Short Sale Legal Issues Affecting Real Estate Agents - Solutions?

Short Sale Legal Issues Affecting Real Estate Agents - Solutions?

The previous posts in this Short Sale Legal Issues Affecting Real Estate Agents series were on Part 1, Part 2, Part 3, Part 4 & Part 5. 

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY  

This series of posts is meant to assist real estate agents in recognizing: 

1. Legal & Tax Issues their clients are exposed to through a short sale.
2. The legal liabilities agents may expose themselves to when representing short sale sellers. 

Disclaimer:  This series is not intended to advocate the hiring of attorneys and CPA's for short sales, but rather that agents should fully research and be aware of the potential legal liabilities and tax issues for themselves and their clients. 

 

Ok, now that we're all aware of and maybe even a bit intimidated by the many legal issues that may be involved in a short sale, how does an agent help a seller in short sale position without exposing themselves to a future lawsuit? 

These houses have to be listed and sold by someone!  Why not you? 

I was surprised by the number of agents posting comments on my posts stating that they would just stay away from short sales.  Then I considered all the resources that go into a short sale and understood.  Short sales are not something an agent should probably do occassionaly as they pop up.  It's better to refer them (and get a referral fee) to an agent that specializes in them.

If you're going to get into short sales, an agent should consider addressing the legal & tax issues head-on so to speak.  There are a couple layers of protection that can be put into place. 

The first level of protection would be to get with your broker and a VERY good attorney to draft a "Hold Harmless Agreement" that sellers would sign agreeing not to sue their agent.  In addition to signatures at the bottom of the document, I think it would be important to have 2 specific areas that would require the sellers' initial(s): 

1. One area where it's recommended the sellers seek legal counsel.
2. Another area where it's recommended they seek the advice of a CPA. 

The initials just make it that much more clear to the seller, and a judge if an agent gets sued, that a very concerted effort was made to recommend professional advice be obtained.

A second level of protection could be put in place by just hiring attorneys and CPA's or better yet, partnering with them to give free consultations to ALL short sale seller clients.  What sharp attorney or CPA wouldn't want to have a motivated potential client visit their office and meet with them? 

The challenge is to find attorney & CPA partners that meet the following criteria: 

1. They have to have the expertise and understanding of the issues involved in a short sale.  This may mean NOT teaming with a buddy from college or a relative to help them out.  They really need to know what they're doing.
2. They should have up to date Errors & Omissions insurance coverage.  This is what will absorb an agent's liability, so I would ask to see it.
3. They should agree to avoid trying to do a hard sell or intimidate the sellers.  Sellers in a short sale situation are usually dealing with a lot of stress and may also be vulnerable.  Scare tactics are not what they need.
4. They should charge reasonable fees if the seller does choose to hire them.  Attorneys especially.  In many transactions, they can get paid on the HUD-1 at closing by the lender.  CPA's probably won't get hired until tax season, but they may charge a small upfront fee that would be credited to the seller at tax time if they used their services.
5. They should have consistent and dependable follow up skills.  It will reflect badly on an agent to refer a seller to a team member that doesn't return their calls in a reasonable amount of time.  You may also want some feedback (legally allowable) from them on what they learn from their conversations with a seller.  If you haven't dealt much with attorneys in the past, you'll be chagrined to learn how poor most of them are at returning calls and providing status updates.
6. Lastly, you want to find partners that will make an effort to refer you business in return.  From experience, I can tell you not to mince words on your expectations regarding this.  Both attorneys and CPA's are used to one-way referral relationships.  You'll hear all kinds of excuses that are just that - excuses.  Finding those that understand how to uncover real estate referrals for an agent may be the hardest challenge of all of these. 

One more point I'd like to make - you'll need a real system to efficiently handle short sales and actually make money.  Otherwise, short sales will absorb so much of your time that they won't be worth the aggravation.  I highly recommend searching out successful short sale agents on ActiveRain and asking them for advice.  To avoid the competition issue, find an agent outside your county or area.
 

When I started writing this series, I wasn't sure what the response would be and if those reading it would appreciate the amount of research that went into it. 

I've actually been taken aback by all the positive feedback from ActiveRain members! 

A big thank you for all that have stopped by to read one of the posts, especially those that took the time to write a comment.  

Another huge thank you to the staff at ActiveRain for agreeing to feature each of the posts in this series!  They made me jump through hoops to do so, but I hope I exceeded their expectations. 

 

Please join my Fanpage @ www.facebook.com/TheLendingEdge for future articles and topics for real estate agents.  I'll be writing soon about what homebuyers should be aware of when buying short sales. 

Thanks again for reading and I hope you'll spread the word...

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Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest

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P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com