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Real Estate > Short Sale Contract > Flashcards

Short Sale Contract Flashcards

1
Q

The purpose of the Short Sale Disclosure is to:
A: Provide Disclosure To All Parties
B: Define What A Short Sale Is And Spell Out The Rights Of The Parties To Cancel
C: Define The Role Of A Third Party In Short Sale Transactions
D: All Of The Above

A

D: All Of The Above

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2
Q

The Short Sale Disclosure should be signed by:
A: Buyer Or Seller Clients
B: Buyer Clients Only
C: Seller Clients Only
D: Agents Only

A

A: Buyer Or Seller Clients

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3
Q

A short sale is defined as:
A: A Quick Sale
B: A Reduced Documentation Sale
C: A Transaction In Which The Purchase Price Is Less Than The Amount Owed On Outstanding Liens On The Subject Property
D: None Of The Above

A

C: A Transaction In Which The Purchase Price Is Less Than The Amount Owed On Outstanding Liens On The Subject Property

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4
Q

When it comes to Short Sale transactions, real estate professionals should NEVER:
A: Give Sound Legal Advice To Their Clients
B: Give Sound Tax Advice To Their Clients
C: Attempt To Enter Into Limited Agency By Representing Both Buyer And Seller
D: All Of The Above

A

D: All Of The Above

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5
Q

short sale

A

Amount owed on property is more than the property is worth. The only way to sell is to persuade the bank (Lender to accept a reduced payoff amount an amount that is less than or short of the true balance of the loan). Lenders will do that if they see that the property is not worth the amount owed, but they are not required to.

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6
Q

short sale disclosure

A

This disclosure should be given to a Buyer or Seller limited agency deal in a short sale situation (Strongly discouraged). Some banks will not allow short sale transactions to be limited agency.

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7
Q

all liens must be resolved

A

There could be more than one lien on the property first nortgage, second mortgage, mechanic’s lienholder) in which every creditor has to agree to the reduced payoff amount. Seller cannot convey clear title to the Buyer at the closing unless all the liens have been resolved. This is a time to exercise powers of persuasion, but remember to be honest.

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8
Q

third party approval

A

The Buyer’s obligation to purchase and the Seller’s obligation to sell are both conditioned upon the Third Party’s approval of the Short Sale.

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9
Q

third party rejection or changes to the
proposed short sale

A

Lender is not bound by what the Buyer and Seller have agreed to. The Lenders will usually send to the Seller a list of required changes to the proposed purchase contract (Third Party Modifications). They can affect price, timing, and requirements for the sell to close. They often require the parties involved in the transaction to respond with affirmative representations to the Lender (this is the true contract, no side deals, arm’s length transaction, no insider deals taking place, etc.).

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10
Q

arm’s length transaction

A

Deal terms reflect a true negotiation. This deal is between parties that are unaffiliated, and it reflects the true result of an arm’s length negotiation (“you are negotiating for your interest, i’m negotiating for my interest, and here is where we have reached in the middle.”)
These transactions are not subject to Undue Influence (“I’m not being unduly coercive, I do not have something over you that l am extorting a better deal than I can.” This arm’s length negotiation reflects the true market value of the Property.

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11
Q

example of the opposite of an arm’s
length transaction

A

Agent’s daughter fell behind on her house, and found herself in need of doing a short sale. Agent came in as a Buyer, and wanted to buy it short.

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12
Q

delays in response from the third
parties

A

The parties might have to continue issuing
addendums extending the Settlement
Deadline further out.

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13
Q

example of delay in response from third
party

A

Buyer and Seller enter into a contract and they agree that the Settlement Deadline is 45 days from now and that it is subject to Third Party Approval, because it is a short sale. Buyer and
Seller might, but that is not binding on the lender.

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14
Q

right of third parties to encourage
additional offers

A

Third Party might require the Seller to keep the Property on the market even after the Seller and the Buyer have come to agreed terms of the proposed purchase contract. The Lender wants to make sure they are getting the largest, highest payoff amount as available in this market. If better offers come in, they must be presented to the Lender.

