buyer is willing to wait for the mortgage company to provide written approval for the short sale. This timeline commences upon the seller's acceptance of the offer, and the buyer MUST wait during this timeframe for a response from the mortgage company. In other words -- the buyer CANNOT cancel prior to the timeline in this contract simply because the buyer gets tired of waiting. There may be other contingency timelines that permit cancellation before this period expires, but otherwise the buyer is in contract with the seller and is obligated to wait it out. For a seller of a short sale, you want this timeline to be as long as possible. As a short sale listing agent, I like to see a minimum of 60 days. Ideally the short sale will not take that long for mortgage company approval, however short sale timelines are a bit of a moving target.

Paragraph 2: TIME PERIODS - this indicates when the buyer's contractual contingency timelines will begin. Checking the box for "shall begin as specified in the agreement" is what I prefer as a listing agent. This means that buyer investigation contingencies, appraisal contingencies, loan contingencies, etc. all would begin once the seller accepts the offer (which is BEFORE the short sale mortgage company consents to the short sale). As a short sale listing agent, I want the buyer to conduct inspections, appraisal, loan underwriting, etc. right away. If this box is unchecked, then the buyer's timelines do not start until the mortgage company has issued short sale approval. The sooner the buyer removes contingencies, the better. If timelines do not start upon seller acceptance, then it is possible for the buyer to walk away after we have short sale approval. We do not want to get several months into a short sale and lose the buyer over something relating to condition of the home. If a buyer cancels we want that to happen early so we do not have to take too many steps backward before moving forward again.

Paragraph 3: BUYER'S DEPOSIT CHECK - this indicates when the buyer's initial deposit should be held in escrow. Checking that box for "as specified in the agreement" is what we want to see. This means that within 3 business days of seller acceptance, the buyer's initial deposit is held in escrow (which again is BEFORE the short sale mortgage company consents to the short sale). As a listing agent, I want to see this for a few reasons. One, if the buyer is willing to do this, it indicates they are serious buyers! Two, if the buyer gets sick of waiting and wants to move on, they will want their deposit back. If escrow is not holding a deposit, the buyer can move on and simply never tell us. That would be bad. Three, holding the buyer's deposit upon seller acceptance looks fantastic to the short sale mortgage company. Four, if the buyer removed contingencies (as we discussed in paragraph 2) and then decide before the timeline in paragraph 1A is over, then the seller may have the right to retain the deposit.

Not all buyers of short sales are willing to do all three of these things I recommend. In non-competitive situations, many buyers will not agree to do all of these multiple-offer situations, often buyers will agree. It is all negotiable. Hope that helps!

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