Should Sacramento Short Sale Sellers Sue Buyers Who Breach Good Faith?
By Elizabeth Weintraub on Dec 02, 2009 in As Goes California…, Fresh Perspectives, Takin’ It In The Short Sales
Sometime around mid-October, I received an offer on one of my Sacramento short sales. The buyer’s agent swore that the buyers loved the home. On top of that, the agent promised in writing not to write any more offers for those buyers as everyone waited for short sale approval. We received approval from one lender and were working on gaining cooperation from the second lender when a cancellation of purchase agreement appeared in my email inbox.
The explanation was the buyers decided they could not afford the improvements they wanted to make. They had not gone back to the home since the day they wrote the offer. This epiphany seemed to have come to them right after they received the approval letter, when reality sunk in. The agent didn’t have the guts to pick up the phone and call me. For all I know, that agent had been out showing these buyers other homes and writing other offers.
If that was the case, this agent could possibly be held liable for breaking the REALTOR Code of Ethics. Article 1 says agents must be honest with each other. Moreover, buyers who walk away from a short sale after signing a contract could be held liable for breaching the good faith covenant inherent in contracts. A lawyer could argue in court that those types of buyers probably had no intention of following through on the purchase should a better opportunity present itself along the way.
Here’s more food for thought — what if the seller was already in foreclosure, facing a trustee’s sale, and relying on this particular buyer to perform? Is it possible that the seller could hold the buyer personally liable if the seller lost the home to foreclosure as a result of the cancellation? I’m not a lawyer, and I can’t give legal advice, but it seems to me that it’s possible a seller in that situation might have legal recourse against such a buyer.
After all, by ratifying the contract, the buyers prevented the seller from selling to a serious buyer — a buyer who may have been able to perform during the allotted time frame. Buyers who are writing multiple purchase offers on Sacramento short sales may want to rethink that kind of strategy. What do you think? Do short sale sellers have a legal right to sue a buyer for damages if that buyer’s failure to perform and breach of good faith leads to foreclosure?
Photo: Big Stock Photo
About the Author
Elizabeth Weintraub is a top-producing Sacramento real
estate broker at Lyon Real Estate, author, home buying columnist for The New York Times-owned
About.com, a Land Park resident, and a Land Park agent who specializes in older,
classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Elizabeth
is also a Sacramento Short Sale agent who lists and successfully closes short
sales throughout Sacramento.
Elizabeth began in the real estate business in 1974 as a
title searcher. By the late 1970s, Elizabeth had earned certificates from Orange
Coast College and Coastline Community College, completing programs in real
estate and escrow. She also worked for several years as a Certified Escrow
Officer before becoming a real estate broker.
In a down economy, Elizabeth has sold more than $11 million
in Sacramento in 2009. About half of her production is short sales and
foreclosures. DRE License # 00697006.
Call Elizabeth at (916) 233-6759
elizabeth@elizabethweintraub.com
You can also find Elizabeth's articles on About.com, where she writes about Home Buying and Selling and Short Sales .
You did not have a ratified contract. Short sales are different from REO and regular real estate sales. Reo and reg real estate sales only need a buyer and seller to agree on terms to make it a ratified contract. Short sales on the other hand are totally different. They require 3 parties sometimes 4 parties to come to an agreement. Short sales need the acceptance of buyer, seller, 1st mortgage lender, and sometimes second mortgage lender. Unless you had an acceptance from all parties, you did not have a radified contract and therefore your seller cannot hold the buyer responsible. You as the seller’s agent had every right to keep accepting offers. If anyone should be held liable it should be you since you did not continue to accept offers.
Lots of people are confused by short sales, Kim, but just because it’s a short sale doesn’t change the fact that a listing agent represents the seller. As such, the listing agent works at the direction of the seller. If a seller directs the listing agent to stop accepting offers after a certain time period, to arbitrarily do otherwise would violate that fiduciary relationship.
I’m not a lawyer but I’m picky about words. The SSA makes it a “contingent contract”. Bank approval makes it an “executable contract”. After COE, it’s an “executed contract”. Void, Valid, and [Un]Enforceable are other stages or classes of contracts.
I’ve lost more buyers at the 11th hour than I care to count. It makes me REALLY mad. If my buyers sign a SSA, I turn off their client portal and don’t show them other houses for a good 3-5 weeks. But the listing agent better provide frequent updates. I will also advise my clients to avoid the home if the listing agent gives me a bad impression. If that impression takes 2 weeks to surface, this market won’t allow me to sit on my clients’ hands.
This is why you should take backup offers and spend your time schmoozing to keep the buyer and SA involved.
I am sure that from the buyers’ perspective there were enough contingencies that the potential buyers would not have any personal liability. The solution may be tighter requirements in your contract. To stop taking backup offers, you might want to condition return of the deposit on a time commitment for them to wait for all of the lenders responses; if the lenders agree to the sale, then the buyers are locked in to the terms of the standard Purchase Agreement.