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15
Q

right of buyer and seller to cancel

A

Seller and Buyer are advised that any time prior to the Third Party Approval Deadline or the Third Party Approval, whichever comes first, the Buyer or the Seller may cancel at any time.

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16
Q

Short Sale Contracts

A

Short Sale Addendum:
* Short sale addendum is an important document in several short sale
transactions because of the following reasons:
* Multiple offers
* Approval of the short sale from the bank
* Inspections of the property
* Costs

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17
Q

deficiency claim

A

Short Sale Approval Letter must state, in writing, that the Lender is waiving its deficiency claim. Otherwise, you can find yourself in the position where the Seller sells in a short sale and the Lender comes in and sues for the deficiency amount of the loan.

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18
Q

example of deficiency claim

A

House has a loan of $400,000 and only worth $300,000. This house goes to foreclosure sale and someone buys it at $300,000. The Lender now has a deficiency ($100,000). Lender has a right to sue the Borrower for that deficiency.

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19
Q

The Addendum to the Exclusive Right to Sell Agency Agreement for Short Sales Discloses to the Seller:
A: That They Have Previously Seen And Signed The Short Sale Disclosure Form
B: That They Are Authorizing Their Agent To Disclose In All Advertising And On The MLS That This Is A Short Sale Transaction
C: That A Short Sale May Have A Negative Impact On The Seller’s Credit
D: All Of The Above

A

D: All Of The Above

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20
Q

Regarding short sales, real estate professionals need to understand that,
A: Short Sales May Take A Very Long Time
B: Obtaining Third Party Approval Can Be Time Consuming
C: Buyers May Become Impatient And Back Out Of The Transaction Anytime Prior To Third Party Approval
D: All Of The Above

A

D: All Of The Above

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21
Q

Fiduciary Duty of Loyalty is
A: Duty To Place Your Clients Interests Above Your Own
B: Only Think Of What Is Best For You
C: Do What You Think Is Right For Your Client
D: Always Place Your Needs At The Same Level As Your Clients

A

A: Duty To Place Your Clients Interests Above Your Own

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22
Q

When you find yourself handling a short sale for the first time _______
A: Consult With Your Broker Or Other Members Of Your Brokerage That Have Experiences With Short Sales
B: Consult Your Client And Find Out What The Best Thing To Do
C: Do Your Own Research And Do What You Think Is Best
D: None Of The Above

A

A: Consult With Your Broker Or Other Members Of Your Brokerage That Have Experiences With Short Sales

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23
Q

addendum no. - to exclusive right to sell listing agreement & agency disclosure (short sale)

A

This addendum should be presented to the Seller along with the Listing Agreement. This addendum protects you as the Listing Agent. It is designed to make sure that you get the right approvals from your Seller to do your job as the Listing Agent.

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24
Q

how do you know you have a potential
short sale?

A

When you meet with a new seller you need to find out how much is owed on this property. Ask yourself is there enough value in this property to cover the loan payoff? Sometimes you might not know when you list the Property. The Property sits for a while, is not selling, and then becomes a short sale.

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25
Q

acknowledgement of short sale disclosure

A

Seller acknowledges that the Seller received the Short Sale Disclosure form. The Seller acknowledges that they read, understand, and
agree with the information.

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26
Q

third party considerations

A

The Short Sale is subject to Third Party Approval and the Third Party may impose conditions on the Short Sale such as: Third Parties obtaining a broker price opinion or appraisal; require the Seller to demonstrate financial hardship; and require Seller to provide copies of tax returns, pay stubs, assets and other financial information.

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27
Q

seller authorizations

A

Seller authorizes the Company to…
*Advertise the Property as a Short Sale in all marketing materials prepared by the Company
* Advertise the Property as a Short Sale on the MLS
*Continue to advertise the Property for sale on the MLS until approval as the Short Sale by the Third Parties
* Contact the Third Party to obtain the payoff loan amounts
*Communicate directly with the Third Party on the Seller’s behalf
* Provide to the Third Parties such disclosure, information, and documentation as requested by the third Parties for the purpose of obtaining approval of the Short Sale.

