San Diego Coastal Real Estate Resource

Understanding the Short Sale Addendum or SSA

by Jeffrey on September 8, 2009

in Disclosures & Contracts, First Time Buyer, Short Sale

I have recently seen numerous questions posted on Trulia regarding short sales and cancellation rights of both Sellers and Buyers. Since there seems to be quite a bit of confusion out there, I thought I would write a general post and discuss the Short Sale Addendum, which is a standard form produced by the California Association of REALTORS®. The form is also known as the SSA.

First understand that I am a licensed real estate Broker in California and not an Attorney. Should you require legal or specific advice, please consult the appropriate professional. This form may or may not be used in all transactions, and there are many poorly made up forms trying to deal with a complicated subject. The standard CAR forms tend to do a great job in dealing with issues in a balanced method and are revised to reflect both market and legal conditions. For the purpose of this blog post, the revision date of the SSA is April 2009. This post is written for California Real Estate.

Let’s take a moment to understand what a Short Sale is, and who signs and counters any offers from potential buyers. A short sale simply means that a Seller is going to present an offer to a lender(s) and ask the lender(s) to settle for less than what is owed on the property. In addition, since the seller is in financial hardship, the lender(s) would also have to pay most or all of the closing costs including, but not limited to, real estate commissions, escrow charges, title charges, closing costs, and other monetary obligations the agreement requires. Thus the lender(s) are short = short sale.

The Seller signs any offers, or counters any offers with the terms and conditions acceptable, subject to the approval of the Lender(s) and Lien holders. When the contract is accepted or countered, most times the Short Sale Addendum (SSA) will be incorporated into the agreement. If not, please call an attorney right away to determine your rights, if any.

The SSA starts out in Paragraph A with a cancellation date if the Seller and Bank have not approved a sale by a particular time. This date should be reasonable, as most Short Sales are taking from 90 days to 6 months, depending on the Lender, offer, and foreclosure process. The transaction can move beyond the deadline date with the approval of all parties.

Paragraph B deals with time periods and the Buyer’s good faith check. Since most short sales take much longer than a traditional sale, most buyers would not want to deposit good faith money into escrow/trust account or spend money on home inspections or buyer investigations. This paragraph gives the buyer the option to choose either the acceptance date of the contract, or the day after the Seller delivers to the Buyer written notice of Short Sale Lender(s) consent. This does not change the time period for pre-approval or loan approval documents which would be required as noted in the purchase agreement. This makes sense since the Lender would want to see the buyer has the ability to obtain financing.

In addition Paragraph B gives the option of holding the “good faith” deposit un-cashed until the day after Seller delivers written notice of Lender(s) approval.

A great percentage of short sales are not successful. This could be for a variety of reasons including, the seller does not have a reasonable hardship, lender(s) cannot agree on payoff amounts, the foreclosure process and auction date, or the Seller changes their mind. Paragraph C of the SSA clearly states that there is NO ASSURANCE OF LENDER APPROVAL. Just because the seller has chosen to accept your offer – lenders are not obligated. Also included, is the seller’s and buyer’s right not to accept lender proposed terms.

Paragraph D deals with the fact that buyer and seller costs incurred in connection of the transaction are at risk and may be lost. These include, but are not limited to, payments for loan applications, inspections, appraisals, and other reports. I always advise my clients to consider these cost may be incurred without the successful purchase of the property.

Paragraph E deals with the right of the seller to continue to market the property and accept other offers and to present those offers to the lender(s).

Finally Paragraph F deals with CREDIT, LEGAL AND TAX ADVICE. Real estate brokers/agents are not qualified to advise on such matters and the Seller is informed that a short-sale may have credit or legal consequences, and may result in taxable income to the Seller. Seller is advised to seek advice from an attorney, certified public accountant or other expert regarding such potential consequences of a short sale.

So now you are asking, okay Jeff, does the buyer or seller have cancellation rights? Clearly, up to the time that the written consent from the lender(s) are received by the buyer, both the seller and buyer may cancel the agreement.

Ring up an attorney and ask what cancellation rights exist beyond that, and you get the following answer – it depends.

Consult your real estate agent for questions regarding your specific transaction. You may choose to involve a manager or broker of record to answer your specific questions.

Read more in our Disclosure & Contract category.

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