Real Estate Blog - Does "Short Sale" have to be disclosed?

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Does "Short Sale" have to be disclosed?

call me 407-873-2747 “There is no state or federal law that requires a seller to provide any disclosure forms for a short sale.” This is from one of the attorneys for out Florida Association of Realtors.

I wonder how he reconciles that statement with this:

A Seller of a residential property, whether a bank or an individual and regardless of whether the seller occupied the property, is obligated under Florida law to disclose to a buyer all known facts that materially affect the value of the property which are not readily observable and are not known to the buyer. The disclosure obligation can be fulfilled via either a verbal or written disclosure.

Now I know for a fact that a property’s value is affected negatively if a “short sale” is required in order to be sold. And this is certainly NOT observable.

So what gives?

Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 04/19/2009 06:04 AM

Comments (171)

short sale, opinion

Originally posted at: Central Florida Short Sales: Does "Short Sale" have to be disclosed?

171 Comments on Does "Short Sale" have to be disclosed?

APR

Reserved Parking For "The Lovely Wife"...TLW...ROAR!

Hun...

Here's your the sign. La La La :)

P.S. Sorry, I did look but I couldn't find the song. I got tired of looking for it :)

TLW...ROAR!

In our mls you either have to check yes or no for a short sale. It is a good thing to know. I hate them myself.

Wow, that was an interesting statement by your attorney. I am shocked. I am thinking he is not representing you all very well.

BB - Out her in CA, a short sale has to be disclosed. However, I am aware of several listings where the listing agent specifically did not disclose that it was a short sale because of the negative perception for short sales around here.

Yes, it is a clear violation of both the MLS and the DRE but only if the listing agent/seller get caught. To get caught someone would have to reprot them. I don't know what it's like in Florida, but around here, many Realtors won't report other Realtors.

Personally, I'm so sick of the lack of disclosure by listing agents that me and my clients are constantly subjected to. In my nearly eight years in the mortgage biz, I have never reported or filed a complaint against a Realtor. However, having said that though, I am nearing the end of my patience and tolerance for this kind unethical and dishonest behavior from Realtors around here.

I'm confused. No state or federal requirement to provide any disclosure "forms" vs. state law that dictates disclosure of "all know facts that materially affect the value"...what forms are they talking about? Disclosure of a material fact such as a short sale is a material fact- is the mls entry the "form" they're referencing when the lawyer said, "forms"? How annoying to even make it a question mark.

Bryant- This is an ongoing dispute amongst attorney over this question. While one attorney may argue a short sale adversly affects the property value another attorney will say that the realtor may not disclose private information about the sellers' finances. It depends on which side of the court room you are on. Until there is some legal case law surrounding this particular subject is remains subjective.

Russ- MLS and state law are two different things. The MLS can make its own rules because it is a private company however, their rules are not state law.

Our association went around and around on this issue a while back. Several attornies chimed in with opinions. Basically all material facts affecting value are required to be disclosed no later than the time a buyer signs a contract with the seller. At the time the seller signs the contract in pretty much every instance, they would be made aware by virtue of the necessary contract addendum that the property is either bank owned or a short sale.

Several Realtors argued that this disclosure should be given at the time a property is actually listed and not just at the time of contract. Which ideally this should be the case, but apparently is not the requirement under the law.

If it was a short sale and the seller or their broker knew about it but didn't disclose this until after a contract was signed and moving forward, the seller and their broker could potentially be liable for damages to the the buyer.

Our multiple listing service requires disclosure of the requirement for third party approval. This should be the minimum disclosure for short sales.

Many short sale listings are based on the pure imagination of the listing agents. A high percentage are a waste if time.

I read the attorney's statement,

"is obligated under Florida law to disclose to a buyer all known facts that materially affect the value of the property which are not readily observable and are not known to the buyer."

as requiring disclosure. The short sale contingency is not readily observable, materially affects the value of the property and are not known to the buyer unless disclosed.

I believe that the listing broker has a duty to disclose it in the listing.

While I do not believe that the seller's motivation for selling is "material" or of any interest to a buyer (although they always ask), short sale is not motivation, it's a contingency for third party approval and materially changes the "price, terms and conditions" for obtaining (buying) an accepted contract and purchasing the property.

Anyone who has ever read the ADDEMDUM THIRD PARTY APPROVAL CONTINGENCY TO CONTRACT APPROVAL understands that the short sale status of the listing is information that prospective home buyers should have when selecting a home to buy.

SHORT SALE status of a listing does not preclude sale. Many of our buyers, once they understand the nature of the short sale, specifically include them in the homes to consider.

However, a relocating family, living in short term corporate housing with very high monthly rental costs, children to enroll in public school with geographic boundaries, etc., may not be able to complete the purchase of a short sale and should have that information available when considering homes to purchase.

By withholding the short sale status of a listing, the listing agent may be causing significant money damages to the buyer who, once they have an accepted contract with the owner/seller is going to receive the ADDENDUM FOR THIRD PARTY APPROVAL with no advice as to the time involved for this approval.

Mortgage interest rates are sensitive to forces out of the control of the buyer and many will desire a 30-60 day closing to protect a quoted interest rate. With short sales, the buyer is unable to lock an interest rate and may incur significant money damages if rates rise while waiting for THIRD PARTY APPROVAL.

DATE OF SETTLEMENT: is a paragraph included in a Contract of Sale. With short sales, the buyer has no assurance that the THIRD PARTY APPROVAL will be received by the date needed and no information about CONDITIONS for the THIRD PARTY APPROVAL.

These and many other reasons require that the short sale status of the listing be disclosed.

This Attorney should have his facts checked. Full Disclosure of any kind is required.

BB - hmm, he must be pretty knowledgeable to be commenting on 50 state laws regarding short sales. I am impressed. Although he does say "...provide disclosure forms..."

Jeff

Manhattan New York are start to see some Short Sales coming its way, and I am happy to say that myself and my team handles them. Now, I am unclear if New York State require us to disclose if it is a short sale or not, but clearly because of the timeframe we do tell the buyers who are interested in advance that this is a short sale before they put in an offer!

By agreement the Agent is required to treat their client/customer fairly. If distress to the owner is known, then it must be disclosed to your client (signed agreement).

The NAR Code of Ethics requires the agent to disclose known discrepancies regarding the property

I would vote for the attorney being a bozo...

Hmmm..... interesting. Our board finally added a data field for disclosure of short sales and REOs which was well received. I can understand what the attorney is saying but can only see this becoming an issue when a seller refuses to disclose this information and not have it readily be known. Which is really stupid because it would only get in the way of a succesful sale.

Bryant,

I think you'd have a hard time proving there is "known facts that materially affect the value of the property which are not readily observable and are not known to the buyer" with regards to the property in a short sale!

A short sale doesn't lower the property value of the subject, but it does lower the value of all the comparable houses.

A short sale affects the sellers bargaining position, just like a vacant house or letting the buyer know you must have a quick sale, to move or because they can't afford the house, or maybe because of a pending divorce. None of these personal problems are reverent to the value of the house, but if known they limit what you can accept for it. Unlike most seller personal problems a short sale requires third party approval to close so it must be disclose, as a contingency.

The question shows the remaining confusion regarding short sales! The need for a short sale is a personal problem. a cracked slap under the carpet is a problem with the house. If the seller pre-negotiated a settlement with the bank they could close with out disclosure, most HUD-1's don't show the sellers pay off or proceeds on the buyer's copy.

Think about it, when was the last time you disclosed to a buyer that the seller only owed $10,000.00 on his mortgage?

Bill

APR

Hi BB... being a Short Sale specialist, my question is how could any agent, anywhere, get away with not disclosing a short sale... regardless of whether it is legally required or not? It will become terribly apparent to the buyer and his/her agent, almost instantly, if the acceptance of the offer requires a lender's approval to proceed since this will likely take a very long period of time. And without disclosure of this fact, most buyers (and their agents) would get fed up with why there was no final acceptance and walk away.