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28
Q

loan modification

A

The Lender is negotiating with the Borrower to alter the terms of the loan (change the payoff date, the interest rate, lower the monthly payments, etc.). This is off limits to an agent unless you have a mortgage license to engage in loan modification discussions.

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29
Q

seller acknowledgements
If the Third Party agrees to a short sale then:

A

-The Seller may not receive any sales proceeds at Closing.
-The seller may be required to bring the sellers own funds to settlement because the price to be paid buy the buyer is not enough to pay off the loan and the lender is not willing to reduce the price by that much
-Third Parties may seek a Deficiency Judgement against the Sellers or pursue any collection effort to recover funds lost
-Even if the third parties chose not to pursue a defining judgement, and short sale discount accepted by the third parties may be reported to the IRS by the third parties as taxable income to seller

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30
Q

cancellation of indebtedness income

A

Typical IRS rule says if you owe money and your creditor forgives that debt, it is
treated as income.

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31
Q

example of cancellation of indebtedness income

A

I own an investment property for $500,000, | do a short sale for $400,000 ($100,000 deficiency) The Lender agrees not to sue me for the deficiency, but they still report it to the IRS as debt forgiveness. Could result in a $30,000 to $40,000 tax liability

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32
Q

seller acknowledgements
continued:

A

-If the Third Parties refuse to approve the Short Sale, the Property may go into foreclosure and Seller may lose all legal and financial interest in the Property.
-A Short Sale transaction may have a negative impact on Seller’s credit rating even if the foreclosure process has not begun or is completed yet.
-Upon marketing the Property as a Short Sale, the Seller may receive one or more offers on the Property, but the Third Party may require that only one offer be presented to the Third Party for approval.
-Legal and financial options that the seller may want to consider with legal consider with legal counsel and tax advisors rather than a Short Sale (Such as negotiating a loan modification, refinancing, bankruptcy, foreclose, deed in lieu of foreclosure)
-The company has no control over the decision of the third parties to accept a short sale; or over the timing associated with that decision

33
Q

example of no control of timing associating with decisions made by third party

A

An Agent gets a 6 month listing agreement, a short sale. Around month 3, you get a contract in place. The buyer is willing to pay this price, seller accepts, and you submit the contract to the lender for short sale approval. The lender takes forever in deciding on the approval and has not approved the Short Sale before the Listing Agreement expires. Months after Listing Agreement has expired and the Lender finally approves. As you get close to the expiration of the Listing Agreement, you should go ahead and get an extension.

34
Q

seller agrees to hold the company harmless from acts or omissions of the third parties

A
  • If the Third Parties do not cooperate or fail to communicate with the Company, then the Company may cancel the Listing Agreement by providing written notice to the Seller.
    *If the property is conveyed to a mortgage broker insurer or lien holder during the terms of the listing agreement, then seller may cancel this listing agreement prior to its expiration
    *The brokerage fees referenced in this Listing Agreement are subject to the Third Parties approval.
    *Seller is advised by the Company to consult with legal counsel and other professionals. If *the Listing Period expires prior to the Third Party Approval, the Company agree that the Listing Period is automatically extended until the Third Party Approval Deadline.
35
Q

advice to consult with legal counsel or other
professionals

A

Seller has been advised by Seller’s Agent and Company that there may be significant legal and tax consequences and negative credit rating impacts, Seller is encourage before agreeing to a short sale to consult legal counsel and tax professionals.

36
Q

Example of short sale situation that raises issues of licensees and obligations

A

Licensee got the listing, clearly a short sale. Way more owed than property was worth. Agent started to see that he could get short sale approval for a really low price because the property had meth contamination. When lenders realize that their collateral is contaminated by meth they want to get rid of it. They will often agree to a much lower short sale price to get rid of the collateral. The agent’s friend submitted a super low offer and the agent was very effective at getting the lender to agree to the super low short sale price. Atter the closing, the agent was in control of the clean-up, the rehab, etc. and then relisted it at a significantly higher price. Problems: This agent was looking out for his own interest. The agent was acting as the principal (the Buyer and the Seller’s Agent). Motivated by greed.

37
Q

fiduciary duty of loyalty

A

Duty to place your client’s interest about
your own.

