Points to Consider When Using the FAR Short Sale Addendum

 If you represent a Seller:

 Paragraph 1 of the FAR Short Sale Addendum does not clearly allow the Seller to reject an approval from the lender, if the Seller is uncomfortable or otherwise does not agree to the terms of any such lender approval, such as the treatment of the deficiency and/or the requirement to execute unsecured obligations. The Seller should have some basic right to review and approve the terms of the lender approval (unrelated to price), which terms can sometimes vary significantly and materially.

 If you represent a Buyer:

 Paragraph 3 of the FAR Short Sale Addendum gives the parties the option to select a provision wherein all time periods commence from the Effective Date. This is a provision that rarely, if ever, should be used when representing a Buyer. Buyers do not typically prefer to conduct their due diligence (and therefore incur out of pocket expense) prior to the lender’s approval.

 Paragraph 5 of the FAR Short Sale Addendum allows the listing agent to accept multiple offers.  Allowing the Seller to continue to “shop” the property makes little legal, practical, or business sense for a Buyer. In fact, situations have arisen wherein the Buyer’s agent was criticized by their client for allowing such a provision to be included in their contract, leading to potential legal exposure.

 If you represent a Buyer or a Seller:

 Paragraph 3 of the FAR Short Sale Addendum provides a mechanism to extend the closing date beyond the original closing date if the lender approval is not obtained.  However, as structured, the FAR Short Sale Addendum places an undue burden on the parties to correctly predict the timeframe for lender approval, and we have found that the dates (and additional time selected by the parties) rarely, if ever match the lender’s timeframes, thereby creating (a) the need for one or more extensions, or (b) a situation whereby the lender approval is obtained well prior to the agreed upon closing date, thereby placing the onus on the Buyer to close earlier than expected to meet the lender approval requirements (even if not technically required to do so contractually). A better approach is to tie the closing date to some period of time after the lender approvals are actually obtained, with an outside date that can be extended at the option of the party you represent. This will (a) eliminate the need to prepare multiple extensions to the contract to extend the closing date or (b) require the Buyer to close prematurely.

 The FAR Short Sale Addendum, in our opinion, is also lacking in that it fails to adequately address other issues that are critical to your clients. We would be more than happy to discuss these additional challenges as they pertain to your representation of Buyers or Sellers, as applicable.

Posted By Karen Gagliardi, Berlin Law Firm, Business Development Coordinator.

Did you find this real estate law content useful, but need actual legal council?

Speak to a real estate attorney!

, , , ,

Movers and Breakers

Moving day can be an exciting time for many!  However, the thought of moving always causes angst, frustration, and physical/emotional exhaustion.  To avoid most of these emotional and physical moving issues, Sellers and Buyers should research said issues and then eventually hire vetted and reputable moving companies. Moving companies come in all sizes (i.e., National to local) and shapes (i.e., service and costs). …

Standard Or “As Is?” That Is The Question

While Florida law requires no particular form of contract for a real estate transaction, the FR/BAR Contract forms are the most utilized and well-recognized residential contract forms in Florida.  The FR/BAR Contracts, created and approved by a collaboration between the Florida Association of Realtors and the Florida Bar, include two Contract forms: the Residential Contract…
Real Estate Contract

Don’t Forget Those Addenda!

When drawing up a real estate contract, there are many times when items outside of the four corners of the FAR/BAR need to be dealt with. While the contract does have the Additional Terms section (paragraph 20) for those matters, it is important not to forget about the standard FAR/BAR addenda. These addenda are designed…

The AS-IS Contract And Disclosure

When a transaction is an AS-IS sale, the seller often insists that the property is in “AS-IS” condition in an attempt to reduce repair limits/credits and possibly shift the responsibility for determining the true condition of the property to the buyer.  It is well known that the buyer is typically given a specified period of…

Preventing Post Closing Issues

Many clients, their agents, and unfortunately some closing/title agents believe that the end of a real estate transaction occurs when it closes and funds.  Too many times we have seen post-closing glitches, oversight, or lack of follow-up lead to problems with the future sale of a property.  Over the last few weeks we have run…

Dealing With Entities As Buyers In Investment Properties

As most of you are aware, more and more investors are coming to this area to invest in distressed properties. The result is an increasing number of short sale contracts in which the buyers are entities (such as LLCs) rather than individuals. Typically, short sale lenders require the seller to provide a slew of documentation,…

Short Sale “Pre-Approvals”