Bryant- Many of the comments here go back to the MLS, which is not the issue. The MLS does not make LAW.

Also, each state will have different laws to abide by.

I would like to see some case law in which it is stated that selling a house short of a full mortgage payoff is a

"known facts that materially affect the value of the property which are not readily observable and are not known to the buyer"

Lenn- In Maryland an attorney stated at a board of Realtors(R) meeting there that a listing agent has the duty to keep the short sale confidential. This is really no one's business except for the seller and his mortgage company according to this board attorney. He also stated that the listing agent in Maryland has a fiduciary duty to his seller to protect his seller from people low balling him because of a short sale and that the seller could sue the agent for said disclosure when it is not in the attorney's opinion a material defect. There are many instances wherein the seller brings the cash to closing on a short sale and the lender for the seller agrees to take like just a few thousand less at the table. That is none of the buyer's business and does not affect the value of the home but technically it is still a short sale.

Steve, I agree in that the short sale lenders take too long and buyers walk. But that is not the concern of a sellers agent. That is the biz of the buyers agent. You said, " regardless whether it is legally required or not?" If it is NOT legally required than you have a duty to protect your client.

In the Florida Statutes under the transaction brokerage notice it states:

6. Limited confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or of any other information requested by a party to remain confidential; and

Of the motivation of any party for selling... to remain confidential...

Can that be interpreted like the attorney in Maryland is suggesting?

Now if you are acting in the capacity of a seller's single agency than confidentiality is the most important thing:

"Must conceal anything about the Seller that would help the Buyer gain an advantage, such as impending foreclosure, need to move in a hurry, need to sell to settle divorce, etc." ( from real estate class)

This is exactly what the attorney in Maryland's board was saying as well. Now what is interesting is that in Florida a foreclosure filing is a matter of public record. Any buyer could find that out about the seller so does that make it OK?

What we do is get permission in writing to disclose the short sale from the seller.

Bill, I think you just contradicted yourself. You said:

"A short sale doesn't lower the property value of the subject, but it does lower the value of all the comparable houses."

If "it does lower the value of all the comparable houses", why is that? The answer is that the short sale will sell for less; therefore the fact that it is a short sale must have affected the property value.

John

It's now a mandatory entry in our MLS to state short sale or not.

BB and ALL...

How can it possibly be ethical to unilaterally offer compensation when you don't know if a seller can deliver title? How can you waste peoples time, gasoline, inspection money, etc, without letting them know that there is a chance the deal won't happen?

I believe that a short sale should be a required disclosure in any offer of compensation to cooperating brokers. If a seller doesn't want to disclose, fine, let them keep the properties off of the MLS.

Bryant, Is this a situation where no case law has been settled yet in the Florida courts for a precedent to be set? Until then, you can always find someone who will interpret the statement any way you want. Rich

Ah yes...if there were only one legal opinion there would be one lawyer...if nothing else, from an ethics and disclosure standpoint a listing agent would/should want to tell a prospective buyer that this will likely not close in 30 days and any other conditions that the listing agent would wisely put on the sale...ie no home sale, etc.....

Bryant...whether required by law or not , if your client is the seller and the payoff is more than the agreed upon price, the buyer will seek specific performance if the seller says they can't comply with the sale in the end, due to lack of funds. So it is far better to protect "your" seller by including the required bank acceptance language to allow a sellers out (if the bank wouldn't work with you on the short sale). All other concerns become secondary to protecting the seller (if you are the sellers agent).

John,

Which came first the chicken or the egg?

You've got me it is circular logic.

So what? The value of a property is based on it's condition compared to the local market, not the consequences of title, the physical condition of the house not the fiscal condition of the owners!

"Short Sales" as compared to a "release of collateral" by the bank imply a waiver of the remaining debt* so there is no incentive for the seller to hold out for every dollar, and the banks tolerate this because the alternative is considerably more expense. None of this is a defect in the house!

* "Short sale" is not a legal term no implied understanding has any binding affect, you must get all the conditions defined in any agreement with the bank!

If a "short sale" listing is priced under market it is to provied insentive to the buyer not because of defects.

Bill

Makes sense o disclose short sale. Buyers need to know that when the seller signs the contract there are still hurdles (obstacles) to overcome. Good point.

Absolutely. In VA there are forms that must be completed both as a listing agent and as a buyer when working with a short sale. Lenn explained all of the reasons in great detail.

This debate reminds me of the few times when we get to a couple of days before settlement and I get a call from the title company with "Lenn, this can't settle next week because the sellers are in foreclosre".

Listing agent didn't disclose.

HA! Listing agent often didn't even know because they didn't ask.

Perhaps listing agents can just list potential short sales without knowing.

Many have stated that they don't want to embarrass the seller by asking if they're current with their mortgage payments.

The message? Due dilligence has no place in real estate brokerage.

Hi guys, I did some more research and found this power point presentation that shows who when and how to dislcose.

I can't find any case law. I'll have to dig a little further.

I'll be back!!

Our MLS made a ruling last year; that the agent must disclose. Of course the search field is not 'mandatory'; so it makes it unhelpful for searching for (or not) short sales.

Bill, Are you saying that "short sale" does not affect value? "Short Sale" affects value because of the uncertainty and the time involved. It ios far from being a normal sale and is a material fact that needs to eb disclosed.

In fact the very first question on the Florida Property Disclosure Statement ask:

Hi Bryant, I can't weigh in on the legalities involved but it seems to me that this would be an excellent time for our association ( or at least our local boards ) to step up and take a stand on this issue. Waiting ( doing nothing ) probably ensures someone gets sued.

I don't see how or why you could not or would not disclose this material fact that will surley affect the value of the property.

I think FAR may want to look into getting a second opinion on this.

Some attorneys (and I mean no disrespect to the legal profession) will argue things that others believe illogical. Clearly, it would be illogical not to disclose that the property being sold is a short sale.

Bryant - I read the article and was incensed. I wrote to the FAR Early Bird News editor on Friday challenging the truth of that statement. It is NOT true. The "seller" in Florida - still owns the property and must disclose any known defects that are not readily observable to the buyer. I asked the FAR news editor to print another article addressing that. In addition, the statements about submitting multiple offers were questionable, in my opinion. Thanks for bringing this up.

Our MLS is only concerned with the commission aspect, it seems. They recently suggested we add language to the realtor only remarks sections, stating the commission may be variable depending on lender approval.

I think they should disclose this because its a god way to piss everyone off if you don't.

Bryant, this is an area outside my expertise. Nonetheless, ethics are not. Doing the right thing should never be that complicated (and I would rather YELL that out loud). I sincerely do not think that short sale affect value. 1 house can not do that. The market does that. A plethora of short sales does however. The potential for a cloud on title I think is significantly increased by these situations. If I were a buyer, I would want to know. So once again, it seems material to disclose.

Bryant - I interpreted the statement as it relates to property disclosure (physical mostly although not always) and wasn't thinking it was referring to the fact that is was a "short". If it is a "short" and the seller is paying out of pocket to cover, no big deal. But third party approval, which most short sales need, how could you even avoid that disclosure? We must disclose short sale in the Emerald Coast Association of Realtors MLS.

I'd say this is really two questions bundled into one, which are:

Does the buyer deserve to be informed that the sale is subject to third party approval?

Does the seller need to disclose material facts, one of which includes the notion that it's a short sale?

In CA, sellers sign a listing agreement, coupled with a short sale listing addendum. Buyers sign a purchase agreement which (should) include a short sale addendum. MLS rules, which as Katerina points out, are different from state law, but those regulations say the status should be disclosed.

We also must disclose all material facts to the buyer. It appears that sellers in Florida are also required to disclose material facts. Believe it or not, some states don't require this disclosure. So, it confuses me as to how a lawyer for your state assocation can say sellers are exempt from disclosure on a short sale.

Thank you everybody for the tremendous input of information. I'm learning.. .short sales is definitely is a hot topic.

