California Short Sale Addendum

Below is an outline of a real estate law presentation I gave on short sales at the Local San Diego HUD office.  This outline is designed to be viewed along side the California Association of Realtor’s Short Sale Addendum.

SHORT SALE ADDENDUM

California Association of Realtors Form SSA (11/07) and Form CO (10/04) 

Preamble

Suggested Approach:

Check the correct box, fill out the blanks accurately.

 

Issues/Concerns

  1. When MAY you use this addendum?
  2. When MUST you use this addendum?
  3. Checkbox Addendum to Purchase Agreement or Counter Offer
    1. Even a checkbox can be filled out wrong
  4. What if not checked?
    1. Becomes a separate contract?
  5. What additional documents do you need/want in order to use this Addendum?
    1. HUD-1 (Seller’s Net)
    2. Listing Contract
    3. CMA (Comparative Market Analysis)
    4. Buyer’s Pre-Approval
    5. Purchase and Sale Agreement
    6. Listings History showing pricing and activity

Paragraph A. Short Sale Approval

Suggested Approach:

Fill out the date to advance client’s interests; consider deleting or amending the text – at your peril (if you do, you may be practicing law without a license).

 

Issues:

  1. Importance and effect of contingency
  2. Effect of date
    1. Early date versus late date for buyer/seller
    2. If date is left blank
  3. Who are the “Short-Sale Lenders”?
    1. All existing secured lenders and lienholders
    2. Property Taxes? HOA? Creditors? Contractors?
  4. What must a seller do to “reasonably cooperate” with lenders?
  5. Seller must give written notice to buyer — failure by seller to give notice can allow buyer to cancel

 

Paragraph B. Time Periods

Suggested Approach:

Check the correct box, fill out the blanks accurately.

 

Issues:

  1. Advantage to seller is for the time periods to be as long as possible
    1. Checkbox ii or
    2. “Other: Within 15 days after Short Sale Lenders’ consent.”
  2. Advantage to buyer is for buyer to be able to terminate at any time
    1. “Other: Buyer may cancel at any time prior to delivery of Short Sale Lenders’ consent”

 

Paragraph C. No Assurance of Lender Approval.

Suggested Approach:

The realtor must explain this paragraph to the client; then consider deleting or amending the text – at your peril (remember, you may be practicing law without a license).

 

Issues:

  1. If Representing the seller:
    1. Any demands by Lenders will relieve Buyer of all obligations
  2. If Representing the buyer:
    1. Lender can reject this offer
    2. Lender may accept another (better) offer
    3. This agreement can be put on hold if another offer is preferred
  3. What is the meaning of “accept other offers?”
  4. Seller’s interests are not protected unless a term of the agreement includes a requirement for “No Deficiency” after the closing.
  5. Lenders often refuse to put into writing their terms of acceptance of the short sale in advance.
    1. Need terms explicitly in writing
    2. Potential battle of forms
    3. Oral statements (“We don’t pursue deficiencies…”)
    4. No mention

 

Paragraph D. Buyer and Seller Costs.

Suggested Approach:

The realtor must explain this paragraph to the client.

 

Impact of paragraph:  Either party may be required to incur costs which are not reimbursed and the deal may fall through if the Short-Sale Lenders are unwilling to accept the deal.

 

Issues:

  1. Costs incurred by the seller could include costs paid outside escrow.
  2. Costs incurred by buyer could include costs to close even though closing never occurs.

 

Paragraph E. Other Offers.

Suggested Approach:

The realtor must explain this paragraph to the client.

 

NOTE: This paragraph conflicts with advice given by many realtors boards, and is contrary to the established practice in many areas.  This creates an incentive for the seller and/or realtor to seek better offers or other offers competitive with the current buyer’s offer.

 

Paragraph F. Credit, Legal and Tax Advice.

Suggested Approach:

DO NOT tell the seller that he or she does not need an attorney.

DO NOT tell the buyer that he or she does not need an attorney.

 

NOTE that the bold type informs the seller that,

SELLER IS ADVISED TO SEEK ADVICE FROM AN ATTORNEY, CERTIFIED PUBLIC ACCOUNTANT OR OTHER EXPERT REGARDING SUCH POTENTIAL CONSEQUENCES OF A SHORT SALE.

Warning Flags:

  • Multiple mortgages from more than one lender (require approval of all lenders)
  • Counter offer from buyer includes additional terms or provisions under 1.C.
  • Lender has recorded NOD and refuses to delay foreclosure
  • Buyer offers a very low price (lender approval less likely)
  • Buyer requires fast schedule (lender approval often takes time)
  • Recourse second after NOD filed by first
  • Purchase money loans (may be better to do deed in lieu)
  • Lender has recorded NOS
  • Realtor has other relationship or prior relationship with seller

 

If you encounter these warning flag, you must be very careful to ensure that your clients are informed of the need for counsel.

The above was an outline for the presentation I prepared as the featured speaker at the San Diego Housing Collaborative.  Interestingly, two of the attendees were former loss mitigators for large lenders.  Here is part of the flyer that was circulated explaining the workshop:

This workshop is part of a Training Series intended for staff of housing counseling agencies, fair housing agencies, and other social service agencies assisting potential homeowners or homeowners experiencing trouble making monthly mortgage payments, facing foreclosure or bankruptcy, or might be needing to do a “short sale”.

 

 

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