Thanks for your insight on short sale potential agent liabilities. We in the real estate brokerage business have led a sheltered life. We can thank the long term uptrend in real estate prices for the absence of a significant number of lawsuits.
If fact, there is a growing level of public anger over the huge loss of equity in real estate values. We can count on this growing anger to manifest itself in a barrage of lawsuits by buyers and sellers of real estate. It will bring in a new day for our industry, changing the way we all evaluate how we deal with customers. We are all on thin ice in this regard.
Unfortunately, even if we farm out the loss mitigation to a lawyer, title company or loss mitigation company...we will still be defendants because we deal with the customer and routinely give advice.
We in the real estate brokerage business need to act like people in other fields that routinely live with lawsuits....sort of like defensive driving.
I know I am in the minority here when I say agents should not be negotiating short sales. (which I have written about ad nauseam) I am fully aware that in some markets, 90% of the housing inventory is a short sale or REO. Every time I turn around, I see some other "agent expert" hawking their short sale how-to book or "qualifying" designation. Unfortunately, short sales are part of the real estate business in 2009; however, we are in unchartered waters as agents and I hope that in 10 years, the real estate industry doesn't look back on this and say, "what were we thinking?".
1. Does your E&O insurance specifically state that you are covered to engage in a short sale? I asked my insurance company this and the answer was, "yes"; however, the policy doesn't specifically state "short sale" nor any of the acts normally associated with handling a short sale. The policy does state that I will not be covered for acts as an agent, "not expressly described herein".
2. If the sellers currently have a government mortgage and they sell it short, will they be able to get another government loan (including a government backed student loan) unless they pay the difference? From what I have read with regards to VA loans, the answer is "no".
3. With some banks, if the property has fallen in value to a point where it is not worth more than a certain amount (say $25,000), they will not foreclose. Of course, they do not advertise this; however, they will just release the lien on the property.
4. We are not just dealing with sales prices here. We are dealing with the futures of these sellers. Let's say seller A sells short, is required to liquidate his savings and starts having his wages garnished for the difference 2 months later. Seller B, same mortgage company, same shortage, doesn't have to liquidate anything and the bank agrees to no deficiency judgment. Is seller A's agent at fault for not negotiating better with the bank?
5. How does your licensing board address agents handling short sales? The licensing board in Virginia doesn't specifically address short sales; however, it is VERY specific about agents performing duties that should only be handled by an attorney. Is negotiating a short sale with a bank (who is not a party to a standard sales contract), a "ministerial" act for an agent, or something with legal ramifications that should be handled by an attorney?
My husband works for a large bank. Everyday, they get calls from former sellers complaining that their wages are being garnished, the bank placed a lien on their other property, they lost their job because of their credit (yes that really happened) etc., and that "my agent never told me this would happen", or, "my agent told me the bank could do this, but the bank's so swamped, probably won't".
Sorry, unless a real estate agent has a crystal ball and knows the long term ramifications of a seller doing a short sale, I don't think they should be calling themselves a "short sale expert". Even the most "experienced" agents working short sales have only been dealing with them for what, 3-4 years tops? That's not the making of an "expert" in my opinion.
Tina in Virginia