Ginny, can I withdraw a contract on a short sale when the bank hasn’t accepted my offer and how long will it take? I made an offer on a short sale in February. I now want to move on and forget this short sale. I would like to just find a traditional sale. Is it possible to withdraw my offer without losing the earnest money since the bank never accepted my offer? Also, how long should the withdrawal process take from the time I submit it? –Janet, Cambridge, MA
Janet, I see you using the terms “offer” and “contract” somewhat interchangeably, which might reflect some internal confusion on the subject of how short sales work. When you make an offer to buy a short-sale listing, the sellers must accept your offer, forming an actual, binding contract, before it can be submitted to the bank for review and approval (or not). So, what the bank is reviewing is not your offer, per se, but your contract and the rest of the seller’s workout application.
However, most states’ standard practices dictate that when you get into contract with a seller to buy a property that is a short sale, you and the seller also sign a short-sale addendum. The function of this addendum is to render your contract to buy the place contingent not only on the appraisal, inspections and your financing, but also the seller’s bank’s approval of the price and terms of the transaction.
And on every short-sale addendum that I’ve seen, the addendum also empowers you, the buyer, to back out of the transaction at any time before the bank’s approval comes in (and, actually, you would still have this right to back out, in most contracts, for up to a few weeks following the bank’s approval). So, yes, you can withdraw your contract on this short sale and move on to another property.
Be aware that, by doing this, you will forfeit your ability to qualify for the tax credit, because the deadline for signing contracts has passed. But the reality is is that if this transaction has already taken this long, you might not even be able to close it in time for the extended transaction closing deadline (September 30th) for the tax credit even if you did remain in contract and ride this thing out — and in the meantime, your life is on hold. This is precisely why so many buyers and buyer’s brokers hold short sales in some disdain.
It should be a fairly instant process to get out of this transaction. You sign a cancellation of contract. The seller signs it, too — they have some incentive to do this quickly, as they cannot ethically begin marketing the property for sale again until they have released you. It’s highly likely that your agent or their office still has your uncashed deposit check and can simply hand it back to you. If it was submitted to an escrow provider, which would be unusual, without the bank’s approval having come in yet, but not impossible, the escrow provider is required by law to refund your deposit immediately upon receiving instructions to do so signed by both buyer and seller.
You should have your deposit money back and be able to move forward with other properties within a very short period of time — a few days, if everyone involved acts as they should, but give it a week or so, to allow for people that may be traveling, weekends and the like.