Q&A: Can I back out of doing a short sale?

Q: I signed a memorandum of contract to short sell my home. A buyer has submitted a contract, but I don't think the bank has approved the offer. As the seller, can I change my mind? The guy who wants to purchase the house in the short sale has been trying to find a buyer for my property for the past seven months. He just found one, but now I'm having second thoughts about selling and leaving my home. Am I obligated to sell the house because I signed the contract?

A: In general, you probably are obligated to sell the home to the buyer if you signed a contract and the contract does not give you the right to cancel the transaction.

Short sales are notoriously difficult. Once you have spent the time and effort of marketing the home for sale, found a buyer and negotiated the purchase and sale agreement (or memorandum of contract or other document between you and the buyer), you then must get the short sale lender to approve the sale.

In your situation, you're the short seller and your lender is the short sale lender. A short seller is a seller whose loan is more than the home is worth, and so he or she is short the funds needed to pay off the lender in full.

The short seller must come to the closing with enough cash to pay off the lender in full or get the lender to accept less than the full amount owed in order to get the home sold and closed.

Take a look at your contract for sale. Some short sale contracts specifically state that if the short sale lender does not approve the sale within a specific time period, the contact can be cancelled by either party or is automatically cancelled unless the parties extend the term. If you review the contract and find this or similar language, you will know whether you can walk from the deal or not.

One interesting bit of information in your letter is that your buyer is buying your home in order to resell it. That's interesting because more lenders view that kind of quick resale as unfair to them. The short sale lender wants to get the most possible out of the property. In reviewing the documents that you present, your lender assesses whether your buyer is paying a reasonable amount for the home. The lender usually takes the position that if another buyer out there is willing to pay more and offers to pay more, the lender should be entitled to that money.

Some lenders are going so far as to have title companies or buyers agree that there can be no sale of the home for a certain period of time after the closing of the short sale. They want to prevent the flip of the property to a different buyer.

Some real estate professionals are now calling these resales "flops" (as opposed to the "flips" of the boom years in real estate). Well, lenders are not taking kindly to flops and are looking to prevent them. You may find that even if you can't cancel the deal with the buyer, the deal might fall through as a result of the other buyer that is coming into view in your sale.

Ilyce R. Glink's latest book is "Buy, Close, Move In!" Distributed by Tribune Media Services, Inc.

Need some real estate advice? E-mail realestate@newsday.com.

CHECK: See LI's best mortgage rates
LISTINGS:LI homes for sale and open houses
PHOTOS: Rich cribs on Long Island
TIPS: Buying tips | Selling tips | Home financing 101 | Foreclosures