Unless I'm missing it, we do not have to disclose the listing as a short sale in the listing agreement or the sales contract, but our MLS does require that we disclose that information on the MLS that a short sale is required to sell.

Now the interesting thing is, 2 or 3 years ago when someone was in foreclosure and the homeowner still had equity there was no disclosure required, and our MLS requirements are new within the last year.

As Mark McKenzie mentioned before, why wouldn't you want to disclose?!

I'll tell you what though, the jig would be up either way... when it took 10 weeks for the seller to okay the offer, lol!

Oklahoma law is similar. The shade of gray is when a seller is on the verge of the possibility, tells a Realtor to list it for payoff, but is stressed to the point maybe stopping payments that are made up to that time. I always like to use the word we keep hearing now in all forms of commerce, transparency, when helping others making these types of decisions.

Bryant,

In an age when we question the meaning of "is" maybe the miss use of the term "value" is to be excepted! If you'd replace 'value" with price we wouldn't be having this conversation.

Any title flaw and selling short is a title flaw until the bank agrees to settle can affect price. I did say short sales have to be disclosed if they require third party approval, just like any other third party approval! Time also has to be considered! Time has value and anything delaying closing or possession after closing will cost one side or the other. None of wich is a flaw in the property! None of wich changes the value! A sales price may be lower than value, but if the appraisers do their job it seldom exceeds value!

Bill

It is a field in our MLS and we are required to answer it, although there is a very interesting discussion taking place here. I can see both side but the pespective from the attorney in Maryland is particularly compelling. I just took the Certified Distressed Property Expert class and received the designation, and at the very beginning it says we are to have the seller clients sign a hold harmless agreement. I suspect this is why.

Full disclosure of any and all facts is always the best.

Read your post and all of the comments and I can't for the life of me figure out the purpose of the question? Who cares if you disclose to the buyer if it's a short sale or not? Your question is pretty much moot.

The reason the attorney says there is no need for disclosure is that the short sale doesn't materially affect the BUYER. The Buyer is who you are speaking of here and the buyer is going to be getting a great deal on a home with clear and marketable title.

Disclose it? Who cares, go on...what's it take ? A Sentence! BFD! Why is this even a discussion?

Why would they care if the homeowner is in foreclosure or simply dumping the home at a great price. If the agent representing the buyer is doing his or her job and has a clue as to what they are doing, the Buyer is going to make out well in a short sale transaction.

When the agents we work with show foreclosures, whether they be REO's or short sales..that IS the reason the home is being shown to begin with.

I don't get the purpose of the question nor the comments. Especially by those who aren't actually doing short sales anyway.

Hey BB..you know we are the goods in regards to short sales and you know we will help you out with any of your short sale deals..but c'mon....was this post mean't just to stir it up and get featured?

Geez....well it did do some good by exposing that which those of us actually in the game and killing it already know.

Christianne makes a very good point - as listing agents in order to protect yourself you must fully disclose to the seller about the implications of disclosure of the short sale and they must sign the hold harmless agreement along with other disclosures. We have about 8 pages of disclosures that our attorney has set up for us.

There are 2 sides going on here- the listing agent side and the buyer agent side. They each have a different perspective. And so will their perspective attorneys.

Lenn- You are right, the listing agents who do not know what they are doing and don't even check something as simple as online court records to see if their client is in foreclosure is incompetant. We of course, disclose the short sale after the signing of many disclosures and holding us harmless from our sellers.

When I argue that the listing agent does not need to disclose the short sale, it is from a legal interpretation of attorneys that work in behalf of sellers.

This is not a question of what is ethical, moral or anything brought up in this post. The question was one of a legal perspective.

Richard- I am playing the devil's advocate to your comment- don't think that this is really how I feel- but from a legal perspective why should a listing agent care or be held to regard the time that you spend in your car driving clients around, buying gas, etc? Legally, the real estate agent for the seller could be a non member of NAR and therefore not held to any ethics within the agent to agent relationship and therefore would only be held to law that says that they must protect their seller client.

Bryant- I think the legal answer to this question after researching this all night is:

The listing agent must not disclose any thing that may cause an offer to come in lower or that would harm their client in any way financially with the exception of material defects.

Therefore in order to adhere to local mls policies and to be kind and fair to buyer agents and to buyers- make sure all the hold harmless agreements are excecuted. Make sure that the seller understands the right they are giving up.

Protect yourself.

There will be case law on this, I guarantee it! A hay day for attorneys is the short sale business.

We disclose in Colorado. However, a few agents have figured out a way to make the disclosure more difficult to find - you have to know the secret place to check. Still, I always email agents to ask if it's a short sale before I show. And the reason a listing agent should care about making buyer agents happy, is that giving us the idea that they will be difficult to work with is not going to encourage an offer.

Whether it is the law or not - it is still goiod business practice to disclose this information to potential buyers. If they are not willing to be patient, why bother you and your seller to show them the house? We don't have an option in our MLS yet for the short sales but we do have an addendum in our contract.

In the state of Massachusetts you are required to disclose a short sale. Article two of the Real Estate code of ethics states that "Realtors shall avoid exaggeration, misrepresentation or concealment of pertinent facts relating to the property or the transaction." Sounds pretty clear to me.

I don't think the issue is the value here (at least not in my area). I mean there is that law issue in play, but for me the bigger issue is that in our contracts it states that the seller is stating that they can CLEAR TITLE.

The seller would be committing fraud if they signed a contract without that short sale addendum attached because we know they can't clear title.

Whether or not the short sale has to be disclosed on the MLS PRIOR to the offer is debatable. It is good practice to disclose material defects in advance, but I don't think it is legally required in advance of an offer. Upon acceptance of an offer, absolutely because the seller can't clear title.

I'm with Sally that the attorney is in Bozo land.

Barry, disclosure does affect the buyer and the buyers agent. The sale, and cooperating commission are directly affected by it. If these were slam dunk situations, no one would care, but with a short sale...no one is guaranteed the deal will ever happen. While most of us are savvy these situations now, the 3rd party approval affects everyone involved in the transaction.

I certainly don't think this was written with the intent of being "featured"... and with the way that some Realtors operate these days, I'd rather discuss the gray areas of real estate than the live through them first hand.

This is where short sales really get under my skin! It is such a WILD WEST SHOW right now, and everything seems to ge a gray area!

My advice to everyone is something that has been pounded in my head from day one: Disclose, Disclose, Disclose!

- Harrison

BB--Those dang "material facts"! What is so hard about telling the truth about the condition and facts about a property. Short sale seems pretty darn material to me but in MN starting next week our fields/options regarding foreclosures will be expanded from one to three: In Foreclosure, Lender-Owned, and Short Sale. All three will have the options: yes, no or not disclosed. We have always had the not disclosed option however most agents disclose everything known about the property as required.

Our MLS has done a lot of changes (as many have) in the past year due to these issues.

We have concluded that if the property has been served a notice of default, this is of public record and needs to be disclosed to all parties since it is a material fact! We have to disclose if it is subject to short sale (third party approval) or not.

We also have to disclose if it is an REO property, but I disagreed with that one since some of my REO clients don't want that disclosed. I don't think this should have to be disclosed, but I have lost that arguement for now locally.

For those of you that don't disclose short sale or third party approval, it is just a matter of time before a buyer's agent or their broker sues you for commissions if they brought you a "Ready and willing buyer" to purchase that listing and your seller can't perform! When money gets tight, agents are quicker to file for commissions instead of just moving to the next one!

@ Julie Ferenzi..you wrote "disclosure does affect the buyer and the buyers agent. The sale, and cooperating commission are directly affected by it"

Hmmm...like I said..just tell the buyer it's a short sale..who cares. Most of the buyers , if not all the buyers we work with are SPECIFICALLY looking for REO's and short sales. So it's pretty much a moot point. As for a commission being affected...I seriously doubt any Buyer gives a hoot about an agent's commission as the Seller is paying for it anyway.

So what are you going to say...."Hi Mr. Buyer, the home I am about to show you is a short sale and you knwo what..my commissions may be affected by your choice of this home."

