Seven Questions to Consider Before Taking a Short Sale Listing

By
Services for Real Estate Pros with Law Offices of Louis J. Esbin

Before taking a short sale listing, every Realtor (and Broker) should consider the following 7 questions:

 

  1. Have you as the Realtor asked the Client if the Client has consulted with their accountant or tax advisor on the issues of capital gains (and losses if nonresidential property) and debt forgiveness?
  2. Have you as the Realtor asked the Client if the Client has discussed with their accountant or tax advisor the tax consequences to the Client of the short sale?
  3. Have you as the Realtor considered (or consulted with their Broker) whether the failure of the Realtor to ask the foregoing questions before taking the listing could result in adverse consequences to the Client for which there may be unintended consequences and possible liability to the Realtor (and Broker)?
  4. Have you as the Realtor asked the Client if they have consulted with a Financial Lawyer (a bankruptcy lawyer) about how a short sale may impact other financial planning decisions, including minimizing or eliminating the tax consequences identified by the accountant or tax advisor?
  5. Have you as the Realtor asked the Client if the Financial Lawyer has discussed bankruptcy as part of an overall financial restructuring in which the short sale is part?
  6. Have you as the Realtor discussed with the Financial Lawyer the timing of a short sale and a possible bankruptcy filing.  A short sale that precedes a bankruptcy filing may adversely impact whether a Client qualifies for relief under Chapter 7.  If the short sale takes place before a bankruptcy filing in some jurisdictions it could result in a Client "failing" the Means Test, and therefore qualifying only for a Chapter 13; a much more rigorous, costly and onerous alternative to Chapter 7 relief?
  7. Have you as the Realtor considered (or consulted with their Broker) whether the failure to include a Financial Lawyer (a bankruptcy lawyer) in the process and failure to have considered the adverse impact on whether the Client can get relief under Chapter 7 may give rise to liability for the Realtor (and Broker)?
Remember, you as the Realtor, are often the neighbor, friend, relative, or confidant of the Client.  You are being untrusted with some of the most daunting financial stress that any Client could be going through in their entire life.  Consider the "Big Picture" and what is in the best interest of the Client.  Even if a bankruptcy filing precedes closure of a sale, all may not be lost.  If the Chapter 7 Trustee abandons the real property, the sale may continue and be closed.  There is no requirement for a court order in that instance; although the title company may say otherwise.  Where the real property is subject to a short sale the Chapter 7 Trustee will likely abandon the real property, as there is no equity from which proceeds can be recovered.  No court will grant even a title company demanded motion to authorize a short sale, as there is no asset to be administered.

 

 

Comments (5)

Matt Grohe
RE/MAX Concepts - Des Moines, IA
Serving the metro since 2003

Louis: Those are great questions. I just usually have an internal dialogue consisting of: Will the house sell? Will this person be a pain in the @$$? Can I make it happen before they get foreclosed on?

Sep 09, 2009 04:30 PM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

Matt: Thank you for reading and in doing so I am hoping that you and others incorporate my questions into your everyday meetings with Clients.  In posting these 7 questions, I am attempting to further the concept of a complete consideration of how one financial decision may adversely impact other financial decisions.  It is in furtherance of Clients being enlightened to consider the "affordability" of their financial decisions, as a whole rather than in isolation of one to the other.

Sep 09, 2009 04:37 PM
Cathy McAlister
Cathy Ashley McAlister, GRI CDPE - Broker / Sacramento - Sacramento, CA
Sacramento DRE#00648507

We require all our short sale sellers to:

1.  Consult with an attorney AND CPA for legal and tax consequences.

2.  We make sure to provide time for the seller to "approve" short sale approval letters.   This approval should and general does consists of a visit with their advisors.

We will not take a short sale without it.  

By the way.... it's not about us as the broker... it's about them as the client.  They need to know EVERYTHING!   Short sales are a difficult and challenging process.  They can be achieved and sellers ARE getting them done everyday - it takes good guidance on the part of all their counselers to clearly show the road the sellers must travel. 

None of the options are great - but many seller's take comfort in as least having "their" option of choice.

Sep 09, 2009 04:40 PM
John Rakoci
Eagle Realty - North Myrtle Beach, SC
North Myrtle Beach Coastal Carolinas

Thanks - it is a great list. Many see a short sale as a way out with zero consequence.

Sep 09, 2009 04:50 PM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

Cathy: Good to hear that you have such great guidelines and set procedures to protect the Client.

Yes, you are right, it is not about the broker or Realtor, but as the Realtor or broker are often in a position of confidence with the Client, such procedures assures that the Client is well informed.  The 7 questions are intended for the inexperienced Realtor or broker, or those who may not know how a short sale may adversely impact the Client.

In conjunction with local Realtors, I try to work as a team to provide a very affordable consultation ($100 for an hour) on the legal consequences of bankruptcy, short sales, foreclosure, deeds in lieu, etc.  A CPA or tax advisor is a must so that I can provide a complete scenario and strategy.

Sep 09, 2009 04:58 PM