38
Q

example of fiduciary duty of loyalty

A

Someone wanted to buy a lot to build a retirement home. Narrowed it down to two lots they liked, the agent decided she liked one of the lots herself. While the client was out of town on vacation, the agent bought one of the lots for her own use. This resulted in a lawsuit. The Buyer was very upset that his agent purchased one of the lots for her own use
and did not tell him. She should have told him, in writing, from the beginning, l am interested in this lot. If you are not going to buy it, then I am. She should have given him the first opportunity to buy before she did. Everything has to be fully disclosed.

39
Q

The purpose of the Short Sale Addendum to the REPC is:
A: Acknowledge That This Transaction Is A Short Sale
B: Define The Role Of A Third Party In Short Sale Transactions And Define Third Party Approval
C: Specify Contract Deadlines Pursuant To Third Party Approval
D: All Of The Above

A

D: All Of The Above

40
Q

The document that defined what a “short sale” is actually is defined in:
A: The Short Sale Disclosure
B: The Short Sale Addendum
C: Both A & B
D: None Of The Above

A

C: Both A & B

41
Q

The Acknowledgment of Short Sale Addendum:
A: Must Be Approved By The Lenders (Third Parties)
B: Does Not Need Be Approved
C: None Of The Above
D: All Of The Above

A

A: Must Be Approved By The Lenders (Third Parties)

42
Q

Contract Deadlines are
A: Very Important And Must Be Followed At All Times
B: Depends On The Contract
C: Consult Your Broker About Deadlines
D: None Of The Above

A

A: Very Important And Must Be Followed At All Times

43
Q

short sale addendum no. to real estate purchase contract

A

This document is part of the contract and is
therefore agreed to by the Buyer and the Seller. The previous documents are simply disclosures that you as an agent are signing with your client.

44
Q

acknowledgement of short sale

A

This Addendum/Counteroffer must be approved by each of the lenders (Third
Parties).

45
Q

third party approval

A

The Third Parties, Seller, and Buyer have agreed in writing to the terms of the Short Sale and the Buyer and Seller have signed and accepted the Acknowledgement of Third Party
Approval Addendum.

46
Q

approval by third parties

A

Third Parties have provided written approval of the terms and conditions of the short sale. The third party modifications are not binding on Buyer and Seller unless they agree by signing the Acknowledgement of Third Party Approval Addendum.

47
Q

approval by the seller

A

Seller has entered into a separate written agreement with Third Parties regarding any conditions of approval specifically required of Seller by the Third Parties.

48
Q

approval by buyer

A

Buyer has agreed to any Third Party Modifications and any Additional Third Party Requirements that require specific approval by the Buyer.

49
Q

delivery of REPC to third parties

A

After acceptance of the REPC by the Buyer and Seller, the Seller agrees to submit the REPC to applicable Third Parties.

50
Q

failure to obtain third party approval

A

Seller and Buyer shall have until the Third Party Approval Deadline to obtain the Third Party Approval or the REPC shall automatically be deemed cancelled and the Earnest Money Deposit shall be released to the Buyer.

51
Q

earnest money deposit

A

Buyer agrees to deliver the Earnest Money Deposit to Buyer’s Brokerage either as required in the first paragraph of the REPC; no later than 4 calendar days after the Third
Party Approval; or another agreed upon date.

52
Q

seller’s right to accept back-up offers

A

Buyer agrees that at any time prior to the Third Party Approval, the Seller may continue to market the property; advertise the property on MLS; accept additional back up offers; and Seller nay or may not resubmit any Backup Contracts to the Third Parties tor review.

53
Q

buyer & seller’s right
to cancel REPC

A

Seller and the Buyer acknowledge that there will be significant time delays in obtaining the response from Third Parties. During the time delays, circumstances may change for the Buyer and the Seller including: adjustments in financing rates and terms; modification in financial circumstances for the Buyer and the Seller; the timing of the transaction may not meet the buyer or the Sellers needs; buyer may find another property; and seller may receive additional offers that better meet the sellers needs. If any time prior to Third Party Approval, or Third Party Deadline, the Buyer or the Seller may cancel the REPC by providing written notice to the other party. The Earnest Money Deposit shall be released to the Buyer without the requirement of further written authorization from the Seller.

