The Arizona Short Sale Addendum used by AAR promotes contract breach. Line 40 and 41 of the addendum state that the "Buyer may unilaterally cancel this Contract by notice to Seller at any time before receipt of a short sale Agreement Notice from Seller." The general perception by real estate agents is that means at any point until they open escrow a simple letter of email can effectively break the contract between buyer and seller. This one line is considered a free pass by many buyers and agents and they could not be more wrong.
Lets take an example. The buyer and seller enter into an agreement to purchase a house under short sale conditions. This offer is submitted to the sellerslien holder(s) and over time the sellerslien holder and the seller reach agreement and the buyers agent receives an Agreement Notice. At this point the buyers agent often indicates that they have 1. bought another house and by the way forgot to inform the listing agent the buyer is no longer interested or 2. no response from the buyers agent at all or 3. the buyers does not want to open escrow until later until after they have had time to look at the house again or maybe see if another deal might open up holding the seller as hostage. All three of these scenarios are counter to lines 26/27 which states the "Buyer shall promptly open Escrow and Deposit Earnest Money as described in the Contract upon receipt of Agreement Notice." If you have been doing short sales over the last several years these are common occurrences. I have several boxes of canceled contracts to prove it. So lets take a look at first one.
In this case the buyer has already purchased and no notice sent to the listing agent. Listing agent sends agreement notice. Buyers agent says sorry already purchased, we cancel. Is that a legal cancellation? Not according to the short sale addendum lines 41. Can we just tear up a contract? The response should be to Cure the buyer to open escrow. If the buyer does not respond and if after the inspection period (which started on the delivery of the Agreement Notice) would there not still be an executable contract if the seller does not want to cancel? I think so. What about a financing contingency if present? If the buyer does not try to get the financing stated in the contract that is also a breach. Given this, would the seller have the ability to take this contract to arbitration or additional legal actions to force the purchaser or to receive damages from the buyer? Scenarios 2 and 3 follow the same line of thought.
The short sale addendum should be changed to have buyers open escrow as soon as they have buyer and seller acceptance of terms. The escrow should be committed for a reasonable amount time, say 60 days and should the buyer cancel prior to the 60 days or receipt of the Agreement Notice, the money should be used to compensate the escrow company. At the agreement notice or after the 60 days with no agreement notice, the buyer could cancel the deal and get a refund of earnest money. The money could also be returned to the buyer if the seller executes his right to present a subsequent offer(s) to the lender. This woudl keep the buyer and buyers agent committed and encourage proper cancelation of the contract. Not a perfect world for either the buyer or the seller, but at least one with less ambiguity.