Profile picture for Zinters

Do we have legal recourse following a short sale offer that's being treated unfairly?

Made an offer on a short sale. Seller's agent submitted it to the bank with the mutually agreed upon understanding that our offer is the first and only to be considered by the bank, and back-up offers were being accepted ONLY if ours did not prove successful with the bank. 3 weeks later seller's agent says they have a "considerably higher" offer and that they're going to replace ours if we don't come up significantly. We feel this is sneaky, deceptive, and unprofessional. Do we have legal recourse? Are the seller and his agent breaking a law or rule that we can hold them accountable for?
  • January 18 2010 - Northgate
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Answers (11)

Best Answer

The answer is very simple.  Do you have a contract with the seller that is fully ratified by both of you?  I assume that there is a contingency for bank approval by a certain date.  If you do, the seller cannot replace you offer with another.  Only one offer, the first ratified offer, should be submitted to the seller's lender.  If the lender approves the terms of the sale, you are free to close.  If the lender rejects the net terms of the contract, the seller has the right to cancel his contract with you and proceed with any back-up offer he may have.

Some listing agents do not have the offer signed before sending it to the bank.  If this is your case, you do not have an enforceable contract with the seller and he can accept any offer he likes.  If you do have a fully ratified contract, you may want to consult an attorney who specializes in real estate to enforce your rights under your contract.
  • January 21 2010
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Profile picture for Mr Caveat
7 month old questions = dead

  • July 17 2010
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Legal questions = attorneys
Short Sale negotiations are difficult and frustrating.  We real estate professionals can assist you with the process but an attorney can tell you if you have legal action. 
In Colorado it is not uncommon up to the point of agreement of terms between buyer and seller (short sale acceptance deadline not agreement of initial offer) that other offers are considered.  The buyer can also terminate the agreement up to the point of short sale acceptance.  The state has prepared an addendum. 
Are short sales frustrating - yes!
They are not for the meek or those who have immediate housing needs.
Please consult your attorney for your legal question.
Alan

  • July 17 2010
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Here's my two cents: in Connecticut, the OWNERS of the short sale are IN CONTROL. It is our FIDUCIARY duty to abide by the contract he or she has entered into. THE BANK is owed NOOOOOOOOO DUTY!!!!! Agents often mistake this fact (in my area anyway) because they are confusing a short sale (home is NOT bank owned, the owner is still in CONTROL) with an REO (Bank owned listing.) If this was CT, I would file a complaint with the local board. YES ALL offers are to be presented to the owner - HOWEVER IN YOUR CASE, the owner is STILL THE MORTGAGOR, (the borrower) NOT THE BANK. It's shady, and I would complain. If the homeowner reserved the right to continue taking back ups, AND if the BANK REFUSES your offer, then, and ONLY THEN would it be fair to ask you to come up to the higher offer. That's the LAW in my state (which has the same law mentioned earlier that all offers are presented to the OWNER.. it said OWNER/Bank in the previous answer and I'm sorry, THE BANK is NOT the owner in a short sale, so is OWED NO FIDUCIARY DUTY.)
  • January 18 2010
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Profile picture for The LaPeer Team
The bank may just be seeing if the offers are in the "ballpark." I had this happen and the first buyers were upset b/c I gave the bank the other offers as requessted. The bank ended up going with the first (and a little lower) offer.

There are not certainties in short sales. They are a risk from beginning to end and don't always progress like a regular sale.
  • January 18 2010
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I see you are  in Colorado. In the State of California, all offers are to be submitted to the owner/banks up until the close of escrow unless otherwise instructed in writting.

Short sales are really a tough gig regardless what state your in. I doubt the Agent did anything fraudulent, they are the mercy of the banks, they sometimes don't even get paid for thier troubles.
  • January 18 2010
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The statute of frauds requires that any agreement in land be in writing unless there is either substantial payment and improvements or posession so significant as to remove the inherant suspicions associated with oral real estate transactions. Legal recourse is an action at law for money damages. Given that you have no writing, there is no legal recourse with regard to the contract, unless the bank and/or seller were to compound the issue by initiating another cause of action, such as conversion of your earnest money. Nonetheless, an action in equity could be explored for promisory estoppel if there is justifiable and reasonable detrimental reliance on the promise.

The larger concern is the ethics of submiting only one offer. Listing agents owe fiduciary duties to the bank to submit ALL offers, whether reasonable or unreasonable, and to not self-deal. If you have proof of the listing agent's behavior, you can report it as an ethical violation to the Department of Regulatory Agencies (DORA).

There are many "games", "tactics" and "strategies" that sellers use to seduce offers and raise prices. These may be puffery, and worthy of a simple call of the bluff.

You should consult with a real estate attorney for legal advice. But my opinion is that you should counter with a punitively lower offer and/or move on.
  • January 18 2010
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I'm so sorry that this happpen to you.  The bank is really in control.  They want to see all offers.  As a Realtor that has worked many short sales, I tell my Buyers and Sellers this fact.  I'm sure the Realtor didn't expect a higher offer, but once it came in the Realtor had to let the bank know.  It's even worse now then when all this mess started.
  • January 18 2010
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Did the Seller sign your offer?  Did you sign a Short Sale Addendum?

Think about it this way, if you were the seller, and the possibility of a deficiency judgement after the sale....

 
  • January 18 2010
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It's actually not very ethical to only submit one offer to the bank.  Most banks want to see all offers before accepting one.  All agent should tell clients "all terms subject to lender approval".  I know its not the answer you wanted to hear but it is the truth
  • January 18 2010
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Profile picture for wetdawgs
Sounds like normal short sale behavior, so, unless you have it in writing that yours would be the only offer submitted to the bank - it is not likely you have any legal recourse.

Of course, even if yours was the only offer be aware that "the bank" often does not accept offers and "the bank" requests seeing all offers.



  • January 18 2010
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