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Can the sellers bank change the terms of our contract without my approval?

48 hours before the house I'm purchasing was about to close, the title search found that the home was in foreclosure. After waiting months for the seller to work things out with his bank, it looks like we will be closing soon. My realtor told me that the sellers bank won't allow a home warranty, even though that was in our agreement. After adding $1500 to my closing costs to keep my rate locked in through this process, I'm furious that I'm now not going to get a home warranty, and the contract price has changed. Can the sellers bank change the terms of our agreement without me signing off? As far as I'm concerned, the sellers needs to honor his agreement. I don't see why his bank should be entitled to just cancel his obligation, and keep the selling price the same. Am I wrong?
  • August 18 2013 - US
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Answers (5)

I agree with Michael on this one. Please note that a foreclosure is not a short sale and vice versus. The seller in a short sale situation has little say so but is working with a bank that is allowing him to sell the home for less than what he owes to avoid being foreclosed on. A foreclosure would have nothing to do with the previous owner. Reason. The owner would now the  bank that holds the home as it's asset.

See the link below: 
http://www.realtor.com/advice/what-is-the-difference-between-short-sale-pre-foreclosure-and-foreclosure-2/

Long and short of it... The seller not the bank has little to do with the arrangement made between the parties (seller & bank). The seller is at the mercy of the bank. I hate that this has happened to you. It stinks to high heaven. If they wont purchase one for you, I'd suggest buying one for yourself. They range from 350 and up. Having had several, sometimes its worth it, sometimes not.

See link on Home warranties: (PROS & CONS)

http://www.realtor.com/home-finance/homebuyer-information/home-warranty-insurance-pros-and-cons.aspx?source=web

Best Wishes!
  • August 18 2013
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I don't understand how the seller can be relieved of his responsibility to provide a home warranty without my agreement. If his bank won't allow it, then they need to find another way to pay for it.

Unfortunately, in a short sale the lender is often calling the shots. My presumption is the sellers anticipated the bank would pay for the warranty as the bank is paying all the other costs (including agent commissions, etc). And since the bank won't pay and the seller (we presume as it's a short sale) can't pay, that takes the warranty off the table.

As the seller can't make a condition of the sale, you could request an immediate cancellation of the purchase agreement. BUT since the warranty is a condition for closing, they might make you wait until that closing date (maybe they might find a rich uncle between now and then).

Personally, there's two things you can do.

1. Be pragmatic and pay for the warranty as you're already out of pocket on inspections, rate locks etc.

2. And this is the option that makes agents squirm. To keep the deal alive (and presuming the warranty doesn't swallow your agents whole commission) ask your agent and the sellers agent pay for a portion or all of the warranty. The cost (usually around $400.00) would be deducted from their commission. This would have to be in writing and approved by the agents broker (as it affects their income too). You would also need to amend the purchase agreement to strike the warranty language (to satisfy the bank).
  • August 18 2013
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Thank you for the responses. As Michael Emery pointed out, the house is actually being sold through the short sale process, even though it was in foreclosure. All of our dealing have been with the seller and his agent. My complaint is that I don't understand how the seller can be relieved of his responsibility to provide a home warranty without my agreement. If his bank won't allow it, then they need to find another way to pay for it. Why should I be the one making concessions? My agent does not understand why I'm making such a big deal about this, but I've had enough! I'm prepared to lose the house over it, which brings me to my next question. My contract with the seller was extended until the end of September. If they are able to close sooner, but won't provide the home warranty, does that void our agreement, or do I have to wait until the end of September? Thanks again for the advice!
  • August 18 2013
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Was or did this sale become a short sale with the sale contingent on 3rd party (bank) approval? If so, the bank is paying the sellers expenses which would include a home warranty. The bank can refuse to agree to the sale unless the home warranty is excluded.

But you could probably quash the whole deal and walk away as the terms of the contract has changed. However my guess is you're at the point where it wouldn't be prudent to back out.

Ask your agent if you can have a warranty if YOU pay for it. You might also want to decide if you need the warranty.

On a side note, if the house had foreclosed, you wouldn't be negotiating with the owners any longer and your contract would be voided. It sounds like the home is in the process of foreclosure. But that means the home is still owned by the owners, but the sale might be contingent on bank approval.
  • August 18 2013
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A foreclosure means that the bank has start the process to take the house from the current owners. When a house is in foreclosure, the bank owned, own or will own the house, so the bank is the seller. Some of the homeowners that can not longer keep the payments of them notes, reach an agreement with the bank for Short Sale the property, in this case the current owner has to accept the sale contract and the bank will approved or not, but in a foreclosure, the owner is the bank and that means the seller too. I would ask my Realtor to call the bank, find out in what stage is the foreclosure and what options the bank could give to you as the buyer. Good luck, I hope you will find the best positive solution for you.
  • August 18 2013
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