I'll pay your commission if you have a SINGLE buyer who gives a rat's patootie about how it affects YOUR commission.

Like I said above...is anyone actually reading what BB wrote? This is all nonsensical. It's such a colossal non-issue it makes me wonder if people are respondiong for points or actually involved in closing short sales.

By the way Julie..I've said it before and BB knows it..but we close 100% of our short sales. Won't even get involved it if doesn't meet our criteria. Closed 4 this past week, 6 the week before that and have 2 set to close this week.

So when you say "no one is guaranteed the deal will ever happe"..I have to wonder what kind of deals you are working on? EVERY SINGLE SHORT SALE WE WORK ON CLOSES..GUARANTEED!

oops..sorry about the formatting on that last comment..was editing something else and left font size too big...

In Oregon, and in the Metro Portland area where I practice, it's not really a 'short sale' disclosure or notification. Simply on the listing sheet, the listing agent includes a "Y" (for Yes), or "N" (for No) if: "3rd Party Approval Needed"

Now, one could argue the 3rd party approval box doesn't have to be checked "Y" if the seller had adequate funds to come in to close to make up the difference between what they owe and what the value of their property is sold at (typically, in this market the is a balance due.)

The owner of the property has a lien on that property, and that's what really needs to be disclosed -- who holds the lien and how much deficit is there between their purchase price and the current market value. Someone has to make up the difference, and the buyer's lender is NOT going to loan money on a property that has a recorded lien. In Oregon we are a deeded state, so the lien holders are not on the deed.

Short Sales only have to be disclosed via local MLS rules. I think the reason that they don't make FSBO's disclose is because technically the seller can accept the offer and it's up to them to take care of the bank, whether they pay off the debt via their own funds, or convincing the bank to forgive them the difference. Buyers do need to be careful in this time because if they make an offer on a FSBO and they don't spring for a full title search and title insurance, they could be buying a house that gets taken away from them during a foreclosure.

Read the comments with interest and Carla above reflects what I had been about to say. Guess that's because we're 'from' the same market. I wouldn't dream of trying to slide a property into MLS without disclosing it as a short. It DOES materially affect the status of the property in both value and the performance required by the selling parties. Given this market, more and more MLS's are including an option of some kind to disclose the status. That's as it should be.

The question now is....Does the fact that I owe more on a property than its worth affect what its worth?.......I dont think so

Consider this:

Appraisers use short sales and foreclosures as comparables and I dont believe Ive ever seen a discussion of what someone owes on a property in an appraisal of its value.

A listing agent will tell a seller that what they owe on their home is not relevant when pricing the property for sale

The tax assessor dosent factor a homeowners debt into their calculations of value.

If I remortgage my home and go from $100000 debt to $500000 the value of the property didnt change. Only my equity changed.

So.......Why would I think that the amount of a mortgage is a fact that materially affects the value of the property?

Now just because ther is no law requiring this disclosure, doed not mean that there are not other good reasons why the fact there is a short sale situation must be disclosed. Not the least of which are: there can be no transfer without the third party approval and the mls probably requires it

Long story; short..... Trying to sell a property short is like trying to sell the Brooklyn Bridge. You might get a contract, but can you deliver title when the time comes? If not there will be consequences

Baby...

Do you know where I put the Hornet's bite salve? It appears the nest has been stirred up :)

Barry...

When BB wants a feature all he has to do is ask. It's not that complicated :)

TLW...ROAR!

Damn......I leave you guys alone for few minutes and chaos breaks out :)

Barry I only wrote this post to get you riled up. I've been missing ya man.

Actually I wrote it because I strongly believe a short sale needs to be disclosed as it affects the value of the property and according to Florida law that is something that needs to be disclosed unless it is exempt i.e suicide, aids.

I read where a couple of you mentioned that if the seller brings the "short"' to closing it doesn't need to be disclosed. Well of course it wouldn't if the Seller is paying the short then it's not a short sale.

Ok I'll be the man out at the pool. I'll be back!!!

And....

I'll be the lovely firing the BB Gun to see if I can sink his float :)

TLW...ROAR!

Wow, what a discussion!

1. The FAR attorneys are speaking strictly from a legal perspective and ignoring MLS rules. Both Boards we belong to - NEFAR and ORRA - require disclosure. This is ivory tower law practice with no acknowledgement of what is being done 'on the street.'

2. Laying aside any discussion of whether a short sale affects the "material value" of a house -

3. As Bill said - Article two of the Real Estate code of ethics states that "Realtors shall avoid exaggeration, misrepresentation or concealment of pertinent facts relating to the property or the transaction." Sounds pretty clear to me.

4. It is pertinent to a transaction that a third party will be approving or rejecting the offerand that the actual closing date may be unknown for 30, 60, 90 days or more.

5. It is misrepresenation not to disclose the fact that the Sellers do not have the final word on the negotiations.

To me it is rather simple, Disclosure. When in doubt disclose. Is a short sale different than a normal transaction, yes it certainly is. Can it affect the buyer's perception and therefore decisions of a particlular home, yes, possibly good or bad. Either way doesn't matter. Just Disclose and enjoy life.

I agree with Lenn. The fact that a thrid party has to approve the contract is a material fact that can change the whole negiotation.

Here is Arizona we MUST disclose if it's a short sale or bank owned. It is absolutley a material fact!

We also have a short sale addendum that clearly states the pros and cons of entering into a short sale agreement and what the terms are to break the deal. It's not prefected yet but it's a whole lot further along then letting all the agents who don't have a clue as to how to shorts or reo's screw it all up......real bad. All they have to do is use the form and inform their clients.

Many of our buyers here in Phoenix don't want to look at short sales, only foreclosures. is what is.

Now........I think it's time to go back out to the pool.

I work in Florida, we disclose and I will, with a hold harmless letter. Until FREC and FAR and/ or the courts say otherwise.

Now, when it comes to attorney's, they will argue either side, according to who is paying them.

You know what they say about opinions? and thats all they have until the courts say otherwise.

What an interesting conversation. Obviously, our states have differing laws and our MLS's have different rules as well as our lawyers and real estate agents have different opinions. Also, obviously, it will take case law to clarify. For now, both sides of the issue make sense in some limited ways. So when it's on the line and all things equal, we disclose.

Mary

Hey BB..just came in from the pool myself...real hot out there down here in paradise.

I wasn't rile dup at all dude...just taking in the sights over here. Been away becasue we are actually CLOSING shorts and killin it and haven't had time to slum it recently. Funny thing though...nothing really changes over here though.

Even with all of the hoping and wishing..still the same. Glad to hear that you are making it happen in your neck of the woods.

Amazing how making money makes adaptation all that easier doesn't it. Maybe someday more here will understand that. Until then, back to the pool, and I'll be dodging TLW's BB gun...I sink without my float..LOL!

Bryant - Were the attorney's lips moving? :-) Laraine

Ummm...I KNOW I'm a tad late to this party but you wrote that the attorney said “There is no state or federal law that requires a seller to provide any disclosure forms for a short sale.”

Could it be he is only saying that no forms are required...not that disclosure is not required?

Time to go back to the very basics - disclose, Disclose, DISCLOSE! Better to have disclosed something that could be material to the buyer up front than to be penalized for not doing so in a court at a later date!

This may be a mater of symantics, but,

Material facts does not refer only to "material physical facts".

The fact that third party approval is required with no disclosure of whom the third party is or the terms and conditions of the third party approval is a material fact if you are a home buyer.

What a discussion! My feeling is I will disclose and advise my clients to disclose. Our local board/MLS has a feature to check yes/no to Short sale. It's pretty hard to agree to a closing in 30 days if we know it is a short sale scenario - even when the lender has the final say on everything that the buyers/sellers have agreed to. Great discussion!

Bryan, the Waco Associatin of Realtors and the Texas Association of Realtors requires us to put in our remarks on the MLS if it is going to be a short sale.

