Why a short sale contingency is so important
This is a newer form in the state of Minnesota to further attempt to clarify issues in a purchase agreement, when dealing with a short sale. This is a great form because it does clarify 3 points that keep coming up. All of these points are negotiable. Below is the main language from the front page of the form.
SHORT SALE CONTINGENCY ADDENDUM
This form approved by the Minnesota Association of REALTORS®,
which disclaims any liability arising out of use or misuse of this form.
Minnesota Association of REALTORS®
PART 1) The proceeds of the will not be sufficient to fully pay off all mortgages and other liens against the property. As a result, Seller must obtain “short sale” approval from one or more creditors. There may be various lien holders from whom Seller may need approval: this includes but is not limited to senior and junior liens, if any, homeowner’s associations or tax liens. Short Sale Approval in this Addendum is defined as a mutually acceptable agreement between the creditor and Seller to release their liens. This Purchase Agreement is contingent on the Short Sale Approval by Seller’s creditors. Seller shall obtain the Short Sale Approval(s) and notify Buyer, or licensee representing or assisting Buyer, in writing of the approval(s) no later than ______________. If Seller fails to obtain the necessary approval(s) and provide Buyer, or licensee representing or assisting Buyer, with written notice by this deadline, this Purchase Agreement is canceled, in which case Buyer and Seller shall immediately sign a Cancellation of Purchase Agreement directing the release of the earnest money to Buyer.
The following provision(s) modify and supersede any conflicting term(s) in the Purchase Agreement and any Addenda there to ONLY IF the corresponding box is marked (Select appropriate option(s)
PART 1 EXPLAINS THAT THERE IS A TIME LIMIT ON HOW LONG THE BUYER WILL AGREE TO WAIT FOR THE SELLER TO GET THE NECESSARY APPROVAL IN WRITING FROM THE BANKS TO MOVE FORWARD WITH A SHORT SALE. THIS IS A VERY NEGOTIABLE POINT BECAUSE IT HAS TO BE LONG ENOUGH FOR THE SELLER TO OBTAIN APPROVAL BUT NOT LOCK THE BUYER IN FOR 6 MONTHS. IT ALSO MAKES BOTH PARTIES AWARE THAT THE BANKS DO AVE TO GIVE APPROVAL. SOUNDS OBVIOUS BUT TO SOME IT IS NOT. IF THE SELLERS DON’T GET APPROVAL WITHIN THAT TIME LINE CONTRACT IS CANCELLED.
PART 2) Not withstanding any provision of this Purchase Agreement to the contrary, Buyer shall not be required to provide earnest money until Short Sale Approval has been obtained. Buyer shall pay the earnest money within three business days after Seller provides written notice to Buyer, or licensee representing or assisting Buyer,
that said approval has been obtained from all mortgagees and lien holders.
PART 2 EXPLAINS WHERE THE EARNEST MONEY STAYS. TYPICALLY IN THE STATE OF MINNESOTA IT IS REQUIRED THAT THE EARNEST MONEY BE DEPOSITED IN TO A BROKERS TRUST ACCOUNT WITHIN 3 BUSINESS DAYS OF FINAL ACCEPTANCE.
PART 3) Not withstanding any provision of this Purchase Agreement to the contrary, the time frame to perform inspection(s) shall commence on the date that Seller provides written notice of Short Sale Approval from all mortgagees and lien holders to Buyer, or licensee representing or assisting Buyer, rather than on final acceptance of this Purchase Agreement.
PART 3 EXPLAINS THAT THERE WILL BE NO INSPECTION UNTIL APPROVAL OF A SHORT SALE HAS BEEN OBTAINED RATHER THAN WITHING X NUMBER OF DAYS FROM THE FINAL ACCEPTANCE. THIS WAY THE BUYER IS NOT SPENDING MONEY ON A HOME THEY MIGHT BE ABLE TO BUY.
PART 4) Notwithstanding any provision of this Purchase Agreement to the contrary, Seller, or licensee representing or assisting Seller, SHALL or SHALL NOT have the right to continue to offer the property for sale until this contingency is removed.
PART 4 EXPLAINS THAT SOME BUYERS FEEL THE HOME SHOULD BE PUT INTO PENDING AS SOON AS THE BUYERS AND SELLERS AGREE TO THE CONTRACT. DUE TO THE LENGTH OF TIME TO GET AN APPROVAL FROM THE BANK, THIS MAY NOT BE A WISE MOVE ON THE SELLERS PART. IT ALL COMES BACK TO NEGOTIATION AND WHAT THE OTHER PARTS OF THE CONTRACT SAY.
THIS PAGE IS PART OF A LEGALLY BINDING CONTRACT BETWEEN BUYER(S) AND SELLER(S).
IF YOU DESIRE LEGAL OR TAX ADVICE, CONSULT AN APPROPRIATE PROFESSIONAL.
This form has saved a lot of hassle and misunderstanding for me on both sides of a transaction and is some thing to consider.
As always please consult a real estate attorney with any legal questions you may have and your accountant for any tax questions.