We are frequently asked about listings being marketed as “pre-approved” in the MLS. We suspect this designation is intended to imply or suggest that there can be a quick closing.  We feel that the use of the term “pre-approved” can be misleading and lead to unrealistic or false expectations. Other than a pre-approval under HAFA,…

Fraud Investigation – A Top Priority for Freddie Mac

In previous blogs, we have discussed our concerns about short sale fraud and the warning signals to watch for.  According to Freddie Mac’s Mortgage Fraud Officer, Short sale fraud has also become the top priority for Freddie Mac’s fraud investigation unit as well. Per the attached article, recent trends that Freddie has been alerting Real…

Assignable Contracts & Specific Buyers

Please be advised that short sale lenders are getting very strict about approving the specific buyer identified on the contract. As such, lenders are carefully scrutinizing assignment provisions in contracts. Short sale lenders who are reviewing contracts (that permit the contract to be assigned) are kicking back the contracts more and more frequently.) Lenders are…

Berlin Patten’s Short Sale and Bankruptcy Services

Real Estate professionals are frequently confronted with listing a short sale property encumbered by two or more mortgages and a seller who is strongly considering bankruptcy as its “exit strategy.” We have struggled with that same scenario… working on a short sale for months, and then the seller decides to file for bankruptcy. At that…

The Importance of a Municipal Lien Search

Performing a municipal lien search is crucial when purchasing property in this day and age. In many cases there are unknown or undisclosed fees, costs or other issues that will impact a buyer post-closing. In addition a municipal lien search generally will assist a seller in complying with contractual terms to avoid a default. Examples…

A New Buyer Can Be Substituted for One Who Walked

We have learned of a very interesting development with respect to Bank of America. Bank of America has advised that it will permit a new buyer to step into the shoes of a buyer who has walked away from a transaction.  Furthermore, Bank of America has advised that the process will not have to begin…

Bank of America Realtor/Broker Listing Agent Certification – Questions and Answers

The new Bank of America Realtor/Broker Listing Agent Certification (the “Certification”) has fostered some significant concern among real estate agents. The most common questions and our comments/responses are as follows: 1. Question: Does paragraph 1 of the Certification mean that Bank of America will not pay a commission. Answer: No! Bank of America never paid…

Wells Fargo Short Sale Addendum

As expected, Wells Fargo has followed suit with Bank of America and has put out a new Short Sale Affidavit (attached hereto). Similar to the agreements recently published by Bank of America, Wells Fargo appears to be getting more aggressive in trying to curb flips and low offers and is now requiring realtors and closing…

Bank of America Document Warning

Please be advised that Bank of America is now requiring the parties to a short sale transaction to execute certain form documents before they will consider your short sale for approval. The buyer and seller will be required to execute a new addendum, and somewhat interestingly, the agents involved in the transaction will also need…

Freddie Mac Does Not Allow HAFA Post Contract

Freddie Mac and Fannie Mae recently announced a program similar to the government supported “Home Affordable Foreclosure Alternative” program. Although the programs are similar, you should be aware of some of the differences between each program. Most importantly, a Seller may not be eligible for HAFA if they have a Freddie Mac backed loan and…

Are Proposed New HAFA Rules in Violation of Fair Housing Act?

There have been discussions regarding the government’s new HAFA program and HUD’s Fair Housing Act.  One view is that the HAFA program breaches the Fair Housing Act because it is discriminatory against people who would like to sell their home as a short sale, but cannot demonstrate a hardship. The most recent article I’ve read…

18 Month Moretorium on Home Valuation Code of Conduct

Fannie Mae and Freddie Mac implemented a new appraisal rule starting May first, written by the office of New York Attorney General Andrew Cuomo last year; however, critics of the new rule applied pressure before the July 4 congressional recess with the introduction of bipartisan legislation that would mandate an 18-month moratorium on the “Home…

FHA Changes Condo Rules

There have been many changes recently regarding the financing of condominiums.  FHA recently announced its newest guidelines for financing condominiums. Realty Times provided the following summary of these rules. Kenneth R Harney wrote, “On one hand, the rules allow lenders a lot more flexibility in reviewing condo project eligibility and documentation.” He goes on to…

New Financial Regulatory Reform Proposal

The Obama Administration issued a Financial Regulatory Reform Proposal as of June 17, 2009. The Mortgage Bankers Association writes:  “This proposal’s objectives are (1) promoting robust supervision and regulation of financial firms; (2) establishing comprehensive supervision of financial markets; (3) protecting consumers and investors from financial abuse; (4) providing the government with the tools it…
Menu