Short Sale approved but not by Bank? (buyer's agent, closing, listing)

[Lacerta]

Originally Posted by dragon.fly22

I just got off the phone with my lawyers office. I've been told that the Sellers Bank (Chase) hasn't approved the house for short-sale. Some background: In February I made an offer. It was accepted. I then had the house inspected and found that it needed work such as a new furnace, mold and a couple other things. I then placed a counter offer. Again, it was accepted. I have a signed contract from the seller, I have all the documentation and monies lined up, my bank even sent out an appraiser. I've been sitting here watching the mortgage rates go up and can't get to a good place to lock in. My questions are: Do I have a signed contract or not? How could this process get to this point if the house was never approved for short-sale? and what are my legal options here?

Many banks aren't doing pre-approvals for short sales in the way you mean. They are all handling it differently. For some, you can call up and get a short sale package and start the process before getting an offer. For others, they won't even talk to you about a short sale unless you have an offer on the table. That sounds like the case here.

Unfortunately, those ones can be more frustrating, because there is no way to know before marketing how much of a write down the bank will take, so the agent and seller just basically pick a number, theoretically based on the current value of the house, look for a buyer and hope the bank will get in line.

As others have asked...did you sign a short sale addendum, or a contingency form of any kind, or does the offer itself say anything about sellers getting bank approval. If the answer to any of these is yes, then you likely have a legal contract with a seller's contingency on bank approval. Meaning, if the bank doesn't approve, the seller can likely cancel the contract with no penalty.

Also, you said the attorney said Chase hasn't approved the offer. Did they actually say they have declined the offer, or they haven't approved it YET? Big difference.

Well, there is no pile of money to bring. But if the Seller wasn't authorized to sell the house - does that mean that the contract is non-binding?

The seller is authorized to sell. The bank has no control over that. However, the seller has to be able to clear the liens against the property, or they can't pass clear title, and they can't afford to do that without the bank agreeing to settle the debt for less than owed.



*NOTE. I use the word "likely" a lot, as without knowing the laws in your state, and without knowing what your specific contract actually says, none of us can say anything for sure.

[Lacerta]

Oh, and if the offer doesn't go through, you might offer to sell the rights to the appraisal and inspection to the seller. They may or may not agree, but you can ask.

This is why it is good to use an experienced real estate agent, especially in these cases. You should have addressed in your offer that you had x days from lender approval to do an inspection and appraisal, or asked for the seller to pay for them if you were doing them beforehand. Either way, you wouldn't have spent money out of pocket before the removal of seller's short sale contingency.

[Lake Conroe resident]

[quote=Silverfall;9134272]No true. You have a legal contract. In a short sale the seller is the legal owner of the property and can create a legally binding contract with you.

The lender's acceptance of a short sale is a CONTINGENCY in the contract just like a home inspection, appraisal, or financing. They are not the owners they are just satisfying a contingency.

Sure this is true, but at the end of the day no matter which way you twist it, or any jargon you like to use, a signed contract with a seller of a short gets you no where until the lien holders signs...

So really what does he have?
He's got the property tied up in the event the lien holder(s) sign off, then he gets the deal. If this doesn't happen he has wasted a bunch of time and $ and there's no one to sue unless the listing agent did not disclose it was a short to begin with.

I could be wrong, but it sounds as if the buyer knew it was a short when he started and has now come to the realization of what everyone else who deals with these already knows and he's mad.

The biggest mistake made here was the dereliction of his agent and lender for spending the guys $ on inspections and appraisals without really having a deal. Again; no lienholders sign off, no deal. You can say he has a "contract" but he still doesn't have the deal. The deal is what gets him in the door.

[Lake Conroe resident]

Originally Posted by Lacerta

Many banks aren't doing pre-approvals for short sales in the way you mean. They are all handling it differently. For some, you can call up and get a short sale package and start the process before getting an offer. For others, they won't even talk to you about a short sale unless you have an offer on the table. That sounds like the case here.

Originally Posted by Lacerta

Unfortunately, those ones can be more frustrating, because there is no way to know before marketing how much of a write down the bank will take, so the agent and seller just basically pick a number, theoretically based on the current value of the house, look for a buyer and hope the bank will get in line.

