I have recently started noticing a lot being said about Realtors who claim they are short sale specialists, but their sellers are filing lawsuits against them.  Realtors taking on short sales need to realize there is a certain amount of legal risks in handling these types of transactions.  I have short sale listings and I always try to be very careful when giving sellers any type of legal advice.  It is important to make it clear to the seller that you are not a real estate attorney.  In light of the many possibile ways a seller could try to sue, Probably the biggest worry of sellers doing a short sale (besides the effect it has on their credit reports) is the fear of getting a 1099.  A lender can file a 1099 for the deficiency amount that would force the seller to claim as income and pay taxes on the amount.  If the home is your seller's primary residence, a law was passed in 2007 that states the IRS can not count mortgage debt as income, but this does not apply to second homes.  In addition, if the seller has assets or money saved in the bank or a retirement account, a lender can ask for this money before approving a short sale in some states.  Realtors need to be aware that Florida is a nonrecourse state that states lenders cannot go after a sellers cash money and should be advising the sellers as such. 

For Realtors who think they are doing the right thing by hiring a loss mitigation company to handle the short sale negotions are forewarned.  Sellers can file a lawsuit against you stating negligence if you are not managing the short sale process and the deal falls through.  It is important to make sure you are on top of what is going on and demand the loss mitigator is sending you an update email once a week so you can show the paper trail.   This also applies to Realtors who work with your modern day "flipper" who purchase short sale properties and almost simultaneously flip it over to an end buyer within an hour of purchasing the home from the seller and the lender.  The flipper negotiates the lowest price possible with the lender with the intention of selling the home to the end buyer for a profit.  Investors who are concerned abou the 1099 want the final amount paid to the lender to be as high as possible. 

These are just a couple of the important questions I tend to get from sellers who are considering a short sale.  A Realtor has to be able to give them the right answers or at least tell them "I don't know" and direct them to a real estate attorney. 

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