Bryan, I'm surprised, coming from an Attorney where the world IS "DISCLOSURE, DISCLOSURE, DISCLOSURE" It's hard to digest. In the Live Free or Die State, third party approval is disclosed on the listing sheet...Go figure!

Patricia Aulson/Portsmouth NH Real Estate

Bryant,

Here in NJ, most of the attorneys I know recommend disclosure...at least before accepting the offer. But is it required by law? I'm honestly not sure. Our State Association has gone as far as creating an addendum called the "Addendum Regarding Possible Short Sales" to be submitted with the contract. It defines what a short sale is, which lien holders need to approve the final transaction, and even postpones the dates of mortgage commitments and inspections until the lien holder approves the sale. BUT...I've been advised by counsel that we're are still bound by our fiduciary duties. If the seller doesn't want to disclose, we're obligated to comply. In these instances, we're advised to get written indemnification from the seller to hold the broker and agent harmless. But as has been well documented above...deciding not to disclose the short sale status creates a lot of complications down the line. Additionally, if the seller puts us in the position of doing something that violates the Code of Ethics (and some might argue that failing to disclose does) then some business decisions need to be made. I'm reminded that the legal threshold is the "minimum standard" that we are obliged to adhere to when doing business...not the highest standard. A professional Code of Ethics often requires more from us.

I'd strongly advise any of my sellers to disclose...

Hi BB - I'm with you. That makes no sense. If a buyer doesn't know that he is making an offer n a short sale, how does the seller explain that there will be no enforceable contract for perhaps several months, while the bank has the matter under review? How about your MLS? Ours requires a short sale to be listed as such, and once an offer has been accepted by the seller and submitted to the lender, the listing status must be changed from "active short sale" to "active short sale contingent" in MLS. Failure to list property properly will result in disciplinary actions and sanctions.

Bryant, Short Sales also have a big impact on rate locks, since it can take several weeks to get a final approval from the Sellers Bank on the Short Sale. The borrower needs to have this information in order to make a decision on when to lock their rate.

That would be awful if we did not have to disclose a short sale! It takes 3-4 times longer to close, and sometimes they NEVER close. Also, our commission is usally affected. We HAVE to disclose!

Joan Cox, GRI,ABR,CRS,e-Pro

Metro Brokers - Turning Point RE

Centennial, CO 80111

720-231-6373

www.JoanCox.com

I've read most of the comments anyway. From a legal perspective, you'd have to view your specific state laws concerning such matters. Most states do make the seller (and thus the listing agent) required to disclose material FACTS about the home. Unless the seller is able to make up the difference between the sale price and loan (which makes it NOT a short sale), then the seller is NOT able to deliver a free and clear title. A pretty major material fact, in my opinion.

Many state RE commissions and state Realtor(R) boards have also adopted/developed various short sale addendums, which are now required forms in that situation, making this a moot point.

Finally, if you're the listing agent/seller and you're marketing a home that is lower than the loan amount, sometimes by a lot, I'd think it important to note that a buyer could offer that or more and still not get the property. Unless this is fully disclosed upfront, you'd have a pretty upset buyer with a pretty good case against you.

Why are people bringing commission into this? Our commission has nothing to do with the legal issue brought up here. This is about the listing agent's fiduciary duty to the seller from a legal perspective.

Despite the fact that I ethically think a short sale should be disclosed prior to an offer being made, I do think that it violates our fiduciary duty to the seller because they will get a lower offer knowing that it is a short sale. At least out here.

If there is a possibility that the seller will get a deficiency judgment then it is in the seller's best interest to get the highest offer possible thereby reducing their judgment. I can see where the FAR attorney is coming from "pre-offer" but once you have the offer, I still think the seller is committing fraud if they say they can clear title and they can't.

The short sale HAS to be diclosed. The only question at this point is WHEN will that occur. Preoffer or at the time of offer. I don't help my sellers commit fraud. No-brainer.

Hey BB...now you've gone and done it...you are exposing as frauds those you hold dear. Dude...I know it really wasn't your intention but anyone who actually has a clue can see that a lot of people commenting here have no business doing so.

I mean seriously there should be prequalifications on commenting... maybe something like actually have completed at minimum of 5 short sales...

It's amazing...you have people talking about commissions and stuff and then now you have someone who says there may be a possibility of a deficiency judgment on a short sale...God save the real estate industry...what the heck is going on??

BB..you know I gotta blame you on this one...you knew this would rile me up and you set out bait for the morons didn't ya! But it's your party..I'm gonna hang over here in the corner, have a coke and smile at the commenters walk head first into Nincompoopville!

Can I suggest a title for your next featured post..."How Many Short Sales Have You Closed"...Under two..no comments please!

Would love to see the feature on that one.

Barry I did "misspeak" and should have written promissory note in there rather than deficiency judgment. No need to call people morons.

You typically have good, intelligent things to say. You can do so without being condesending.

Hi Melina...just having fun on a beautiful Sunday down here in South Florida. I apologize if I offended...just making fun of things and if you knew me you'd know that.

No worries..I don't think you're a moron..never said that..I don't and wouldn't pass that kind of judgment. Excuse my offcolor humor.

I must be getting old..whaddya think BB...am I mellowing too much in my soon to be Geritol days or was it too many Daquiri's in the hot subn today? In any event..Peace!

And Go Heat!

But the part about those not speaking who haven't closed at least 5 short sales..I meant all that!

It may not be a state rule but we must disclose it in NC...

When in doubt, disclose.
Our Association requires that properties subject to short sale be disclosed.
Properties subject to short sale impact the consideration paid by the Buyer so they have a right to know.
The ability of the Seller to close is also in question in a short sale situation.
In AZ the financial ability of a principle to perform must be disclosed (Lombardo v. Albu 2000)

http://www.mcrazlaw.com/article.php?ArticleID=26

Barry I'm pretty hard to offend, Jessica Horton will tell you that :)

The problem with closing short sales, at least for my area, is that we have so few. Foreclosures and short sales are only 6% of my market (for now anyway, and were only 1% of it last year). We don't have any short sale "experts" in my area.

Anyone who calls themselves a short sale expert in my area is full of it. In fact we had so few out here in years past that we didn't even get a cool little button on the MLS until like December of 2008 to even mark it as a short sale or foreclosure.

So while this discussion may not make sense to you down in Florida, I think it is good for people in other areas that still have a lot to learn about these transactions.

Here in Orlando, there are 3 kinds of buyers.

People who purchased 2005 -2007 and find themselves in financial straits.
People who purchased 2005 -2007 and don't have any financial difficulties but want to move for one reason or another.
People who purchased before 2005.

Even if a Short Sale situation is not disclosed, a buyer's agent can almost always figure out which properties are Short Sales and which aren't simply by checking tax and county records.

Folks who purchased a house in 2005 or later -- which accounts for a great preponderance of Orlando homeowners -- and want to sell but aren't in a Short Sale position almost always list for more than market value, and thus, unfortunately, are unlikely to sell for the next who knows how many years!

Those who have to get out from under will offer current market value, which is almost always less than their original purchase price.

In rare instances, homeowners who have a considerable amount of equity will list for less than their original purchase price because they're willing to make the sacrifice. In those cases, the astute buyer's agent will call the listing agent to confirm whether this is a Short Sale or not.

Those who purchased before 2005 and aren't in financial difficulties will also generally list above market value because they don't want to acknowledge this is the buyer's market of all buyer's markets.

So even if an agent were to choose not to disclose (assuming he or she had a choice), the smart buyer's agent would know almost immediately that no homeowner in their right mind (that, or independently wealthy) would take a $100,000 or more loss.

There are, of course, the exceptions to the rule, and I suppose that's what this discussion is about.

Legal or not; required by MLS or not:

I disclose in writing. Short Sale Addendum.

Reason: to avoid receiving a "Specific Performance" letter from buyers attorney.

Thus serving my client/seller's internest by not exposing them to litigation.

A Purchase and Sale Agreement signed by both seller and buyer (with or without disclosure) is a binding contract. If you did not disclose in writing, buyer's attorney can sue you and your seller for specific performance.

