It seems that the nightmare of short sales may never end in the real estate business. As if the transaction itself isn’t challenging enough, there are so many details and points of confusion associated with them. The most common misconception I hear in the classroom is: A Short Sale is not “under contract”.
This is incorrect. A Short Sale is nothing more than a contingency affecting a fully executed purchase contract. When the Buyer and Seller have both signed the contract (and counterproposal if applicable), that creates MEC (mutual execution of the contract), so you are “under contract”. The reason it’s confusing is because in the Short Sale Addendum, Section 8.3 (if applicable) gives either party the right to terminate the contract any time prior to lender acceptance, so it really doesn’t “feel like” you’re under contract. However, an executed contract exists, so MEC has occurred.
The lender’s approval of the terms of the contract is simply a contingency of the transaction. The lender is NOT the seller or the decision maker; the owner of record is the seller and decision maker. Brokers have a duty to present ANY AND ALL other offers that come in to the seller. The lender telling you they don’t want to see any other offers does NOT negate your duty to present offers to the seller, and if the seller wants to accept an offer in back-up position, or even terminate contract #1 to accept #2, that is the seller’s decision, NOT the lender’s.
Remember that MLS rules are entirely separate from contract law. MLS is club to which we subscribe, so we play by their rules. But occasionally you may run into a situation when a club rule (such as reflecting a short sale listing as U/C in MLS) must be broken at the direction of your seller. The MLS is not the law.
In all cases, please remember to advise the seller and/or buyer to consult their accountant and legal counsel. If you are not savvy in the nightmarish world of short sales, PLEASE get help. You can cause serious harm to both parties, especially the seller.