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The Mortgage Debt Relief Act fallout and disclosures in a Short Sale

By
Real Estate Broker/Owner CA#01772851 HI#RB21268

From what I hear, there are a lot less short sales being transacted right now because there has not been an extension to the Mortgage Debt Relief Act that expired at the end of 2013.

When a client comes to you and says they want you to handle a short sale, how do you handle it as their Realtor? Here are my suggestion: 

Refer them immediately to their tax adviser or a lawyer before starting the process. The client should know the pros and cons about a short sale if being undertaken at this point in time...before the Act has been extended...IF it will even be done. 

However, if the client is determined to do a short sale, I cannot force them NOT to. But I must be careful not to give them ANY advice, or even words that can be construed as advice. (The California Continuing Education courses I took recently were VERY CLEAR on that.)

SO WHAT DO I DO?

What I can do is explain the process and have them sign the Short Sale Advisory and Short Sale Addendum as part of the listing agreement.

I also have them sign the "Authorization to Receive and Convey Information" form which is needed for me to contact the seller's lender. Being in touch with the lender in order to get a Short Sale Agreement to an offer is a big part of the process. 

Also at that initial listing meeting, I have the clients sign the rest of the forms, mostly disclosures, that go into a package for the lender along with a seller-accepted offer. These forms take a little time to explain and fill out, and you don't want to wait with this until an offer comes in. You want to get the disclosures off to the buyer to sign/agree in a timely manner to get the lender short sale approval process started.

The "Agent Visual Inspection Disclosure" form,  the one that  I, their agent, need to fill out after visually inspecting the property, will also become part of the packet early on. 

WHAT DISCLOSURES DO YOU MAKE TO THE SELLERS WHEN DOING A SHORT SALE NOW?

 

 

 

 

 

Posted by

Hella Rothwell at Carmel Beach during Concours WeekCarmel-by-the-Sea Beach and Pebble Beach Golf Course California

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 ________________________________________________________________

Hella Mitschke Rothwell (R)

Real Estate Broker/Owner/Realtor®
Licensed in California #01772851 & Hawaii #RB-21268

Tel. 831-626-4000 

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Comments(8)

Noah Seidenberg
Coldwell Banker - Evanston, IL
Chicagoland and Suburbs (800) 858-7917

Hi Hella, I have done a few short sales in my time. As long as they know it takes time and there is some unknown then let it be, its worked in the cases I have had (only buyers).

Good piece here.

Feb 26, 2014 11:38 AM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

Hella, Yes we should never try to explain tax law and always refer to a tax expert. The same is true for legal questions.

Feb 26, 2014 11:48 AM
Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Hella when questions comes up that are legal or financial I immediate refer them to the right party.

 

Feb 26, 2014 03:11 PM
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

Noah: Yes, usually they are time consuming. 

Debbie: Letting them know they should talk to a tax professional or a lawyer, is about all I can do.

Jennifer: We can't even tell them what we know to be true or give our opinion and THEN advise them to go to a tax professional or a lawyer. 

Feb 27, 2014 12:51 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you

I give sellers a document that explains CA Civil Code 580e, which releases them from personal liability, and also an explanation of the mortgage letters that state a seller is exempt from state and federal income tax on canceled debt through a short sale, regardless of what happens to the Mortgage Debt Relief extension. C.A.R. also has a handy document called the Short Sale Information Advisory, four pages of stuff a seller should know.

Feb 27, 2014 02:24 AM
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

Elizabeth: Yes. The Short Sale Advisory is a must for the seller to sign because it also goes into the short sale package for the lender. But, like you, I'm thinking about what else I can do without giving ADVICE.

Feb 27, 2014 07:10 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Hella, what a great post, I also give them Market Trends and Reports as well as the direction the market is heading and often times they realize that they might not have a short sale situation anymore because of the increases in prices as well as the lack of inventory....Endre

Feb 27, 2014 09:06 AM
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

Endre: That is actually happening to some friends of mine. The market has been going up in their area and, who knows, they might get some equity out of their house.

Feb 27, 2014 09:50 AM