I prefer to cover my ... Better safe than sorry.

I might as well pipe in Broker Bryant -

I disagree that the size of the mortgage is material to the value of the house. The size of the mortgage is not disclosed in a traditional sale, so why in a short sale? Maybe included should be that the seller is also BEHIND in the mortgage? That is all too personal and as some pointed out, such disclosure breaches the confidential position of the broker.

On the other hand, most boards have proposed or promulgated suggested forms for the broker's listing agreement for a property that may be a short sale and in it the seller and broker contractually agree to the disclosure of certain information, including that the transaction will be a "short sale". Although I don't necessarily agree with the broad scope of the Florida form, it does provide a carve out to the statutory law on non-disclosure by the broker.

Every shortsale has to be disclosed, period, the end! I am a lisitng specialist & why would I not need to disclose this? My fiduciary relationship is to my seller & I need all interested parties involved to understand that the sale is subject to third party approval! In some cases I am asking the buyer to stay in the game for many months, so without disclosure why would they want to accommodate such a long closing period? I use shortsale disclosures & addendum & they are posted with the sellers regular property disclosure. There should NEVER be any surprises!!

I am with you Bryant. What does listing agent do when the mortgage company wants to negotiate the buyer agent's commission?

Steve

Even if you werent legally supposed too, you should do it anyway

In Broward County,Florida our MLS has two buttons that are mandatory for a listing. 1. is short sale, Y/N, the other (2) is bank owned, Y/N.

Well I only had the patience to read part of the comments but I feel disclosure is a neccessity. And ALL of my Buyers are going to be worried about my commission because they sign a contract with me saying if I don't get paid X amount by the Seller then they, the Buyer, will pay me X amount.

And commissions are coming into this conversation because it's part of what brings down the value of the home (at least in my area). If a Buyer knows that it could take forever to get answers and then they may, at the last minute, have to fork up commissions for their agent (because they are in contractual agreement to do so) then it devalues the home in their eyes.

Melina...if there are so few short sales..then why comment here... when you say that this discussion is "good for people in other areas that still have a lot to learn about these transactions"... I have to object. This is the ABSOLUTE wrong place to learn about short sales.

Evidenced by the fact that admittedly, there are people making comments that have no substantial experience in this arena.

You don't learn that way and the consumer should expect more from an agent who is learning their way on a forum of commenters with little to no experience. It simply is not fair to a consumer who expects the agent on the other end of the phone to be an expert. Simply shameful..in my opinion.

Thankfully, my ML reuieshtthe existence f a short salediionn be dislsd to agents viein the listin.

Bryant - I can't tell you how many people I've had to bust on not getting that into their listings. I'm amazed at the lawyer. I would think this would be a very dangerous practice in not using full disclosure at least it would be in NJ.

I definitely think that it should be disclosed. It would adversely affect someone else's plans (Buyer's) with not sure knowing how long this could drag on. Put yourself in the person's shoe, you too would want to know.

Barry I'm commenting here because the question being raised by BB is about whether there is a conflict between what the FAR attorney said and Florida law. The question isn't about how many short sales people do, or how to do them, or whether or not they are experts in short sales. His question posed was about whether or not a short sale is material to a contract and needs to be disclosed.

I think I am perfectly capable of engaging in this disucssion because it is about what defines "material." This discussion could replace short sale with bankruptcy and this conversation would be the same. I think the FAR attorney would argue that a seller in bankruptcy doesn't need to be disclosed to a buyer, even though the court has to release the house from the proceedings.

I agree that this is not the discussion to learn about the nuts and bolts of short sales. I actually hired someone to help me through the nuts and bolts of them (even you would approve of him), BUT I think that there are some good general discussions that occur about short sales. Even when some of the comments are not accurate/ misleading/don't pertain to my state.

To me...that has a lot of value. No agent in my area has substantial experience in short sales. No one. These comments are probably a good reflection of what I would get from agents in my area as well. To me, knowing what other people might be thinking is immensely helpful in trying to keep transactions smooth and on track.

I always disclose if it is a short sale - but here, we do not HAVE to, and here, it does not affect value. SS's sell for market value MOST of the time... Therefore, there are no material facts being withheld one way or the other.

In places where SS's DO impact value, then I definitely see a conflict.

We now have to mark SHORT SALE in our MLS. This is no different than marking a FORECLOSURE

I think you are violating your fiduciary obligation to your Seller client if you disclose the short sale to agents and/or potential Buyers without the prior authorization of your Seller client.

It is interesting...

Let me change the subject for a minute.

The seller HAS to sell the property (we'll assume it isn't a short). Does that materially effect the value of the property? I would argue that it doesn't change the property.

In the case of a short sale, it doesn't change the property. It changes the price, perhaps, but it doesn't affect the property. At least not any further than deferred maintenance or other related issues. And because the sale it a PITA for the buyer, it may affect the price.

And Barry... My sellers do care if there is going to be a concession on the commission, becuase they may be on the hook for it. I work with Buyer Broker Agreements in place and they specify what I am going to get paid for a job. Of course it really doesn't affect me that much because I prefer to refer out the short sales. I am not an expert at them and rather than wander through it pretending, I would rather put that person in the hands of someone that IS specializing in them.

I don't know how you could feasibly not disclose this. How could you enter into a contract without it being contingent upon bank approval?

Gotta love real estate eh? I'm curious to hear the answer to this.

I've read about half of the comments on this post..... and then several near the end.

Here in the Northwest Multiple Listing Service area (and within Washington State), we are governed by some relatively new laws that are now on the books that deal with "distressed properties" and their owners....... As to the NWMLS, members are required to indicate, within the listing agreement, whether or not the subject listing is a distressed property: ie, anticipated short sale.

Short, sweet and to the point.

One comment that I read on this post hit quite a nail on the head: what about the poor buyer that wants and needs a house quickly, has kids needing to get enrolled into school, would like a house close to a job (or for whatever reason wants to buy a specific house that just happens to be short-sale material.) YES, it definitely has a material bearing on that property as to whether a third party must approve a sales price (and who the samhill knows when that third party will finally answer his/her phone to give an answer to the magic question)?

Facetiously, I will say maybe that's why Florida had so many problems at first when this bubble first began to unravel -- listening to too many attorneys is bad for your health. And I'll say just about the same thing regarding the National Association of Realtors boss-man when he was first coming out with all this stuff about "now is the time to buy." Geeeeeezzz, prices are still falling from when that guy was blowing off all that nonsense.

When it comes time to represent someone else's interests, I surely hope that we put their interests in front of our own --- honestly and with integrity.

And not like the Wall Street pimps have been doing for the past several years......

Broker Bryant,

How are you? I'm back!

Hope all is well, it's been like over 18 months since I was active here on A/R.

@ melina...your wrote above.." To me, knowing what other people might be thinking is immensely helpful in trying to keep transactions smooth and on track"... even if what they are thinking is wrong and inane?

@ Lane, you wrote..."My sellers do care if there is going to be a concession on the commission, becuase they may be on the hook for it."...I'm sorry..I think BB posted a question relative to disclosure to a BUYER..I would hope you wouldn't have the need to disclose to your Seller that they are in a Short Sale situation...hmm that would be interesting...

Melina...see what I mean?

Our MLS requires the short sale be disclosed in the listing.

To not disclose, I would think actually puts the SELLER at risk. If there is a contract to sell the home for a set price, without a short sale contingency, couldn't the seller be held liable by the purchase contract to pay off the remaining balance on the loan?

Commissions are an issue with disclosure because if I bring a willing, able and ready buyer into a contractual agreement I am considered the procuring cause of the sale and therefore entitled to a commission. If the homeowner and agent knowingly list a property for sale that is less that the total liens on the property, 3rd party approval should be disclosed to protect the seller from having to pay the commission in the event that the property does not close.

If you are selling a house in AZ, NV, FL or CA and it was built or purchased after 2005 and is not a foreclosure than it is a short sale !!! no need to disclose (. if the buyer's agent doesn't already know that.... then they have been under a rock for the last 2 years ) But you should always disclose it .

