Short-sale negotiators: It is getting ugly out there!

Real Estate Agent with Berkshire Hathaway HomeServices California Properties

One of the things I absolutely love about my brokerage is our emphasis on training. Our broker and management are constantly looking for important topics on which to talk. Our weekly meetings always contain useful, interesting information that helps us become better agents.

Today was no exception. Today our management began discussing short sales, and, in particular, short-sale negotiators. To be clear, this means third-parties who negotiate on behalf of sellers with the bank, not the internal bank negotiators.

Before I go into a lot of detail, I'd like to remind everyone that this information is California specific, and may not apply in other states.  Nonetheless, I hope some of this information might be helpful.

The Department of Real Estate has come out with a lot of information on this topic here in California. As everywhere, we currently have a lot of short sales, and we are seeing a lot of "interesting" things happen in the market. To see the actual alert issued by the DRE, click here.


Here is my 50 word synopsis of their 5 page document:


If you participate in a short sale, and don't follow the procedures to a "t", you are at risk for:

1. Federal Loan Fraud

2. Undisclosed dual agency (and therefore recission of the transaction and loss of all commissions)

3. Breach of fiduciary duty

4. RESPA violations

5. Licensing violations


Whew! Now - I will say that I do list short sales and I do show my buyers short sales. Luckily, I have not directly run into any of the situations that the DRE describes in their memo, including:

1. Non-licensees operating as short sale negotiators (not legal in most cases)

2. Addenda that require the buyer to pay the negotiator's fee (can lead to federal loan fraud)

3. Requiring that the addenda be signed before presentation of offer (possible breach of fiduciary duty)

4. Requests for non-recurring closing cost credits to pay for negotiator or other seller costs (again with the possible loan fraud and a violation of certification of fair market value)

5. Claiming the negotiator represents the buyer (possible undisclosed dual agency)

6. Classifying the negotiator's fee as a separate additional fee when the negotiator works for the broker (possible "junk" fee in violation of RESPA)


Even though I haven't run across these, now that I am aware of the legal problems with the practices (these already didn't pass my personal smell test) I can better educate my buyers and sellers about the pitfalls of using short sale negotiators unless it is covered under the original commission arrangement with the listing agent. I'm glad to have this information in my back pocket, because I CERTAINLY do not want to close a transaction and then lose my commission, lose my license, or go to jail!


I would definitely be curious to see if there are similar rules in other states, and I know the federal rules apply. Let me know your thoughts!


Day 29 - one day left!!

Comments (9)

John Cunningham
eXp Realty - Phoenix, AZ
Helping Phoenix Sellers and Buyers find each other


Lots of exposure issues with the short sales. Many agents get themselves into the grey area by giving, legal, tax, &/or credit advice and these areas are not the areas that agents should be advising in.


Sep 29, 2010 05:11 PM
Sharona Byrnes
Berkshire Hathaway HomeServices California Properties - Palos Verdes Peninsula, CA

John - Very true!! Agents should not be advising in these areas, clearly.  However, negotiating on behalf of our sellers and buyers is absolutely within our areas, and it is within these areas that many people are now getting in trouble! The key here, as always, is disclose, disclose, disclose!!! Don't try to use different language or terms to hide who is getting paid to do what and why. Put it out there and you are much less likely to get in trouble!

Sep 29, 2010 05:23 PM
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

I think this is something we must remind ourselves and other agents as to the difficulties of legal ramifications in a short sale.

Sep 29, 2010 07:11 PM
Michael Izquierdo
LA Pocket Listings - South Pasadena, CA

Quality training is priceless. I constantly try and stay as informed and educated as possible at all times.

Nice post, 1 more day :)

Oct 01, 2010 08:40 AM
Todd & Devona Garrigus
Garrigus Real Estate - Beaumont, CA
Broker / REALTORS®

Sharona - Thanks for the DRE link. Now more than ever we must protect our clients, and ourselves!

Oct 01, 2010 06:37 PM
Charles "Chuck" Martin
ROG Commercial - Las Vegas, NV
Commercial Advisor (Leasing & Sales)

Very Very True!   Also, if anyone is using a 3rd party nego, make sure you check the HUD that is submitted by them.

Oct 22, 2010 03:04 AM
Dustin McClure
Mossy Oak Properties Outdoor Realty - Mooresville, NC

We negotiate a lot of short sales for agents and the laws vary by state. In some states, you can collect an upfront fee as a licensed agent and in others, you must be an attorney. You should always be dealing with a licensed real estate agent or an attorney though.

Nov 18, 2010 08:10 AM
Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC - Bowie, MD
I don't make promises.I deliver results.SOLD HOMES

Short Sale Training. You can never get enough of it. The more you know,the better you are equipped to handle the situation. Even though this applies to California,this was helpful. Thanks for sharing. Great post.

Dec 15, 2010 02:09 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is important information for all of us to consider as we work our way through short sales.

Jan 09, 2011 04:24 PM