No New 21- Day Turnaround Requirement for Short Sales Approvals

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According to the California Association of Realtor’s legal team, the recently enacted Senate Bill 306 does NOT require a 21-day turnaround for short sale approval. The new law, according to CAR, requires that the “pay-off demand” be provided within 21 days from short sale approval.

That is different from what I reported in last Friday’s Home $$’s and Sense column. I reported that the new turnaround time is 21 days! I attribute it to wishful thinking.

Under the new law lenders are now required to contact certain borrowers to explore alternatives to foreclosure. The contact must be made at least 30 days before filing a notice of default.

There are other technical changes. The full text of Senate Bill 306 can be read at http://www.leginfo.ca.gov.

Dear Sue,

I was in escrow on a beautiful home that was located right in the middle of the North Auburn fire. Even though the house made it through the fire without being damaged I came very close to not purchasing it because I couldn’t see myself driving through all of that devastation and destruction every single day.

My Realtor supported me in whatever decision I made. She did say that if I decided to close the escrow I would eventually end up living in a brand new neighborhood but the ultimate reason for my choosing to close the escrow was my love for the property. I wanted to make it my home.

My brother later told me that if I chose not to buy the house that the seller could have sued me to perform. I was under the impression that I didn’t have to buy it because of the fire. Who is right?

Curious Bob

Dear Bob,

I checked with the CAR legal department. California’s recent firestorms have made this a very hot topic. No pun intended!

Q 1. May a buyer get out of a purchase contract under the Uniform Act if the damage or loss caused by fires to the property is minor?

A Probably not. The Uniform Act implies that the seller may still enforce the contract if the damage is not material. However, a purchase agreement may require the seller to repair such damage. For example, Paragraph 7A of C.A.R.'s Residential Purchase Agreement requires the property to be maintained in substantially the same condition it was in on the date of acceptance. Under this language, a seller could be obligated to repair fire-related damage to his or her property.

Q 2. May a buyer get out of a purchase contract under the Uniform Act if the damage or loss caused by fires to the property is major?

A Yes. To repeat, if (1) neither legal title nor possession has transferred from the seller to the buyer, and all or a material part of the real property is destroyed by fire, and (2) no express contract provision to the contrary exists, then, under the Uniform Act the seller cannot enforce the purchase contract and the buyer may cancel and recover any portion of the purchase price already paid. (Cal. Civ. Code § 1662.)

Q 3. If the damage is not severe, does the timing of the fires (whether they occur before or after an inspection) affect the right to cancel?

A Yes. If the damage occurs before the buyer has removed an inspection contingency in his or her purchase contract, the buyer can, of course, exercise any inspection, disapproval, and cancellation rights provided by the contract.

If the damage occurs after the buyer has removed his or her inspection contingency, the buyer generally does not have an automatic right to re-inspect the property and approve or disapprove of its condition under most purchase contracts (including C.A.R.'s Residential Purchase Agreement). However, the seller may be obligated to repair the property. See Question 1.

A purchase agreement may, however, require a seller to disclose fire-related information, which in turn may give a buyer a right to cancel a transaction, even if he or she has already removed contingencies. For example, Paragraphs 5A(3) and (4) of C.A.R.'s Residential Purchase Agreement provide that if, prior to the close of escrow, the seller becomes aware of adverse conditions materially affecting the property, the seller must provide a subsequent or amended disclosure or notice, which then gives the buyer a right to cancel the agreement.

I hope this helps. My recommendation is to ALWAYS seek legal advice. It could be a matter of Good Home $$’s and Sense.