Elena- That is NOT true. You can certainly have bought a home built or purchased after 2005 and NOT be in Foreclosure and NOT be a short sale. There were plenty of people in South Florida and still are that buy their properties with all cash. But then again, you certainly would not disclose that about your seller!

@Julie Fenzi... this post was what needed to be disclosed to a "BUYER" the one BUYING the property..NOT the person SELLING the property. Your BUYER would care less what the Seller's problem is in paying you or the other agent their commission.

What is happening here? Is there something in the water..or rain if you will? BB wrote a post about whether or not you need to disclose to a BUYER if the property is a short sale and this has morphe dinto some weird commission protection argument.

If you as an agent do not know how to protect yourself in your transactions, short sales or otherwise, you shouldn't be in business. In any event, the disclosure to a BUYER as to whether a home is in a short sale transaction has ABSOLUTELY no bearing whatsoever on what, if any commission is paid or reduced. He is the BUYER!

If you say Hey Mike, this home I'm going to show you is in foreclosure and you need to know that the owner is attempting a short sale". I'm pretty sure Mike's going to say...ok..let's see how low we can get it for. So now you've disclosed. Do you think for an instant that you have somehow protected your commission to any further degree becasue Mike now knows he's looking at a short sale?

What are you people drinking? And like I said above, there should be some pre-requisite for people commenting on short sale transactions when they OBVIOUSLY have no idea what they are talking about.

@Melina..I won't use the "M" word again...but are you beginning to see what I mean?

Bill and Frank and Sharon- Arcticle 2 that you quoted is not from state law. It is from the NAR realtor(R) code of ethics. You are only obliged to adhere to NAR codes if you are a member of NAR. The code of ethic and state law are 2 different things. If you are not a member of NAR you don't have to obey their code. There are many agents who are licensed but are not NAR members.

Bryant's statement at the beginning of his post was this which was said by an attorney:

“There is no state or federal law that requires a seller to provide any disclosure forms for a short sale.”

Now as I am reading all these comments the majority of them are bringing up their mls rules and board rules and NAR rules. That is NOT what Bryant's post was about.

It was about the fact that in this state there is NO state law or Federal Law on the books that says that the seller must provide any disclosure forms for a short sale.

What part of that does so few agents understand?

Bryant's post was not about mls rules or NAR code of ethics, yet most of the comments were.

State law and mls rules and NAR code of ethics are all separate items. They are not one in the same. Katerina

If anyone here knows of someone that needs a short sale done, be sure to call Barry! Barry gets 'em done! Barry has a 100% GUARANTEE of pushing them through! Oh, and he's not a moron. I repeat he is not a moron.

Ah, yes Barry. We all get it. YOU are the one true short sale expert.

I'm out of this one. I can see that any attempt by this post at being helpful has now been lost, but maybe Barry can get some new business out of it.

BTW, it would matter to those agents who were working with a buyers agreement.

Julie- Why wouldn't you want to disclose was your question. What if the seller told you he did not want anyone to know his financial business. According to state law, you are to keep his confidence as pertaining to his financial status. It all depends on who you are working for in the answer to your question. If you are a good buyers agent you are going to be on the side of disclosing the short sale status. If you are on the side of the seller, it depends on the circumstances of the short sale. What is in the best interest of your seller and each case would be different. The third reason is to protect yourself from being sued by some seller who claims they were under stress when you told them to disclose personal and confidential information.

Some argue that the short sale is a material fact effecting the property. It does not affect the property. But it does affect the seller's ability to negotiate a price for his house. So it all depends on what the new case law that is the result of these law suits turns out like. That remains to be seen. Katerina

APR

Katerina, points well taken. Those are certainly things to consider. It's all relative to the perspective... and you didn't even have to hint that I could possibly be a moron ;)

Richard- I agree with your statements and it would be prudent if all the agents commenting here would read your comment so I am going to repost it here in case someone missed it:

I might as well pipe in Broker Bryant -

Steve- your comment is true where fiduciary duty is concerned, in the state of Florida it is presumed that we are transaction agents and even in the duty secton of a transaction broker your point is still correct:

I think you are violating your fiduciary obligation to your Seller client if you disclose the short sale to agents and/or potential Buyers without the prior authorization of your Seller client.

You must have prior written authorization to disclose anything that could financially hurt your seller. Your statement is state law which is what Bryant is addressing. Katerina

Julie- I would never call anyone a moron. That is just not me. That word is not in my vocabulary. But I do have a tendency to talk down to people as Nestor would say, and I am working on not doing that.

Bryant: A short sale must be disclosed in Washington State also because this is a material fact. Not because it affects future local sales but because the seller must obtain permission from the lender(s) to complete the sale and transfer title.

Hi Bryant

We have a listing that is priced slightly above a price that would create negative equity. Because the seller has no money to bring to the closing, we are listing it as a 3rd party approval sale.

This in itself creates lower prices. We explained it to our lister and we suggested they ask a real estate attorney. They told us no. list it as a short sale.

Kieran and Cecelia

The ground rules for our MRIS require disclosure, and I think I'd be furious if I wrote an offer not knowing about short sale status. In that case, the code of ethics would permit me to put gum in the hair of the offending listing agent.

I'm with you, I think it is material to the sale and in Oregon it is required to give the buyer and seller of a short sale a short sale addendum. It explains all the fun that goes with a short sale!

While it maybe a good idea to disclose a Short Sale status. It’s not something you have to do. If you have worked the process out in advance with the lending institution then why not? Short Sales are not secret sales? If the Listing price is reflective of a prearranged Short Sale, all that is necessary is to inform the Selling agent prior to showing. I suggest listing the home for fair market value. Write in the comments that a Short Sale is a possibility and has been pre-approved. Sort of like “ Make us an Offer we can not refuse!” You are still trying to get the most money for your seller.

Here they do disclose it . . not always but most of the time and now new fields have been added to the MLS. Used to be foreclosure Y or N, now there is one for short sale Y or N. The agents disclose the short sales becasue if they don't we give them an unbelivably hard time if we end up showing one to a client and find out after the fact. I show foreclosures but won't show short sales.

Teresa:

Get ready for the poor house! I guess you’re just crazy. Soon your home maybe a short sale. Don’t worry I’ll sell it. lololol…… and get you a good price ! Your Broker should Fire you. I'll do it! You're FIRED!

Kieran and Cecelia:

Stop beating around the bush. Start Selling Real Esate! Your Seller's are right! You should have this all work out with the lender in advance. Like now! Third party my ass! It's a Short Sale. You are selling the property Short! Listing slightly above as to not create negative equity! What did your CMA say? List it for what it's worth.

From Katerina:

"It was about the fact that in this state there is NO state law or Federal Law on the books that says that the seller must provide any disclosure forms for a short sale.

