Buyers changes terms of the approved contract.. Now what?

I recently got a short sale approved with SunTrust.  I was feeling awesome.  Now after the buyer inspects the property and roof has a 2 year life per inspection, the buyers agent gives me an addendum to change conventional fiancing to FHA financing and wants the bank to put on a new roof. Any advice on how to handle this?? Please advise.  thanks,  Do you think the bank will approve this changes?  Or should I put the house back on the market.  The seller is very close to forclosur

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Ali,
I have not had any Suntrust "First" mortgages but have dealt primarily iwth B of A, Wells Fargo and EMC. Was the listing "As Is with Right to Inspect"? I have never had the seller's lender pay for any repairs. Perhaps the purchase price could be negotiated down due to the condition of the roof, but that's a tough one too. That said, if you have to put it back on the market, you'll probably have to adjust the list price down to account for the roof. My thoughts are that you will not have any success in getting the seller's lender to put any funds in to a repair. Anybody else?
Thank you Julie for your response. I am so frustrated. I feel like the buyers agent should have not put me in this position. She should have just got out of the contract or moved forward. They are getting a great deal on htis home regardless of it needing a roof in two years.
In my opinion, the buyers were not properly educated by their agent. What I have done with my short sale listings is have the buyers do their inspections and appraisal before the offer is submitted to the bank for approval. I prefer to send a clean short package with no contingencies. By submitting contingency-laden contracts, I feel the process is bogged down. Negotiators have enough trouble keeping track of the hundreds of files they work at any given time. I'm not going to complicate the process by sending them a contingency release here, another there. Keep it simple, make their lives easier, get your sale approved. I have only done 20 or so short sales, but I have gotten bank approval on every one of them.

I also have "short sale" instructions that spell out very clearly that we're looking for serious buyers who understand there is no money available for any repairs, and that the seller is a real person who will likely end up losing their home to foreclosure if the buyer is just "kicking tires" and not serious about buying. I ask for permission to update the buyer directly (email with buyer's agent cc'd) because I notice many agents don't know how to coach their clients in these types of transactions. Anyway, in order to get the buyer to "buy in" to doing inspections, etc. before bank approval is to have my seller escrow $1000. If the buyer does inspections and I can't get the sale approved, the buyer gets their money back. If they walk for a ridiculous reason, they're just out of the money spent for inspections, etc.

Something I started recently is having the buyer pre-occupy the property if my seller isn't living there. Buyers who already live in the house feel "at home" and are less likely to screw things up by walking away. The bank is happy because someone else is there taking care of the property, saving them money. Additionally, if the sale isn't approved, the bank has an occupant to evict, which can get expensive.

I doubt the bank will approve your changes. hWhen you're that far into the transaction and the buyer flakes, the negotiator is more likely to pull the plug. Your client is not obligated to agree to the buyer changing financing. I'd counsel my client on rejecting the change and putting the house back on the market. Even though the approval is on the contract you have in hand, I'd advertise it as an approved sale and I'd list the approval terms in the MLS. I would try to get a replacement contract BEFORE saying anything to the negotiator, unless you have a good relationship with that person.
The bank will not approve of repairs because they are not the seller. The seller most likely won't do it either.

This is what happens when listing agents and sellers accept inadequate or unacceptable purchase offers. Here are the "Purchase contract guidelines" that I require of all offers, to prevent these problems. If the buyers do not wish to adhere to these guidelines, their offer is immediately rejected. I did not just make up these rules because I was bored, this is hard won knowledge learned from closing hundreds of short sales.

This is a copy of the letter that goes out to all buyers agents:

Required Short Sale Offer Guidelines


In order to conform with new lender guidelines, and to ensure that our buyers are properly educated and committed to the Short Sale process, we have developed these purchase offer guidelines. The listing agent must require that buyer’s purchase offers conform to these guidelines, and reject offers that do not. These guidelines greatly increase the buyer’s likeliness of committing to the necessary steps to A Short Sale successfully closing.
When reviewing an offer, pay close attention to these sections:
Closing Date
This should read: “Closing within 30 days of lender acceptance, or xx/xx/2010” Use a date at least 90, and preferably 120 days from contract execution date. This is necessary for two reasons:

1. Short Sale approvals are usually only good for 30 days. If we do not demand a closing within this period, buyers tend to wait until approval to start their financing process. This is a mistake due to the fact that financing usually takes longer than 30 days to complete. We can apply to the lender for an extension of the approval, but it is not guaranteed, and can require further charges from the lender.
2. This requirement sends a signal to the buyers that this process can take a long time, and that they agree to commit to this contract for a time sufficient enough to make an honest attempt to obtain a Short Sale approval. If buyers are reluctant to agree to this timetable, they are telling you that they will not give the seller enough time to get an approval, and will likely end up terminating the contract before approval is obtained.

