Dear Peter,
Short sale--The bank has rejected my buyer's offer of $73K and said they wanted $90K based on the BPO results. The listing agent says there is no way she can get $90K for the property, and she has sent them her comps again. The bank disagrees with her. Meanwhile, they have NOT changed the list price of $79.9K. Therefore, we have countered at $80K, which is $100 ABOVE list price. Is a bank obligated to accept an offer that meets the list price?
Please help,
Stymied by Short Sales
Dear Stymied,
Don't think of it as a Short sale. Think of all home sales like this:
An owner/seller may sell their house for any price to anyone at anytime. The house belongs to the owner, and no one (not even their lender) can stop them from selling it at any price. If a seller has a loan outstanding, then that seller must "settle-up" with the lender at the closing table, so that the lender will release the security deed on the house (the security deed is what a seller gives a lender to 'show the world' that the lender has an interest in the property. If the security deed is not released, a seller may not convey a warranty deed because the title chain would be clouded and a buyer's lender would not go for that - but a cash buyer might).
When a seller owes more money on a house than the value of that house, they may sell that house at any price (just as any seller may), however, to get their lender to release the security deed, the upside-down seller has two options: 1) bring cash to the table for the difference owed and the amount collected in the sale or 2) have the lender "approve" the lesser payoff.
Most sellers opt for option 2). When this is the case, a purchase agreement between the buyer and seller is a binding, enforceable agreement with a 'lender price approval contingency'.
This contingency is not different than any other contingency.
In your case, the seller (having two options, and choosing option 2), has an agreement with the buyer to sell at a certain price, but the lender does not approve of that price and will not agree to a lesser payoff. Therefore, the lender price approval contingency will be exercised by the seller and the agreement will die on the closing date of the contract, unless one of two things happen: 1) the buyer and seller amend the agreement in a way that allows the seller to meet their contingency or 2) the seller brings the difference between payoff and sales price to the closing table.
The seller has an obligation to sell to your buyer at the price agreed upon, so long as the contingency is met, but it does not look as though the seller can meet that contingency. The lender is not part of the agreement between your buyer and the seller. This is why the lender does not have to "take your price".
The listing agent put a low price on the house to attract a buyer (and it obviously worked). Once an agreement between the buyer and seller is made, the seller goes to the lender to try and meet the contingency. If the seller is successful, the sale is made. If not (and the buyer does not wish to amend the agreement to the lender's price), the seller is back to the two options.
In a nutshell:
*The lender does not have the power to force a borrower/seller to sell at a particular price.
*The lender is not part of the negotiation between a buyer and seller.
*The lender is the lender. The seller is the seller. Always has been, always will be.
*The buyer has nothing to do with the seller's lender.
*The buyer and the seller have a contract.
*The seller and their lender have a contract.
*The buyer and the lender have no relationship at all.
In a long-winded way, my point is this:
The lender has no duty to your buyer and is not obligated to "take your price" because the offer price was offered by the seller, not their lender. Your buyer and the seller have an agreement with an unmet contingency. If your buyer does not like the price and/or terms the seller is now offering, then attempt to renegotiate or walk away.
NOTE: if the buyer and seller do not care about having the existing security deed released, then there is no need for lender approval.
