What's a Short Sale Contingency?
Short sales are set up to ease a house sale once the mortgage balance is greater than the house is worth. Hence, the homeowner could owe more money to the bank than the house would yield. In a short sale, the bank must approve to forgive part of the debt into the initial homeowner in order to sell the house to the new approved buyer. Due to the approval procedure required, short sales have contingencies that must be met prior to entering escrow to close the sale of the house.
Contingency Definition
By definition, a contingency is something that is liable to occur if and only if other states are fulfilled first. In real estate, a buyer or seller can make the selling of the home depending upon various things. By way of example, a buyer may make an offer for a house determined by the sale of his home, in which case, should the purchaser’s home not market, he is not committed to going through with the purchase price of the new residence.
Financial Contingency
A fiscal contingency will be connected to protect the earnest money the buyer deposits to make the offer. This contingency states your offer stands so long since you are ready to find a lender who will finance the house and approve a mortgage for you. Cash buyers need not include this contingency; it applies only to people who rely on a mortgage for their own financing. Ideally, this contingency should last until the end of escrow (typically 30 days). Bear in mind that this contingency doesn’t protect the buyer from case she doesn’t have sufficient money on hand to close escrow.
Inspection Contingency
While most short sales are being marketed”as-is” and the seller will not make any repairs or enhancements irrespective of what the inspection finds, attaching a house inspection contingency may protect the buyer. In the event the inspection discovers there are excessive problems with the house (e.g., structural defects( pests) then the buyer can back out of the deal. Lenders may also not approve loans on homes that have severe harm. Even if only minor flaws are found, it is wise to have a full home inspection done prior to closing to understand what needs to be mended for the house in order to par.
Bank Approval Contingency
For small sales, a bank consent contingency should always be connected. The seller should submit a hardship letter along with ample financial records to establish an inability to pay for the mortgage in order for the bank to consent to take the loss and approve the short sale. In the event that this approval doesn’t occur, the buyer is released from any obligation to purchase. If the bank approves the short sale and the rest of the contingencies are met, then the residence will enter escrow.
Expiration Date Contingency
A buyer has the right to add an expiration date to his deal as a contingency, saying a deadline at which time the deal has to be either approved or declined. If the other contingencies aren’t fulfilled, and the bank has not approved the short sale, the buyer can rescind his deal with no penalty and get back his earnest money paid to make the offer. But, remember that short sales can generally require more than 6 months for approval; the decision to wait or cancel the deal once it expires is the buyer’s.