54
Q

“bad loans”

A

Lenders do not want to give short sale approval and they are willing to take their time because they are then subject to regulatory scrutiny by government officials. Once the loan becomes a short sale it becomes a “bad loan”, and the lenders don’t to acknowledge the fact that they gave a “bad loan”. They want the property to stay on the market to see if it sells to avoid having a bad loan. because the lenders are not obligated to reduce their loan voluntarily, they are willing to take their time.

55
Q

commission sharing

A

Short sale agents typically hire unlicensed staff to help process the approvals and to communicate with lenders. Their salary cannot not be dependent on a closing of the short sale. The Division of Real Estate will look at that as commission sharing, which is not allowed.

56
Q

contract deadlines

A

This addendum modifies the deadlines in the REPC. This is the place to extend those
deadlines.

57
Q

Regarding short sales, when it comes to Third Party approval:
A: Verbal Approvals From Third Parties Are Not Valid
B: Third Party Approvals Can Take A Very Long Time To Obtain
C: If There Are Multiple Mortgages On The Property, Written Approval Is Required From All Lien Holders
D: All Of The Above

A

D: All Of The Above

58
Q

Short sale is ______ the same thing as foreclosure
A: Sometimes
B: Not
C: Exact Same Thing
D: None Of The Above

A

B: Not

59
Q

The homeowner is very much involved in a short sale
A: True
B: False
C: Depends On Their Agent
D: All Of The Above

A

A: True

60
Q

Short sales can take a period of four to nine months to close, sometimes even longer
A: True
B: False
C: None Of The Above
D: All Of The Above

A

A: True

61
Q

acknowledgement of third party approval: addendum no. to real estate purchase contract

A

Buyer and Seller acknowledgement comes into play after you get third party approval. The updated contract deadlines are spelled out within this document so there is no confusion on what the deadline are.

62
Q

If a Seller would like to accept a Back Up Offer on a Short Sale transaction, A real estate professional should use:
A: A Blank Addendum
B: The “Secondary Back Up Offer Contract For Short Sale” Form
C: Both
D: A Real Estate Professional Should Not Accept Back Up Offers On Short Sale Transactions

A

B: The “Secondary Back Up Offer Contract For Short Sale” Form

63
Q

A short sale can help the bank _____ money on the property
A: Decline
B: Save
C: Gain
D: Make Profit

A

B: Save

64
Q

A ______ with experience in short sales can make a huge difference, especially if you are the ______
A: Broker ; Buyer
B: Real Estate Agent ; Seller
C: None Of The Above
D: All Of The Above

A

B: Real Estate Agent ; Seller

65
Q

In a short sale, the buyer acknowledges that this property is marketed as a short sale and is subject to third party approval
A: True
B: False
C: All Of The Above
D: None Of The Above

A

A: True

66
Q

secondary “backup” contract for short sale: addendum no. to real estate purchase contract

A

Things could potentially tall apart within a contract even though the Buyer and the seller have agreed to everything, the bank might want a secondary offer taken, or sometimes a secondary buyer truly wants the property and wants to be considered if the first buyers deal falls through. This is for those potential buyers that choose to be in the secondary backup position on a short sale

67
Q

buyer acknowledges that:

A
  • This property is being marketed as a short sale and is subject to Third Party Approval.
  • Seller has previously accepted a purchase offer for the Property from another buyer.
  • Because the Seller and the Third Parties desire to minimize their losses under a short sale, the Seller has the right to accept additional Backup Contracts from other interested buyers.
  • Seller has submitted or will submit the Prior REPC to the applicable Third Parties for Third Party Approval
  • Seller may or may not submit the Backup Contract and any Additional Backup Contracts to the applicable Third Parties for Third Party Approval. If this REPC is submitted to Third Parties, the Seller agrees to provide Buyer with written notice within 4 days after submission to the Third Parties.
  • Seller (by mutual agreement with the Buyer) or Buyer (under any Additional Backup Contract) amend or modify the terms of the Prior REPC and/or any Additional Backup Contracts, in the event this REPC is submitted to the Third Party Approval, any modification of this REPC and this Addendum shall require written consent of the Buyer and the Seller.
68
Q

buyer and seller’s right to cancel

A

Any time prior to Third Party Approval Deadline or Third Party Approval, whichever comes first, the Buyer and Seller may cancel this REPC in accordance with the Short Sale Addendum. If Third Party Approval of this REPC is not obtained by the Third Party Approval Deadline, the REPC will automatically be deemed cancelled.

