USE OF MULTIPLE CONTRACTS WITH SHORT SALE TRANSACTIONS
In today’s marketplace, should Sellers enter into multiple contracts for the sale of the same property? Multiple contracts present a myriad of problems for the Seller and everyone involved. There is a major misconception that a contract signed by both, a Buyer and a Seller, that is contingent upon Seller’s Lender approving the sale of the property is not a “contract” until the Seller’s Lender approves the contract. A contract that is signed by both parties and is contingent upon Seller’s Lender approving the contract is a contract that is binding upon both parties. The term “contract” should not be confused with an “offer”. Until Seller accepts an offer by signing, the document remains an offer and not a contract. If Seller receives offers from two (2) different Buyers and signs both offers containing short sale contingency clauses, Seller has just potentially obligated himself to sell the same property to two (2) different Buyers. If Seller’s Lender approves both contracts, or approves the subsequent contract rather than the initial contract, Seller has just possibly subjected himself to potential damages. Consequently, Seller may find that his realtor and/or attorney, if applicable, should have explained the pitfalls of entering into multiple contracts for the same property.
In addressing multiple contracts with short sale transactions, you have to ask yourself a couple questions. First, whether the Seller may continue to market the property and enter into “back-up” contracts. Under Paragraph 5 of the Florida Association of Realtors Short Sale Addendum SSA-2, the Seller can continue to market the property and accept offers and submit those offers to Seller’s Lender. Consequently, unless this paragraph is crossed out or revised by the Contract terms, the Seller may enter into “back-up” contracts. To avoid numerous contract pitfalls, the Seller should make sure that the contract is truly a “back-up” contract i.e. it contains “back-up” contract language which can be accomplished by using Clause P(1) from FLORIDA ASSOCIATION OF REALTORS’s Comprehensive Addendum FARA-10, being sure to complete the deadline on Line 7.
Second, in the event the contract allows the Seller to continue to market the property and enter into “back-up” contracts, when can the Seller submit the “back-up” contracts to the Lender for approval? Under Paragraph 5 of the SSA-2, Seller may submit other accepted offers to Seller’s Lender for approval. Consequently, neither the SSA-2 nor Clause P(1) prohibits the Seller from submitting the “back-up” contract to Seller’s Lender for approval. Likewise, the aforesaid documents do not address whether the initial Buyer can increase the purchase price to match the “back-up” contract in the event Seller’s Lender approves the “back-up” contract price.
In summary, Sellers should be careful in entering into multiple contracts for the sale of the same property and should contact a real estate attorney for proper guidance prior to signing the contract(s). Further, since most lenders do not want to look at multiple contracts, the Seller should refrain altogether from entering into multiple contracts. In fact, the Equator system used by Bank of America does not allow you to enter more than one contract for the same property.
Written and Posted by Julie A. Horstkamp, Esquire
Florida Board Certified Real Estate Attorney
Associate with Berlin Patten, PLLC. (941)954-9991.