How to Back Out of a Short Sale

Real estate purchase contracts run many pages in length and contain numerous contingencies, all of which can legally lead to termination of the original agreement. In addition, a short sale addendum may be attached when buying a home under short sale terms, depending on your state. Backing out of a short sale, by the buyer or the seller, is possible, as control is in the hands of the original mortgage holder, not the seller. A non-responsive lender, reluctant seller, or hesitant buyer all can find a reason to terminate the original contract.

Revoke your contract in writing any time before approval by the short sale lender, based on the real estate rules of your state. Get proof of delivery of this notice to the seller’s agent, the lender and the lender’s attorney, if one exists. Get the seller’s signature on your withdrawal. Follow the same process if you're the buyer.

Invoke the attorney review period, usually five days after the seller signs your offer, if you’re a buyer and want to withdraw. Do the same if you’re a seller, as long as you can establish that the withdrawal has been done in “good faith.” Sign the agreement to withdraw, whether you’re a buyer or a seller, and get proof of delivery.

Submit a short sale addendum with your purchase contract, and include a time frame for the lender to approve of your offer, if you’re a buyer. Agree to a maximum of 45 days to hear back from the lender, or sooner if you don’t want to wait. Withdraw from the contract if no response from the lender is received.

Include an inspection contingency in your purchase contract, and in the addendum. Add your choice of the inspection time frame, starting either at the time the contract is executed, or after approval from the lender is received. Calculate the amount of work to be done as a result of the inspection and withdraw if neither the owner nor the lender agrees to negotiate repair costs.

Note the dates in your mortgage preapproval letter. Notify the seller’s lender that your preapproval ends as of a specific date. Withdraw from the contract if the lender hasn’t approved your purchase as of that date, citing the financing contingency paragraph of your purchase contract.

Opt to keep your property on the market during the approval period, knowing that you can submit additional offers during this time, if you're the seller. Terminate the existing contract to purchase if a stronger and higher-priced offer comes in during the approval period. Refuse to cooperate under these terms if you’re a buyer, and note your objection to these terms if they're outlined in the short sale addendum.