Recently the California Association of Realtors® (CAR) released a new addendum (dated 11/10) to be used with purchase agreements involving short sales. The Short Sale Addendum (SSA) being used prior to this was not that old (4/09), but a lot has evolved and been learned in the past year and one-half. We won't be surprised if another revision is out by 2012.
The contracts and forms provided by CAR are not legally mandated. They are not "official." Nevertheless, in California they set the standard for the industry.
The new SSA contains 7 significant points of difference from the previous form. All of these changes have been made as a result of suggestions and comments that CAR's Standard Forms Advisory Committee has received from practitioners in the field.
1. The new SSA makes the agreement (that is, the contract) contingent upon "Seller's receipt of and delivery to Buyer of written consent ('Short Sale Lenders' Consent') to the Agreement from all existing secured lenders and lienholders." Now, of course, the consent of the lender(s) is a contingency of the contract; and that was a feature of the previous SSA. The difference here is that, not only does the seller have to receive such consent, but also the seller must deliver a copy to the buyer. The former addendum was ambiguous on this point. It was clear that the buyer had to be notified, but not that he had to receive a copy. This is no small point. Now the buyer will know exactly what has been agreed to by the lender(s). Sometimes, details were overlooked or made unclear in the notification process, leading to surprises at the end of the escrow.
2. Another change is that the addendum now has a default date by which time the consent of the lender(s) must be obtained. The notion of a "default" is that certain language prevails, unless specified otherwise (usually, by checking a box and/or filling in a date). Now, the default date for lender consent is 45 days. Of course the parties are free to agree to a longer or shorter time period.
3. The former SSA required that the lender(s) consent to reduce the loan balance(s) sufficiently for the sale proceeds to pay a variety of costs such as escrow, title, commissions, etc. The new form explicitly adds Homeowner Association Fees to that list. In many, many cases, past-due HOA fees have presented a stumbling block to a successful short sale. Lenders often refuse to reduce the loan demand sufficiently to allow them to be paid from the proceeds, and buyers will frequently draw the line at that additional cost. Of course, adding this item to the contract addendum is not going to force lenders to change their ways; but at least it will have been specifically addressed as part of the agreement.
4. In the new SSA there is a default 3 day period from the time the seller has received the lender's consent until a copy is delivered to the buyer. The former document did not specify how soon the buyer had to be notified.
5. Also, the new addendum defaults to the position that the time period for the buyer to do inspections and for the seller to provide disclosures, title report, etc. does not begin until the lender's consent has been obtained. Again, this can be changed if the parties so desire. (They might, for example, agree to do inspections and disclosures before that.) As with the earlier SSA, though, it remains that the buyer is to begin his loan application and provide verification of funds at the beginning of the process. He does not wait 45 days to demonstrate his ability to perform.
6. The deposit check, however, is, by default, not deposited until 3 days after lender consent is obtained. Again, the parties can change this if they wish. Oftentimes a seller will want the buyer to have some "skin in the game" while they are waiting for the lender's response. Otherwise, it is too easy for the buyer to move on to another property while this one is being processed.
7. As with the previous short sale form, the seller is given the right to continue to market the property and to present other offers to the lender. (Sometimes, lenders insist on this.) In the new SSA it is also specified that the seller has the right to accept other offers in a back-up position.
Both the new and the old Short Sale Addenda make it clear that, if the lender's consent or term sheet requires changes in what they had agreed to, neither party is obligated to proceed and the buyer is entitled to a return of his deposit money.
Whether a short sale is being conducted in California or some other state, these addenda points are good things to keep in mind.