As others have asked...did you sign a short sale addendum, or a contingency form of any kind, or does the offer itself say anything about sellers getting bank approval. If the answer to any of these is yes, then you likely have a legal contract with a seller's contingency on bank approval. Meaning, if the bank doesn't approve, the seller can likely cancel the contract with no penalty.

Also, you said the attorney said Chase hasn't approved the offer. Did they actually say they have declined the offer, or they haven't approved it YET? Big difference.



The seller is authorized to sell. The bank has no control over that. However, the seller has to be able to clear the liens against the property, or they can't pass clear title, and they can't afford to do that without the bank agreeing to settle the debt for less than owed.



*NOTE. I use the word "likely" a lot, as without knowing the laws in your state, and without knowing what your specific contract actually says, none of us can say anything for sure.

^^^^Very well put, hits the nail on the head...^^^^

[319]

Sue the seller???? Come on now, it is a SHORT SALE! The OP's agent should have informed him that the BANK aka 3rd party has the final say. No walk through or anything should have commenced UNTIL the BANK okayed the sale...it seems your agent was a little impatient.

Good Luck....

[Lake Conroe resident]

[quote=319;9146844]Sue the seller???? Come on now, it is a SHORT SALE!

Who's talking about suing sellers???

[Silverfall]

Originally Posted by Lake Conroe resident

So really what does he have?
He's got the property tied up in the event the lien holder(s) sign off, then he gets the deal. If this doesn't happen he has wasted a bunch of time and $ and there's no one to sue unless the listing agent did not disclose it was a short to begin with.

I could be wrong, but it sounds as if the buyer knew it was a short when he started and has now come to the realization of what everyone else who deals with these already knows and he's mad.

The biggest mistake made here was the dereliction of his agent and lender for spending the guys $ on inspections and appraisals without really having a deal. Again; no lienholders sign off, no deal. You can say he has a "contract" but he still doesn't have the deal. The deal is what gets him in the door.

I don't disagree with this, but its important on an open public forum for people to understand that they do have a legally binding contract. Whether it closes is another issue, but it is an executed contract. You might feel that it is a matter of semantics, but it is an important distinction.

The OP does not seem to have been prepped well nor understand the process of the short sale. I do agree that the real estate agent should have protected the buyer better.

Out here we don't do nada on the property until we have bank approval and my buyers continue to look at other homes. Buyers can revoke their offer out here up until any time that they receive written notification of the lender's acceptance of the short sale. Chase is one of the worst to deal with on short sales so I feel for the OP.

[319]

[QUOTE]
Like I hinted at, you could probably go to court, and the judge may find that the seller in essence "cheated you" out of something. Since the seller is unable to deliver title (as I suspect they do not have a big ol' pile of cash) the judge could, theoretically, award you a right to SOMETHING from the sellers end.

[/QUOTE]

[MeInDenudinFL]

Originally Posted by Silverfall

Out here we don't do nada on the property until we have bank approval and my buyers continue to look at other homes. Buyers can revoke their offer out here up until any time that they receive written notification of the lender's acceptance of the short sale. Chase is one of the worst to deal with on short sales so I feel for the OP.

I am shoping for short sale and doing exactly what you stated. My contract says I will put the EM and do the others tuff after I hear acceptance from the lender. And this is because of my competent realtor!

[chet everett]

319 is quoting me. The OP asked, in their first post of the thread, about "legal options". I know that that generally means "can I sue for specific performance" and, in the case of a short sale, that IS still a theoretical possibility, as Silverfall also points out. Now the net outcome of such a suit is almost certainly NOT going be a thin dime from the SELLER, and the odds of any attorney wanting go after the seller's agent on pretty hypothetical grounds are AWFULLY unlikely, but those ARE possibilities IF the contracts were such that the the ability to convey the title without contingency were not made clear.

People in general, from sellers to agents to BUYERS are really really really UNFAMILIAR with the 'messiness" of short sales and I cannot emphasize enough that there ARE better ways to get good deals on property. Sellers ought to plan on having to educate a whole bunch of people, perhaps including THEIR LENDER!