Profile picture for ddancer2119

Buying a shortsale- odd requirements in short sale addendum

We have found a short sale that is listed as a bank approved price. My realtor gathered the necessary paperwork to submit an offer and we have run into some requirements that seem a bit sketchy-

1. $500 of the earnest money is non refundable for 95 days (if we wanted to walk before the bank answered... $500 is poof- gone)
2. We are required to obtain preapproval from a specific lender (we are already preapproved elsewhere)

My realtor indicated she has seen this with large banks (Wells Fargo for #1 and B of A for #2). It feels wrong, but if that is how the industry works and we would end up giving in later... maybe we should just give in now.

The twist for this situation- it is the Listing Agent that is requiring conditions 1 & 2. He has modified the Oregon short sale addendum to require that $500 of the earnest money be held for 95 days and that we are preapproved from his designated lender. The current lien holder is BofA, so if the above is true, then we would be looking at an inquiry from his "buddy" lender, BofA, and our current lender.

Am I crazy- or is this sketchy?

Thank you!
  • November 10 2012 - Active Bethel
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Answers (8)

Most of these answers have been right-on:  Non-refundable Earnest Money in the FIRST 95-days of a ratified contract is not out of the ordinary in our area (as long as you get it back after that 95-day period if you do withdraw the offer for reasons allowed per the contract).  Check the short-sale addendum to make sure you're interests are being represented.

If the Listing Agent owns a debt-collection company, then they have the right to be compensated as well, outside of the real estate commissions.  Chances are they are taking a higher commission than your Agent as well, and controlling the majority of the sale-details.  That may or may not be in your best interest as the Buyer to deal with that Listing Agent/Company.

Required Pre-Approval is a joke (in my opinion).  Most of the large Banks have even moved away from this in their REO transactions.  They 'Encourage' preapproval with a specific lender (usually the Selling-Bank/Investor) to recapture loans, but don't 'Require' them anymore due to Buyer-Backlash from this language in contracts.

The Listing Agent your dealing with might impose a 'penalty' for not using their 'approved' lender if the transaction closes late (which goes to the Listing Agent if they are a debt-collection company as well).  Or they might just have a partnership with a specific lender in the area they are working with.  These practices might help control some the uncertainties of the Short Sale process, but it's also a little 'bull-doggish" in the market place.  Use the Lender you prefer, you'll be happier in the end (and build/sustain a better relationship with the professionals you know).

Don't fear the Earnest Money issue if you love the house.  Ask plenty of questions.  Choose your battles.

Best of luck!
  • December 26 2012
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Non refundable earnest money on a short sale would tell me to run the other way.  Qualifying with a seller-selected lender is tedious but OK.  Question is why you want to buy a short sale in the first place.  See my blog [promotional hotlink removed by Zillow moderator]
  • December 01 2012
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Profile picture for BoulderBobGordon
Dear Sketchy: Short sales take a long time.  The one you are considering should close by July 4th weekend -- that would be average time. [deleted by Zillow moderator. Plesae see our Good Neighbor Policy for posting guidelines }@User 870... Short sales are REALLY SLOW.  Banks want to double triple check the value, there can be multiple parties - everyone but the buyer is losing money on the deal -- so be patient.  I do not use the 90 day language here in Colorado - instead communicate a LOT with other agent to keep buyer/backup buyer on board.
  • November 26 2012
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As mentioned by another poster, this isn't necessarily sketchy but rather a reaction to the tenuous process of short sales.

Don't be too concerned about the second lender approval. Sometimes it's for the security of knowing that you are truly pre-qualified, making the listing agent and seller feel better about the impending contract. Or it might be a ploy to allow another loan officer to sweet talk you into their offices. Either way, it won't hurt, and it doesn't mean your contract is contingent on you actually changing your lender.

In terms of the non-refundable deposit, just look at it like the point of earnest money to begin with. Many good short sale agents will have you sign a rider that prevents you from leaving the contract for 90 days. This is the average time a properly handled short sale should take (but often times much longer). If you refuse to wait, it's no different then you attempting to walk because of a bad inspection, several days after the end of an inspection contingency.

Earnest money is actually all about being earnest. Weird, right? There is this general public perception that people, generally a sinister seller, want to hijack your earnest money. But it's really to make sure that buyers, and sellers, aren't just throwing out numbers and promises like climate change weather. It's why America, despite the awful reputation of real estate professionals, has one of the globe's most fluid processes for real estate transactions. Really.
  • November 14 2012
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Profile picture for user8709214
I'm in a similar situation--same neighborhood and everything. The same clauses are in an offer that we submitted several days ago. The sellers have accepted the offer and we have now moved onto the bank approval stage.

I questioned my buyer's agent on the second clause (required pre-approval with Bank X). I'm told that despite the clear language of the contract, it is not actually a requirement and is at my discretion. Should I choose not to get pre-approved by this lender, then it triggers a penalty of $250 if the transaction does not close on time. My issue--and you acn verify with your version of the clause--is that the language in the contract does not say this. It is neither explicit nor implicit in the contract that the penalty is waived as a result of getting pre-approved by the specified bank. I've questioned this so many times with my agent, that even I am tired of hearing the question. Each time the response is the same: so don't get pre-approved by Bank X and just be subject to the potential penalty.

Should I trust my agent and not get pre-approved? I'm already pre-approved through my bank and have exceptional finances, so there is virtually no risk of not getting a loan through my preferred bank by the closing deadline. My agent has not been trustworthy of late--misinformation or lack of research on allowable offer terms, for example, and ample evidence that she is either unfamiliar or hasn't completely read the contracts that she has asked us to sign. We would have walked away from her but we have a contract on this home now. This makes me question whether I'm putting my contract on this home at risk by not getting the pre-approval. Any thoughts or advice? I can post the contract language if that would be helpful to any experts out there.
  • November 13 2012
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Profile picture for CarolHolland2

Buying a Short Sale property is not for the weak of heart. Yes, there
can be specific requirements, but you or your attorney can find out which requirements are mandatory and which are not. The banks and realtors want a buyer who is steadfast and determined to buy a property. In the past, it was so easy for a buyer to walk away from a property. This costs everyone money. You are buying an investment that is reduced in some
cases by 75%. I would suggest that you relax and get ready for a bumpy ride ( in some cases). You are buying a home with built-in equity.
 This investment is well worth the specificity of the contract.

  • November 11 2012
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It's not sketchy.

Basically, neither the seller nor the lender want you to walk in the middle of the process - the seller especially, because it means they have to start the entire process all over again and they're often racing to avoid foreclosure. And they want to be certain of your ability to complete the transaction, which is why they want to have a lender that they trust confirm your financial position.

All the best,
  • November 11 2012
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Profile picture for Connie Klemme

The pre-approval from a specific lender doesn't mean you have to use that lender it means they are requireing that you meet the standards of that lender known to them rather than just accepting a pre-approval for joe's bank and trust company or whatever lender you have.  This has become more common with short sales and REOs.

As for the non refundable Earnest Money- I would be a bit concerned about that and likely wouldn't just agree to it.  You should expect to wait a long time for a lender answer but you also have your cancellation period for which you might back out due to some other reason such as the condition of the home might be worse than you want to deal with.  If they know it's going to take 95 days to get an answer then I would think your Earnest Money isn't DUE until they get an answer.

It would be a good idea to visit with your agent and their broker on this.  It might be standard practice but it seems unreasonable to expect you to be willing to have money tied up for a long time just because they know in advance that they can't answer you quickly.   Perhaps there is more explanation...but if it's simply because they are "taking it off the market"   that's not good enough.

  • November 10 2012
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