Does a purchase agreement expire after a certain length of time on a short sale?

Question

I have a purchase agreement with some homeowners in a short sale situation. There were 2 banks involved and the big national bank tried to foreclose but didn't know about the other local bank that was going to fight for primary interest. 18 months later they are trying to work together now to get something finalized. I have left my earnest money in this whole time and it has not gone into foreclosure. My RE agent just told me that the listing agent contacted him and said the contract was no longer valid and the only reason I am given is that is was "so long ago."

I live in Iowa but the contracts seem pretty standard. Does anyone have experience with something like this? I'm open to any input.

I live in Iowa but the contracts seem pretty standard.  Does anyone have experience with something like this?  I'm open to any input.

Dion DePaoli · Answer

As I understand it in most states, the coming and passing of a closing date specified in the contract is not grounds for an automatic cancellation or void of a RE contract unless explicitly written in the contract.  The event is a minor breach and the contract will still be enforceable until such time as one party puts the other party on notice, through written letter most of the time, that Time is of Essence and allows the states reasonable timeline to cure the breach.  
	
	In the situation with the OP, the contract is breached for lapse of time but not invalidated.  A simple extension executed by both parties cures that breach and the same contract and terms can be used to close the transaction.  
	
	I have been through this many times as a Mortgagee.  The Mortgagee will want a contract that is void of defects (breach) for their file.  So an extension can be accepted or if both parties agree, they can vacate the previous contract and file a new one.  This idea also feeds into a complaint by one party onto the other for Specific Performance on the contract.  A suit could be brought for specific performance on the contract that is expired if no language voids the contract for breach of date.

J Scott · Answer

In the states where I do business, the contract expires on the closing date, which can be whatever date is agreed to by both parties.  Of course, there could be another expiration date written in the special stipulations, but typically there is not.

If the expiration (closing) date is approaching and it's clear the deal isn't going to close on schedule (no bank approval is the most common reason), either party can allow the contract to expire or they can sign an extension.

Wayne Brooks · Answer

@Deon  Wynia

Someone's talking gibberish to you.  "turning over negotiations to the bank"  The bank has the right to approve, disapprove the short sale, or make a counter offer on price, in each and every short sale.  And "the big bank not knowing about another bank that was going to fight for primary interest"  sounds like bs too.

Xing Zhu · Answer

Mine did. I had to extend it a number of times. Seller's agent said this way was better.

Deon Wynia · Answer

I found out the seller signed over rights to negotiate to the bank and the bank is wanting fresh offers to move forward.  With the bank requiring this it is clear now what needs to happen to move forward.

Thanks everyone for your input.

@Dion DePaoli, it is good to see another Dion on BP.  We are a rare breed.

Wayne Brooks · Answer

Deon, I am sure this is addressed in your contract/short sale addendum with the seller.  Just read it. If it is expired, it's expired.  The banks "doing their normal thing" doesn't extend an expired contract.

David Krulac · Answer

@Deon  Wynia

Unless there is contract language that specifies something different, all contracts can be withdrawn before all the parties have agreed to the terms.  so since the bank has not approved the contract yet, the contract can be withdrawn without penalty.

A freind of mine had a contract on a bank owned house, they were asking $120,000.  The house had foundation damage as one of the basement wall was caving in and the house had severe mold damage.  The listing broker put a sign on the property that nobody should enter the property.  My friend offered $110,000 cash settle in 2 weeks.   Nine months later the bank had not responded yet, and my friend withdrew his offer and bought another house.

Dion DePaoli · Answer

@Deon  Wynia It is nice to see another Dion/Deon running around BP!
	
	As for your last post, I would read the contract you have and around the place where a closing date is placed in contract look for specific language which states time is of essence and remedy to breach.  Like with our Short Sale Contracts (as a Mortgagee/Bank) our contracts prevailed until such time as notice was delivered with reasonable time to act, like 7 to 10 days.  There might also be adjournment language around the clear title section of the contract which provides for the date of closing to bumped until title is clear.  
	
	The point is, delays are not unusual in short sales and the servicer and mortgagee typically do not have contract language which puts them at risk of entering and losing a contract for lack of performance unless they desire for that to happen.  The short sale addendums from the servicer may contain over riding language to the contract so ensure you review all of it.

Dion DePaoli · Answer

@J  Scott as I understand it, that language does not always create a date where performance is required and lack of performance is a canceling event.  If the date is "of essence", the lack of action creates a breach of contract but most contracts do not provide for a remedy for breach.  So what our attorneys have always had us do, mind you this is both general counsel and counsel to our mortgage servicers who administer our REO, that we send out a separate notice which restates Time is of Essence gives a reasonable time to cure and specifies the action that will occur if the action is not completed.   
	
	I know some of what we have done is preemptive steps in the event we may need to interplead a contract for escrow deposit.  However, I think in most RE contacts that even though Time is of Essence is found it does not have language which gives a right to rescind the contract specifically to either party.  And that is why you need the notice.

Deon Wynia · Answer

It was the understanding of all involved up to this point that the contract was still valid even though so much time had passed and there was no extension because the banks were going through their regular processes in approving the short sale.  I think the other agent may have gotten another offer on the property in the meantime.  I have asked my broker and he is having a difficult time finding out.  May have to take it to my lawyer.

Thanks everyone for your input.  I have found it helpful.

Does a purchase agreement expire after a certain length of time on a short sale?

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