What part of that does so few agents understand?"

~~~~~~~~~~~~~~~~~~

I understand the difference between "disclosure" and "disclosure FORMS".

I also understand the difference between "disclosure FORMS" and "THIRD PARTY APPROVAL required".

I also understand that, if we have a ratified contract with a seller, we must deposit the earnest money check within hours.

I also understand that, if we THEN receive an addendum noticing us of the THIRD PARTY APPROVAL condition of the property and the buyer is expected to agree to the terms and conditions of this THIRD PARTY APPROVAL ADDENDUM requiring the elimination of the Property Condition paragraph rights of the buyer, often eliminating the termite paragraph, etc., etc., the buyer may wish to not proceed with this Contract of Sale.

HOWEVER, their earnest money deposit check has already been deposited, as required by state law. We must now follow the STATE STATUTE for return of earnest money deposit and get a signed RELEASE form from the seller.

I understand that by not disclosing the short sale condition and need for third party approval of the property listed for sale until there is a ratified contract between the buyer and seller can only be described as contemptuous of buyers.

@ Julie...I love it when agents who I engage in discourse are reduced to the level of na..na..na..na...it happens all the time.

Instead of seeing fact they get angry and can't respond. I'm used to it. Have'nt been on AR for a while becasue I hoped it would change. I don't seek approval here and I certainly don't comment for points.

However when i see blatantly wrong comments spoken by obviously inexperienced agents, it compels me to speak my mind. In this instance you were flat wrong. Instead of realizing that at the outset, you chose to continue down your misguided path further exhibiting to anyone reading here that you had no clue. Don't blame me for pointing it out. Or are you saying that whatever someone says here must remain unchallenged?

I certainly don't troll here for business..don't need it. If I did, I'd buy one of those sponsored posts...but thank you for the endorsement anyway.

Anyway..this was a nice Sunday sojourn into AR and now that it's Monday it's back to the business of actually closing short sales.

By the way Julie...yes we do close 100% of our short sales and BB can tell you how and why.

I believe you have to disclose in our MLS system.

darn formatting box..sorry again about that big text...

Holy moly!!! You guys had quite the conversation going on here last night.

Thanks every one for sharing your opinions. Barry I believe i deleted one of your comments made about 4:30 this morning.

I spent hours yesterday trying to find case law but couldn't. I guess until the courts give us a definitive answer we just have to wing it.

My suggestion is to disclose. Not disclosing may open your seller up to a law suit if the short is denied and the buyer sues for specific performance.

I have appointments all day today so will have to come back later.

Ya'll play nice.

Let's take it a step further ... whether it is a law or not it is professional courtesy to inform all parties of the short sale. It is of no value to show a home with a need for a short sale when you have a client that needs to close quickly. Our MLS dictates that a disclosure should be made in Private Remarks to the agents. If the short sale has been approved by the lender, the agent can tag that info as well and where they are on that process. You really sparked a chord and reaction with your post. Congrats on the star!

In Colorado, the Short Sale must be disclosed on our MLS...

Excuses... Explanations... Rationalizations... Justifications... Effort... Attempts... Spectacular RESULTS. Which word best describes where you spend most of your time?

"Eagles come in all shapes and sizes, but you will recognize them chiefly by their attitudes."

When there is ANYTHING that can be disclosed I do it. Period. In writing.

Saves tons of aggravation

Here is what I know....

When the short sale is not due to a mortgage default and NOT followed by a pre-foreclosure it does not have to be disclosed. Selling agent just need to tell the seller that they might have to bring money to the table to close.

When the Short sale is due to a mortgage default and followed by a pre-foreclosure suite is has to be disclosed.

It then falls under the Seller disclosure verbiages:

....to disclose any information concerning threatened or existing litigation regarding the property offered and inform if there have been any notices by any governmental or quasi- governmental agencies affecting the property.

The buyer must know about a short sale or he/she can't make an informed decision to put in the offer of purchase. A short sale will often take weeks longer to close, restrictions on commissions paid, and a whole host of other bank regulations or rules will apply that a buyer may not have signed on for.

First, atorneys are the crabgrass in the lawn of life and about as useless (70% of the time) as --- on a boar hog. Remember for an extra $25 you can another atty to say something else... (could be said about some agents I know too...unfortunately)

Second material is material and short sale is material

Finally our state asn atty sez its material... (not sure if this is the $25 type opinion or not)

Disclosure? Is that was this attorney is trying to do?? lol~

Hmmm -- just goes to show you there is no consensus. The safest thing is to get permission from the seller to disclose -- and then disclose the information,whether a short sale or a foreclosure. From the buyer agent's perspective.. not a bad idea to have a statement that the seller has to acknowledge that .... this is not a short sale, no notice of forelcosure or foreclosure.. seller has not missed any mortgage payments and if seller receives notice of foreclosure, will notify buyer ... etc.

Your Lovely Wife must be a laugh-a-minute-riot. Anyway, back to your post. Who said lawyers know everything?

Why wouldn't a realtor disclose a short sale? It is important for a potential buyer to know before making an offer. Our MLS requires disclosure in private remarks. We use the right to Advertise Certain Information to cover the disclosure and I have had no one refuse that disclosure. I never have understood why someone wouldn't want to treat all parties fairly and save themselves the effort of working with an offer that the buyer can't wait around to see if it will happen.

Withholding the information just seems pointless.

You better disclose it. If I come in with a buyer that can and will make the purchase and you have offered to pay me a commission for bring in the buyer you better be able to close the deal. You could be liable to my buyer for damages and to me for the commission. By disclosing it needs the approval of the bank you take yourself off the hook.

Some comments have gotten a little off-base from the initial post. Are you, as a listing agent, legally required to disclose a short sale. Again. state laws concerning RE vary, but most have laws concerning material facts about the sale of the home and disclosure to the buyer of such facts.

Material facts are not limited to physical property defects (although a clouded title IS most definitely a defect), but also ANY facts, whether they are legally required to be disclosed or not, that a potential buyer would need to know in order to make an informed decision on the purchase of the property.

A short sale has several facts that any buyer, I think, would find important (and thus, material) to their decision to make an offer.

1) The asking/offer price is less than the loan balance and the seller cannot come up with the difference and MUST get permission from their lender to be able to close. Pretty important to a buyer.

2) Since the lender must approve, the deal could take months before it can even go to closing. Again, could be very important to a buyer.

3) From a seller's perspective, if you're advertising an asking price that is less than the loan balance and you can't make up the difference, then fully disclosing a short sale and all the points that go with it could likely save you from a potential lawsuit later.

And there's a lot more, too.

BB, it is an MLS rule in our area to disclose to all buyers because of a 3rd party approval required. As others have said, we've went around and around on this for months and in my opinion sided with the buyers. Besides, if you don't get the lenders approval - your not going to close.

No Illinois law covers the other portion of the question you ask. Of course in Illinois, we have no time to make laws because we are constantly prosecuting our governors and throwing them in jail!

If anyone cares - Blago (impeached governor) will be on an island somewhere in Costa Rica on his new reality program.

This attorney is crazy or misunderstood. Full disclosure always.

Barry I think Lane made a mistake on his comment. I think he meant to write buyers being on the hook for commissions because he references the buyer brokerage agreement. I actually think you would like Lane...you should read his blog.

In Middle Tennessee, under the 'type' of listing, we hvae a selection for Short Sale. I think it should definitely be disclosed as the curing time is so incredibly different (typically speaking) from the normal time to close...

You've probably heard this 159 times already but a short sale is a material fact that can affect the decision of the buyer to purchase or not to purchase the property. In MD, that is the guiding principle. It the same as if the roof leaked or there is a planned highway about to come through the back yard. Disclose. Disclose. Disclose.

Bryant,

My MLS requires "subject to 3rd party approval" but we have the option to put it in Agent only remarks if we so wish. As long as my seller(s) agree, I put it very prominently in the Client remarks. I also indicate the bank's timeframe, "Bank indicates it takes XX days to review all offers."

At least in the Garden State, there are LOTS of buyers who specifically ask to see only short sales or REOs. Unlike many of my colleagues, I see publicizing a short sale as a positive. My track record shows I move them very quickly. Do I lose some buyers and agents because they think it will take eons to get a response? Perhaps, but by indicating the timeframe, I get lots of calls...

Again, how publically I advertise Short Sale depends on my sellers (who still do own the home and who still call the shots!).

Thanks for giving us some heated discussion.

Irene

Hye BB, you didn't delete any of my comments. At 4:30AM I was face deep into some feathery down pillows.

Do you really think I'd be up at 4:30AM reading Active Rain? Not likely. You may have my pictureless comments confused with the anonymous guy...but it ain't me. Check the IP address if needed but I never post anonymously.

If I have something to say, whether someone likes it or not, you'll ALWAYS know it's from me. As for the other guy...sounds like he really has a problem with some real estate agents. While I can surely understand his frustration, I choose to engage in discourse.

So no...you didn't delete any of my commentary.

Barry

Hey Barry. Cool deal! When you going to start buying in Poinciana? We've just about bottomed out here....finally.