Can I cancel a short sale purchase agreement prior to 3rd party approval

I made an offer on a house on May 1st. We have not heard anything back from the bank. In the meantime, the property has deteriorated and I sent a cancellation to the agent. A week has passed and I have not received the seller's signature.
Is this contract legally binding without 3rd party approval?
  • July 27 2010 - Farmington
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Answers (20)

Much of it depends on the language in the purchase contract.  A contract must have an end date to be enforceable.  When I write a contract on a short sale purchase there is always a period of time that the seller has to obtain short sale approval. 

Talk to an attorney to see what your rights may be regarding this purchase.  It is always a good idea to have your own attorney when purchasing a short sale.
  • November 27 2012
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I hope your agent had contigencies in the contract for you... I would have them send the  listing agent and seller a receission of contract, you have no meeting of the mind without the sellers bank having agreed.. good luck

  • November 17 2010
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Short answer is yes you can cancel. That being said however, based on how your contract was written and any special addendums that you may have signed, will determine whether or not you are to expect a return of your earnest money.  Its always vital when making offers on short sales that earnest money is to be returned if a contract to purchase is cancelled anytime prior to the bank's written approval, not the sellers.  I make sure to have this written into any offer to purchase to protect my clients.
  • November 17 2010
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You as buyer can walk away from any contract using the dates and dealines, if you submitted an offer for a short sale that is not enough if you sent your Earnest Money to title you can still walk and request your earnest money back ( you only loose your earnest money ) if your offer is on a liquidated damages basis and most of the realtors, at least the good ones will apply the Liquidated damages mark, but anyway, you are not under contract until the lien holder will issue the approval letter, from that date ONLY and after your agent * buyer agent will be duly notified you will be under contract not before. You are free to go..
  • November 16 2010
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If you have a signed purchase agreement you will have to refer to it to determine your options. It is a legally binding contract.  There are dates in most purchase agreements such as a closing date that are importtant.  You might have a date that 3rd party approval has to be recieved by in order for the contract to continue.  Have it reviewed by an attorney if you are unable to resolve you situation throught the steps you have already taken. You noted that they property has detreorated which might also be something to bring up to your attorney.
  • November 15 2010
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Talk to your BIC about that... it really depends on the dates mentioned, wording, local customs, etc.
  • November 10 2010
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Profile picture for JimSeabold
Were you able to get this resolved?

Your short sale addendum would have had an end date.
  • November 06 2010
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If you placed the EM release with the title co or buyer;s broker then you will need an EM release from them, you are not Under Contract since dates have not begun. Your contracts has certain dates and deadlines and there is a deadline to accept the contract on the sellers side, that date has passed, you are not under contract nor have any obligation whatsoever.
  • October 12 2010
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Profile picture for Erick Rodriguez
Use official paperwork to withdrawn your offer. and Double check the contract to see if there are any penalties.
  • October 08 2010
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In MD, it's becoming almost routine for short sale buyers to put down a preliminary earnest money (good faith) deposit, followed by a larger ("more faith") amount after ratification with 3rd party approval.  For other short sale value-hunters, talk to your buyers' agent about this.  Maddy, I'd agree with the majority here: you should be able to get your deposit back so long as you included an addendum with time-frame.  Here's the importance of using an agent who's been trained to do short sales: s/he should have already supplied you an answer and begun the process.
  • September 26 2010
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More than likely you can get out of this contract since it has not been signed off by the bank. Even if the sellers accepted they really can't sell it without the banks approval so in a sense it's not worth much.
  • September 24 2010
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Once a seller signs your contract, it is legally binding subject to a 3rd party bank approval.  IT IS A CONTINGENCY. The contract starts with the buyer and seller signatures, not with bank approval.

That is no different than a buyer going for financing ( a contingency) ,,.the buyer does not have to wait till loan approval to have a binding contract.

Can you get out of the contract?...probably, but you need to understand what you signed and if there are any ramifications of just walking away when ever you feel like it. 

In a short sale addendum there is ususlly a time frame where the buyer can walk or extend the contract.

Erika in Orlando
  • September 24 2010
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If you have a short sale addendum and incorporated the section stating that a written approval is required from all lien holders, you can cancel. The short sale addendum is important to include with your purchase agreement as it states when your time periods begin and how long you will wait for the Seller to obtain acceptance from all lien holders. Basically, purchase of the property is contingent on lender approval.
  • September 23 2010
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Profile picture for Joe Houghton
Absolutely, 

Next time through I would be sure to work with a qualified and experienced Realtor you trust and one that will work in your best interest and one that does not try to influence your decisions.
  • September 23 2010
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In a Short Sale situation the sale can be withdrawn as long as the Third Party approval has not been given. Now as a Realtor If I am representing the Buyer I include a Blank addendum to the PA stating a time line of 90 days for the approval of the third party. Now 90 days is not enough time but if the progress is good enough then we could renew that addendum before the 90 days.
  • September 21 2010
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Doesn't sound like you have any money on deposit. Often that is the case. So can you cancel - answer probably yes.  How many days did you give the 3rd party to approve?  Could be you gave them 90 days, and you can cancel for sure.
  • August 02 2010
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Hi Maddy... hopefully you did not submit your good faith, and you were waiting for the banks approval... in that case you can cancel without cause and just walk away, have your agent send the cancellation you are good...

If the listing agent had you open escrow, have your agent send the cancellation notice to the escrow officer and demand the good faith be returned in whole.

When you do find the next property, be sure you have a good buyers agent and know the details of the contract you are signing...

Good luck
  • July 27 2010
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The 3d party approval is considered a contingency to the purchase agreement. If one party is unable to meet the contingency, the other party can request a cancellation of the purchase agreement. If earnest money is paid, the earnest money may or may not be returned, depending on what box is checked on the cancellation of purchase agreement form. In some instances, the earnest money isn't provided until 3d party approval is given, so that may well be a moot point.

If you pursue a short sale in the future, make sure you use a short sale contingency addendum that spells out the time frame necessary for 3d party approval and if the time frame isn't met, the remedies that you request in that situation (cancellation of agreement, refunding of earnest money).
  • July 27 2010
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Profile picture for lynrosect
The contract is only legally binding if you have an acceptance by all parties.  If the contract is a short sale and it states that the contract is not binding without the acceptance of the bank, then you can cancel the contract at anytime before the bank replies.  If you sent a cancellation of your offer to the listing agent before the bank accepted or rejected your offer, then your offer is revoked.  Your offer will be considered null and void. 

Of course, the above information is general contract law based upon the few sentences you provided.  If you want to know for sure, contact the listing agent to make sure your offer is off the table, contact your own real estate agent to make sure they revoked your offer or contact a real estate attorney.

Good Luck!
  • July 27 2010
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Yes, you can cancel prior the accepted offer.  Did you work with an agent on the and fill out a short sale addendum?  There are factors involved here like were you represented in the transaction.  The sale of a short sale is always subject to 3rd party approval and you having an inspection, getting a loan and many other things.  A buyer has many options especially where a short sales in concerned.  If you don't have an agent I would seek some help if you don't get the termination soon or talk to the escrow or lawyer depending on your state.

  • July 27 2010
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