Ernest Money
The purpose of Ernest money is to commit the buyer to the property. Ernest money is always due upon seller acceptance, never lender acceptance. A buyer unwilling to give Ernest money is telling you that they are not committed to the deal. Avoid this buyer.

Inspection/Attorney Review
The inspection and Attorney review period should remain the standard 5/10 business days. The buyer must agree to inspect the property at their own expense within this period, and terminate the contract if they are not satisfied. By allowing buyers to do inspection or extend Attorney review to after lender acceptance, you give the buyer a chance to walk away at any time, while the seller must take the property off market.

As Is
This section must be initialed. The property is sold As-Is, and the buyers should not expect the seller to pay for any repairs. Most lenders will not allow for repair concessions on Short Sales.



Additional Provisions
This section must contain notice of the Short Sale Fee Agreement, as well as any Short Sale Addendums required.

Seller Credit
Per the Short Sale Fee Agreement, The credit must be 3%, payable to SSN. In the event that the buyers request a seller credit, it must be declined. A buyer that requires a seller credit is not qualified to make an offer on a Short Sale.

Short Sale Fee Agreement
This agreement is how SSN is paid. It is set up this way to be compliant to lender guidelines and RESPA. The agreement states that the buyer will be charged on RESPA a 3% negotiation fee by SSN. SSN will then obtain a corresponding 3% seller credit payable to the buyer. This credit washes out the fee to zero to the buyers. If the lender reduces the credit, the buyer is not responsible for paying the difference. If the seller is short to close, SSN uses part of this credit to cover these expenses. This agreement must be disclosed to the buyer’s lender for approval. This agreement is not negotiable. It must be signed by both buyer and seller for SSN to process and obtain a Short Sale approval.

Seller/Buyer Information and Signatures
This page of the contract must be filled out completely, with all sellers and buyers named, and all contact information present. Both buyers and sellers Attorney names and contact information is also required. All parties must execute all signatures and initials before SSN will submit offer to the lender.

Conclusion
Lenders are really cracking down on inadequate, incomplete, and bogus offers. According to Campbell Surveys, only 23% of Short Sales close nationwide, and buyer’s non performance is a major reason. By ensuring that buyers are properly educated as to what to expect and the timeframes involved, as well as being committed to the offer, closing percentages can be greatly increased.


Joseph C. Alfe
Founder
Short Sale Negotiators Inc.
www.ssnegotiators.com
Thanks Joseph,

This is awesome. I appreciate all of your responses and taking the time to give me your feedback.
You guys are crazy if you think buyers will agree to your process. Why would a buyer lock themselves in for 6+ months while you get the short sale approved? Also if the inspection is done when an offer is first accepted its not very valid anymore if the shortsale takes several months to be approved. Imagine if the buyer does the inspection and then 3 months later something major breaks. They aren't able to walk away. Only suckers would agree to your terms.
Conversely, why would you, as an agent, allow your seller to accept a contract where the buyers do not consummate the contract with earnest money, do not commit to the deal, and do not accept the fact that short sales can take a long time. Why would I want my seller to take a contract where the buyer can walk away at any time?

Short sales have special and extraordinary terms and conditions. It is only fair to disclose to potential buyers in the beginning, and to demand that they give the deal a chance to close within those terms. If they don't, then they are not qualified to make an offer on a short sale.
I did get an earnest money deposit from the buyers. The problem is that because because of the recent inspection, they want to change fianancing from conventional to FHA 203K, which is concerning to be b/c of the stricter appraisals and guidlines with an FHA loan.
I'm interested to know how this turned out. Especially since 203K's take a while to close (normally more than the usual 30 day closing time frame that approval letters provide).
Sun Trust is absolutely the worst bank to deal with. I am doing a short sale with them right now and they wont pay for anything. It was hard enough getting an approval after 6 months. I would put back on market and try to get a buyer to take as is. My only concern is that Sun Trust will take forever to approve the new buyer. If it was me I would try to convince buyer to take house,

I'd be interested to see how this turned out.   I realize that this took place in the past but I didn't see anyone address that the financing should have been originally a part of the contract and that this information was used as a component in the bank's consideration of the buyer's offer.  The buyer cannot change the loan terms without the seller agreeing to the change, as an amendment to the contract. 

 

Did it close?

tell them no.  The property was listed As-Is, as all short sales should, wasn't it?

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