SHORT SALE BUYER DEPOSITS: BEWARE OF YOUR ESCROW CHOICE

January 27th, 2012 at 6:47 pm

As we have said before, the world of short sales in an ever evolving one, with people coming up with changes as quickly as properties are sold. One of the things we have seen in many recent short sales is the listing agent asking the buyer to open escrow and make her deposit at the time of contract acceptance, not bank approval. Apparently, short sale agents are tired of buyers submitting acceptable contracts and then bailing on the deal before the bank responds is received. Of course, from the seller’s perspective, a cancelled deal wastes a lot of time and effort. As a result, the listing agent asks the buyer to make a deposit up front, hoping that by doing so, he will tie the buyer to the property in a more concrete way.

Unfortunately, this practice has created a formerly unseen problem for our short sale buyers. As you know, many short sale sellers are totally disengaged from the transaction. They are not going to receive any money at close of escrow and, frankly, don’t really cares what happens in the deal. As a result, when the buyer properly cancels the deal, the seller is nowhere to be found and/or will not sign the cancellation instructions. Of course, in that circumstance, most escrow companies will not return the buyer’s deposit.
So how do we protect our buyers in this case? The answer, most commonly, lies in the escrow company’s General Provisions. In those provisions, some escrow companies provide methods by which the deal can be cancelled without mutual instructions. For example, in Pickford Escrow’s General Provisions, the parties agree that, if one of them tries to cancel, Pickford is to send a cancellation notice to the other party. If Pickford gets no response from that party, they are specifically authorized to perform the original request and cancel the escrow. In other words, in such a situation, your client’s money would be returned to her.

So please remember, the choice of escrow is not a throw away. Escrow companies are different in many ways and you need to understand those differences before you agree to one company or another. Your buyer’s ability to cancel when the seller has disappeared may be very important to them, and you should know what their rights are before picking escrow. So review the General Provisions, or choose a company whose provisions provide you with the protection you need. In any case, think about the choice and don’t give up on it for a small concession on the other side. After all, escrow holds the money and the company doing so should be very important to both you and your client.

Of course, let us know if you have any questions.

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