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.