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WHEN DOES AN OFFER BECOME A CONTRACT? Part 3
Thursday, July 8th, 2010 | Uncategorized | No Comments
Does the existing contract permit the seller, who is in default, distress or foreclosure, to continue to market the property or seek higher offers in a backup position? While some lenders may like for this to occur, in the vast majority of cases, the desperate sellers are so glad that someone finally has made an offer on their over-leveraged property that they have failed to include this provision in the contract. Many times this offer is the only offer received despite months of marketing. This provision is very typical in a seller’s market; however, we are nationally experiencing a buyer’s market, so any distressed buyer who does get their property under contract is usually not worried about providing in the contract for terms relating to the right to receive, counter, accept, or otherwise review and respond to any backup offers. If the purchase and sales agreement or the contract between the buyer and the seller is silent as to the ability for the seller to receive additional backup offers, then any type of backup offer that the seller would attempt to entertain or deal with could easily be construed as a tortuous interference of the existing contractual relationship between the existing buyer and seller. While this concept has had some discussion in the short sale world over the last couple of years, I anticipate that it will become a very hot topic over the next eighteen (18) months.
It is also interesting to note that under the HAMP/HAFA program, there is no discussion or requirement to address the issue of soliciting backup offers.
In the event that a buyer and seller submit a purchase and sales agreement to a lender in a short sale situation for the lender’s approval, and the lender rejects the short sale amount, then the parties would once again have to look to the terms of the contract to see what to do next. Does the contract provide for increasing offers from the buyer so that the buyer may continue to negotiate and find a reasonable purchase price with both the seller and the lender, or is the contract silent on that issue? If the contract is silent, the buyer and seller have reached the point of no return and need to negotiate a new contract. A major contingent term of the contract was not satisfied, thus the contract would be void. This then leaves the seller free to begin to look for any other prospective purchasers of their distressed property.
However, if the original contract did address the possibility of the seller or the seller’s lender rejecting the initial offer, and gives the buyer the right to continue to make higher offers in an effort to negotiate a short sale resolution that is mutually acceptable to both the buyer and the seller, then that contract remains in force, and no additional backup offers need to be sought at this time.
Just when matters seem to be confusing enough, we have to remember what varying MLS rules and regulations impose upon all the actors in these situations. Many of these short sale properties are being marketed with the assistance of a real estate agent and being put into some version of a multiple listing service. Parties to the transaction, as well as their representatives, need to be aware of any specific MLS rules and regulations that deal with short sales and, even more importantly, what they require regarding what type of listing information must be updated once a property goes under contract. Under typical MLS rules, once the buyer and seller have entered into a contract on a property that is listed on the MLS, the listing status must then be changed to “pending” or “under contract.” This act typically discourages any subsequent or backup offers from any other potential buyers, especially in the short sale world.
In summary, as short sales become more commonplace, and the rules regulating them become more established, those people who participate in the short sale business would do well to stay well-versed in not only basic real estate contract law, but any state or local regulations that apply to the sale of real estate, as well as any MLS rules or regulations that govern marketing activities using that service. Ongoing education is absolutely essential in the short sale arena.
WHEN DOES AN OFFER BECOME A CONTRACT? Part 2
Friday, July 2nd, 2010 | Uncategorized | 3 Comments
Contracts can contain contingencies. As long as both parties agree to the terms of each contingency, then you still have a contract. These principles also apply in the world of short sales where offers become contracts subject to the lienholder agreeing to the discounted purchase price and payoff.
Before we consider the impact that various multiple listing service rules and regulations would have upon this whole process, let’s look a little deeper into real estate contracts as they exist in the short sale world. Real estate contracts in the short sale world obviously will have many contingencies. The biggest contingency is the lender’s acceptance and approval of the short sale offer and reduced payoff, or some sort of mutually agreeable three-way negotiated purchase price. But then it also becomes subject to any sort of other conditions and terms the lender may want to inject into the negotiations, such as deficiency amount being paid, amount of realtor’s commission, payment of real estate taxes, and home owner’s association dues, and the list goes on.
A frequent question asked inside the context of a real estate offer and contract in the short sale world is, “What about backup offers?” Well, up until the point that the seller has entered into a contract with a buyer, that seller is able to entertain offers from any and all prospective purchasers. Once the seller and buyer have entered into a contract (all of the terms are agreed upon and have been reduced to writing), then the potential issue of backup offers is governed by the terms of the contract between the buyer and the seller.
Does the existing contract permit the seller, who is in default, distress or foreclosure, to continue to market the property or seek higher offers in a backup position? While some lenders may like for this to occur, in the vast majority of cases, the desperate sellers are so glad that someone finally has made an offer on their overleveraged property that they have failed to include this provision in the contract. Many times this offer is the only offer received despite months of marketing. This provision is very typical in a seller’s market; however, we are nationally experiencing a buyer’s market, so any distressed buyer who does get their property under contract is usually not worried about providing in the contract for terms relating to the right to receive, counter, accept, or otherwise review and respond to any backup offers. If the purchase and sales agreement or the contract between the buyer and the seller is silent as to the ability for the seller to receive additional backup offers, then any type of backup offer that the seller would attempt to entertain or deal with could easily be construed as a tortuous interference of the existing contractual relationship between the existing buyer and seller. While this concept has had some discussion in the short sale world over the last couple of years, I anticipate that it will become a very hot topic over the next eighteen (18) months.
It is also interesting to note that under the HAMP/HAFA program, there is no discussion or requirement to address the issue of soliciting backup offers.
WHEN DOES AN OFFER BECOME A CONTRACT? Part 1
Wednesday, June 30th, 2010 | Uncategorized | 1 Comment
An offer becomes a contract when the offer to buy and the acceptance to sell are identical. If the terms of the offer from the buyer are agreed to and accepted in all details by the seller, then a contract exists. To put it another way, the offer and the acceptance/counter offer must be a mirror image of each other so that there is clear evidence of a mutual meeting of the minds.
As we enter the world of real estate, we have to remember the principles set forth in the statute of frauds which require that any sort of contract in excess of $500.00, or where performance may take more than a year, or where it involves real estate, must be in writing. Therefore, for an offer to buy to become a contract relating to real estate, the offer must be submitted in writing and must be signed by both the offering party, as well as the accepting/selling party.
As long as there is any sort of back and forth regarding closing date, purchase price, closing costs, prorations, title company selection, payment of escrow fees, inspections, or any of a myriad of potential issues, then there is not a contract. It is only once all of these big issues and little issues are resolved and agreed to in writing that an offer becomes a contract.
Contracts can contain contingencies. As long as both parties agree to the terms of each contingency, then you still have a contract. These principles also apply in the world of short sales where offers become contracts subject to the lien-holder agreeing to the discounted purchase price and payoff.
Before we consider the impact that various multiple listing service rules and regulations would have upon this whole process, let’s look a little deeper into real estate contracts as they exist in the short sale world. Real estate contracts in the short sale world obviously will have many contingencies. The biggest contingency is the lender’s acceptance and approval of the short sale offer and reduced payoff, or some sort of mutually agreeable three-way negotiated purchase price. But then it also becomes subject to any sort of other conditions and terms the lender may want to inject into the negotiations, such as deficiency amount being paid, amount of Realtor’s commission, payment of real estate taxes, and home owner’s association dues, and the list goes on.
Missed Monday’s Q&A Webinar? Watch It Here.
Tuesday, June 8th, 2010 | Uncategorized | 2 Comments
If you missed Monday night’s Webinar, check it out here. It was another awesome, informative 90+ minute session that you don’t want to miss. You need this information in order to stay on top of your business.
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