Loss Mit Services

Short Sale Contract Terms – Best Practices

Posted on 11. Jun, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

We review a ton of short sale contracts and we see the same mistakes made commonly.  So let's discuss the best practices.

The different banks and mortgages services have different requirements but there are some common issues that we see across the board.  Here are a few of them with my suggestions to avoid delays.

1. The contract must be Subject to Short Sale Approval.

This seems pretty obvious but we often see offers come in that have no short sale contingency.  The best practice is to use an addendum or rider. The rider or addendum has more language that just stating "subject to short sale approval" in the Other conditions of the contract.  These other terms typically have more protections for the seller should the lender approve a short sale but not waive deficiency.

2. Closing dates.

Unlike with a regular sale, we do not know when we may be able to close on a short sale since approval is required from the bank first.  The best practice is to use "On or before 60 days from short sale approval" for the closing date. the lender's approval letter will have its own deadline which closing must occur by.  Closing prior to the approval deadline or expiration of the contract is fine.  But setting the closing date this way addresses several possible delays down the road.  The 1st delay is when the bank is ready to issue approval.  If your closing date on the contract is going to be prior to the deadline on the bank's approval letter, they often will not give the approval until you show them an extension to the contract first.  So that just caused a delay.  The next possible delay is if you need an extension of the approval deadline.  Often the bank gives 30 days to close on their approval letter.  Many times the buyer's loan takes longer than 30 days.  Getting a 30 day extension is common.  However, now they are again looking at the closing date on the contract and is their extended approval going to have a deadline beyond the date listed on the contract.  So if you had "On or Before 60 Days from short sale approval" as your original closing date on the contract you avoid a delay in getting the approval and letter and avoid a delay if an extension to that initial approval is needed.

3. As-Is Contingency

Most of the banks now require there be an as-is rider on the contract.  This is just them pounding their chest a little.  From their perspective, and really everyone else's perspective, it sucks to go through the whole process of approving a short sale and then the buyer comes back asking for a bunch of repairs which the bank was never going to agree to do and the seller usually has no funds to do.  The bank wants the buyer put on notice from the start that repairs will not be made.  Now an as-is rider just states the property is sold as-is and repairs will not be made.  It does not remove the buyer's inspection contingency.  So all the same protections remain for the buyer that come with the inspection contingency.

4. Use the term "Short Sale"

Usually, this is obvious.  But there are instances where we see other terms used.  In particular, we see "Notice Receipt Date" used instead of Short Sale Approval. This is because this term is used in a couple short sale riders here in CT.  The problem is, this is not a common terms that the banks are aware of. And with thousands of files in review at any time, they are not going to search through the contract to find this terms and it's definition.  Best to just use Short Sale Approval instead to avoid delays and having to amend the contract later on.

5. Fill in the contract completely and clearly

Again it seems pretty common sense. But we see it not done all the time since it is not always common to be as thorough as the banks require.  Complete the contract using the full Address with City, State and Zip Code wherever you are entering the address.  Do not use abbreviations.  Never use Owner of Record as the seller's name.  Any fields that are not used in the contract, enter N/A.  And best to type the contract so it is as clear as possible when the lender reviews it.

This not an exhaustive list of issues we have seen the banks reject contracts over.  But these are by far the most common that we see, literally every day.

As always reach out to me with any questions.

Sean Wilder

Loss Mit Services

860-265-3727