69
Q

A Short Sale transaction is officially “under contract” when:
A: The Buyer And Seller Have Both Signed The REPC And All Addenda To The REPC
B: When The Buyer And Seller Have Signed The REPC And All Addenda And When Third Party Approval Is Obtained
C: When The Buyer And Seller Have Signed The REPC And All Addenda And The Contract Has Been Delivered To Any And All Third Parties
D: None Of The Above

A

A: The Buyer And Seller Have Both Signed The REPC And All Addenda To The REPC

70
Q

According to the Short Sale Addendum to the REPC, if third party approval is not obtained by the agreed upon date:
A: The Parties Are Still “Under Contract”
B: The Contract Is Automatically Extended
C: The Contract Is Automatically Cancelled
D: None Of The Above

A

C: The Contract Is Automatically Cancelled

71
Q

According to the Short Sale Addendum to the REPC, the Seller has the right to accept back up offers:
A: Anytime Up Until The Transaction Closes
B: Anytime Up Until Third Party Approval
C: Only With The First Buyer’s Written Approval
D: None Of The Above

A

B: Anytime Up Until Third Party Approval

72
Q

According to the Short Sale Addendum to the REPC, Contract Deadlines:
A: Remain The Same As Stated In Section 24 Of The REPC
B: Are Modified Based On Days After Third Party Approval
C: Both A & B
D: Based On Modifications, Per The Buyer

A

B: Are Modified Based On Days After Third Party Approval

73
Q

According to the Short Sale Addendum to the REPC, Earnest Money:
A: Is Required To Be Delivered Within 4 Days Of Acceptance Of The REPC By Buyer And Seller
B: Is Required To Be Delivered Within 4 Calendar Days Of Third Party Approval
C: Should Be Handled Exactly As Agreed Upon By Buyer And Seller In Section 5
D: None Of The Above

A

C: Should Be Handled Exactly As Agreed Upon By Buyer And Seller In Section 5

74
Q

According to the Short Sale Addendum to the REPC, “Third Party Approval” occurs only when:
A: The REPC And All Addenda Are Approved By The Buyer
B: The REPC And All Addenda Are Approved By The Seller
C: The REPC And All Addenda Are Approved By Any And All Third Parties To The Contract
D: All Of The Above

A

D: All Of The Above

75
Q

According to the Short Sale Addendum to the REPC, Buyer and Seller can cancel the Short Sale contract
A: Anytime Up Until The Transaction Closes
B: Anytime Up Until Third Party Approval
C: Only With The First Buyer’s Written Approval
D: None Of The Above

A

B: Anytime Up Until Third Party Approval

76
Q

When it comes to Short Sale transactions:
A: Real Estate Agents Should Give Sound Legal Advice To Their Clients
B: Real Estate Agents Should Give Sound Tax Advice To Their Clients
C: Real Estate Agents Should Approve The Loans
D: None Of The Above

A

D: None Of The Above

77
Q

The Addendum to the Exclusive Right to Sell Agency Agreement for Short Sales Discloses to the Seller:
A: That The Seller Should Obtain Both Legal And Tax Advice From Qualified Legal And Tax Professionals
B: That The Property May Go Into Foreclosure If Any Or All Third Parties Do Not Approve The Short Sale
C: That The Seller May Not Receive Any Proceeds From The Sale Of Their Home At Closing
D: All Of The Above

A

D: All Of The Above

78
Q

The Disclosures an agent should use when assisting a Seller with a short sale transaction include:
A: The Short Sale Disclosure
B: The Short Sale Addendum To The REPC
C: The Addendum To The Exclusive Right To Sell Agency Agreement For Short Sales
D: All Of The Above

A

D: All Of The Above

Real Estate (52 decks)

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