Standard sale agreement forms, and Oregon’s are no exception, contain time periods and deadlines that run from acceptance of the contract by the buyer and seller. In a short sale situation, the sale is uncertain until the lender approves. Buyers are therefore going to be very reluctant to do inspections, pay loan fees and so on until they know the creditors have approved. It is for that reason that short sale form and addendums usually suspend contract time and performance deadlines until creditor approval is obtained. However, the closing date is excluded from thi ssuspension.
A problem that can arise when suspending all contractual deadlines is what to do about the seller’s property disclosure statute? (ORS 105.465-490). The statute requires the seller to make the disclosure “to a buyer who makes a written offer.” That would, of course, normally be the date upon which the parties reach mutual agreement to the sale contract, not the date the short sale contingency is released.
Attempts to move the statutory seller’s disclosure deadline by contractual agreement raise serious statutory issues. Although a buyer can waive the disclosure, and their revocation rights under it, it is not clear that parties can by contract suspend the statutory deadlines themselves. If the buyer is considered to have waived rights under the statute by agreeing to deadlines other than those imposed by statute, they would have no statutory rights at all. On the other hand, if no waiver of statutory rights is intended, then the buyer can revoke anytime prior to actually receiving the disclosure.
It is far from clear that agreeing in a contract that the seller will not provide the disclosure until some date after the date offer automatically suspends the buyer’s rights under the statute. Fortunately, there is no real reason to delay the disclosure. The condition of the property does not depend on whether the sale is a short sale or not. As with any sale, it is wisest to give the seller’s property disclose and start the revocation clock.
Among the most important of contractual deadlines is the payment of earnest money and the closing date. Buyers may be reluctant to tie up earnest money on a deal that needs lender approval. At the same time, the seller will want to know the buyer is serious before getting into the short sale approval process. One solution is some earnest money upon acceptance and more upon lender approval. The closing date can be handled by simply agreeing to close a certain number of days after creditor agreement is obtained.
Common Oregon short sale addendums make clear that, although other time and performance deadlines are suspended while waiting for lender approval, the contract closing date is excluded from such suspension. The closing date now terminates the contingency, if not satisfied or waived by that time by the lender. If the seller and buyer want the contract to continue, they must agree to a new closing date in writing. This change in how short sales are handled in Oregon came about due to lenders delaying the short sale process. Prior to 2008, buyers could find themselves stuck in limbo waiting for lenderâ€™s approval since short sale forms favored the seller.
If not using the standard OREF form, it is critical to the seller that the contingency be written so the deal automatically fails if the lender doesn’t approve. Otherwise, the seller could find themselves bound to convey title they cannot clear. You will see short sale contingencies that make this mistake by having an approval period that expires without spelling out the consequences of not obtaining lender approval. As with any contingency, it is often more important to spell out what will happen if the contingency is not met than it is to spell what happens if it is met.
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