SHORT SALE ADDENDUM

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

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.

• 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.

Short Sale Program Email Address* First Name* Last Name* Best Phone Number Has this property been your residence yes since purchase Never Part of the time Zip Code where property located Are you Current on your Loans Yes No Yes on 1st but not 2nd Not on 1st but yes on 2nd Type of Property -- Please select --Single Family Residential Condo I own a building with more than one Residence At time of Purchase - you took out 1 Loan 2 Loans 3 Loans Now you have -- Please select --1 Loan 2 Loans 3 Loans Which loans have been refinanced? Have you Taken Cash Out -- Please select --Yes Yes but it all went into improvements No Indentify Home Equity Lines of Credit 1st 2nd 3rd Total Owed Approx Value of House Please contact me -- Please select --ASAP Within 48 hours ASAP 24 hours 48 hours Goals No deficiency Minimize credit damage Short Sale Deed in lieu Short Payoff Soften up Lender with Lender Liability Letter Do you have a Realtor -- Please select --yes no How long has the property been listed Do you have an offer in to the lender -- Please select --yes no Which loans are late 1st, 2nd, Both Has a Notice of Default been filed Date of NOD if any Comments Enter the code:    Please wait...