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Fiduciary responsibility is to the seller of the short sale....not to the lender

By Pacita Dimacali

Real Estate Agent with Alain Pinel BRE 01367196

April 22, 2008 01:34 PM

We are having such a lively discussion at our office, and there were very strong opinions expressed.

One of the scenarios: there is an accepted offer on your short sale listing, but the lender hasn't accepted yet. Then more offers come in. You can take one or two in back up position, and you can/may present these other offers to the lender.

But do/should you?

We consulted a short sale specialist who told us that your fiduciary responsibility as the listing agent is to your seller. If you have a solid accepted offer, and the goal is to complete the transaction as quickly as possible and still meet the lender's requirements, then you don't have to send to the lender the other offers that come in after you have an accepted offer.

Do you agree? What would you do?

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Gary McAdams

GMAC Schwartz Property Sales - Key West, FL

The seller is still your principal so that is where your loyalty lies. Not the bank.

Apr 22, 2008 01:40 PM

Gene Yakubovich

G.E.M. Consultants Co - Burlingame, CA

You are 100% right. You have a listing agreement with the borrower not the Lender. I'm doing the short sales and REO's and it is a big problem for me. I even trying to look for sellers FICO scores when I negotiate the sale with Lender. On the other hand you are being paid from the lender proceeds and you have to be honest in dealing with them. My suggestion is to assemble a good package that includes CMA's and BPO for property in question, don't forget the "hardship Letter"

Take care,

Gene Yakubovich

Apr 22, 2008 01:48 PM

Eric Reid

Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA

there is an accepted offer on your short sale listing, but the lender hasn't accepted yet - Don't understand this part ..

HOWEVER ... you DO NOT present the offer to the Lender for approval.. why

Flash back to real estate school

Who owns the house .. Seller

Who does the buyer ask to sell the house ..Seller

Who hired the agent to sell the house ... Seller

Who can reject the buyers offer regardless of the lenders approval ... seller

So who does the agent owe a FIDUCIARY RESPONSIBILITY --- SELLER

So who is the lender is this Short Sale game.. really no body..

The Seller and the Seller Agent go to the Lender and ask will you release the title for XX$$$ the lender ask the Seller ..if we say yes were is this money coming from .. Seller / Seller Agent say ... well this Buyer offered this deal ( see attached offer) lender says OK if you can make this deal work will will give them the title and all is Good.

Sorry I get a little worn out by agents that think they are making an offer to the bank .. they cant ..

Back to Basic Real Estate .. never hurts anyone

Apr 22, 2008 01:49 PM

Jean Powers

Kane & Associates call 510.908.9002 - Alameda, CA

CRS,e-PRO,HAFA,SFR Broker, Northern California

I totally disagree! Granted the fiduciary relationship is to the seller but nothing can happen unless the lender approves the offer or then it goes into foreclosure which can be worse for the seller. I feel all offers should be submitted to the lender as they are the ones who have a loss on the property. Other than the seller signing the offer, the seller has no decisions on the final outcome. Some lenders in a short sale do not even want the seller to sign the offers

Apr 23, 2008 04:26 PM

Pacita Dimacali

Alain Pinel - Oakland, CA

Alameda/Contra Costa Counties CA

This is the reason why I am posing this question to the community. There is an ongoing discussion, indeed, a lively debate on this issue. Since there is a growing number of short sales in many areas, what is the right and the best answer to this question? Who determines who is right?

As my father always says, we all read the same thing, watch the same news, yet we all come to different conclusions and form different opinions.

Apr 23, 2008 05:35 PM

Roland Woodworth

Blue Cord Realty - Clarksville, TN

Blue Cord Realty

Pacita: One thing to keep in mind is YES.. You work for the Seller and you should get the offer negotiated and accepted at the highest and best offer. You must also have in there that it is subject to lender approval. Now keeping in mind that there could be other offers that come in. What happens if a higher and better offer comes in while you are waiting on the lenders approval ? Are you going to just ignore it and not negotiate it as a back up offer and not submit it to the lender ? We must keep in mind that you are working for the sellers and the more money that is discounted on the mortgage, the more the seller will recieve a 1099 for and could be subject to paying taxes on the discounted amount as INCOME ........ Your thoughts ?

Apr 23, 2008 06:03 PM

Pacita Dimacali

Alain Pinel - Oakland, CA

Alameda/Contra Costa Counties CA

I am currently representing the buyer for a short sale property. We submitted a cash offer and got an acceptance from the seller. Per our MLS rules, the listing agent should have, within 24 hours, changed the status of the listing to Pending....he refused, and said it's active until the lender accepts. Only after being reminded of the MLS rules did he change --- but he changed it to active-contingent, continue to show.

In the meantime, another offer came in, not a cash offer but a slightly higher offer than ours. The agent will present it to the seller and the lender, and seems more inclined to recommend that offer, based on his comments. If the seller accepts, won't that second offer be in back up position?

And who's to know what the lender will do: choose an all cash offer, or a higher offer that necessitates a loan?

As for the discounted money on the mortgage that will appear on the 1099, isn't this what the Mortgage Debt Forgiveness Act of 2007 all about --- forgiveness? As such, no tax on that difference? According to the IRS website "Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. " To check it out on the IRS site, click here

By the way...I am seeing this type of comments more often in confidential remarks on listings: "There is an accepted offer, pending lender approval. Seller not looking at any more offers."

Apr 23, 2008 06:21 PM

Bill Nordbrock

HomeWay realty - Tucson, AZ

No question you MUST present the other offers to your client and to the bank if they are better than the first offer (unless you have been instructed by your seller in writing not to present other offers) . Your fiduciary responsibility is to the seller, to protect his or her best interest. In many cases sellers have tax liabilty to the IRS on the amount of debt that was "written off" by the lender (Yes I am aware of the new legislation that protects consumers from this tax liabilty, but that only applies to purchase money loans on the primary residence. Most homeowners have refnaced thier home and pulled equity out. They are not protected under this new legislation). If you do not submit the higher offer, the debt forgiven is larger and so is your clients tax liability.

Depending on the state you live in, the lender may also have a right to come after your client for the deficiency balance, obtain judgement for that balance and garnish wages or attach other assets to collect it. Present the better offers.

Apr 28, 2008 08:53 PM