Realtors Will Be Sued From Botched Short Sales

Real Estate Agent with RE/MAX Executive Realty 91362

Original article source: Massachusetts Real Estate Blog ~ Short sale lawsuits against Realtors

Avoiding short sale lawsuits

                                                                                                                                                             Realtor short sale lawsuits

There is no question that in this economic down turn we have experienced over the last five years or so that short sales and foreclosures have become part of out everyday Real Estate landscape.

Every week there are countless new short sale listings that hit the market in Massachusetts. In many of these short sales the seller, not understanding there is a big difference between a traditional Real Estate transaction and a short sale hires any ole Realtor® they happen to come across to represent them.

One the other side of the coin, there are also plenty of Real Estate agents that see the growing number of short sales coming available for sale and realize there is a lot of money to be made.

The problem however, is that many of these agents are flying by the seat of their pants and have done nothing to educate themselves on the ins and outs of closing a short sale.

As a Realtor® who has been successfully closing short sales for almost four years, this is one of my biggest pet peeves! How anyone can look a desperate seller in the face and take on a listing to sell their home with no short sale expertise is just beyond me. It pisses me off when I see a new short sale listing hit the market and know the agent has no track record with this type of transaction.

There are many Realtors® that are putting the noose around their own neck. In desperate times people do desperate things. The end result is that on many occasions consumers get very poor advice that can cost them dearly.

Realtors® that do not have short sale expertise could really do themselves a favor by referring the business out to an agent that is qualified to get the job done.

You may be wondering why this has become such a passion of mine? The answer is simple. Short sales have become stigmatized because there are numerous Real Estate agents and buyers that have been involved in deals where the listing agent did not know what they were doing. The end result for a number of different reasons is a sale that didn’t happen. This leaves a bad taste in everyone’s mouth. Going forward it makes it harder for the agents that do know what they are doing to find buyers for the short sales they are marketing.

Below I am going to touch on all the things you should look out for in trying to successfully complete a short sale whether you are in Massachusetts or another state.

Properly pricing a short sale

When you are short selling your home there is a good chance that you are not able to afford the monthly mortgage payments any longer. You may be just scraping by and know that next month you won’t have enough to pay your lender. When you decide to short sell your home and are no longer paying your mortgage pricing the home properly becomes critical.

The last thing you want to do is either over price or under price the home. For obvious reasons if you over price you will more than likely not be able to procure a buyer in a timely fashion.

If you under price the home and receive a contract from a buyer, the lender is going to reject the short sale after reviewing the appraisal or broker price opinion that they order.

Both of these scenarios can leave you with nothing and that much closer to a foreclosure. A short sale should be aggressively priced such that you will find a buyer in a timely fashion but not so low the lender is going to reject the short sale contract.

The short sale contract

There are numerous Realtors® that are clue less when it comes to giving sellers advice on the short sale Real Estate contract. Lets get one thing straight right off the bat….. When a seller signs a Real Estate contract it is almost always legal and binding as to the terms and conditions in the agreement.

Here are 4 short sale contract issues you need to be aware of:

  • Realtors® submitting multiple unsigned offers to your lender
  • Realtors® submitting low ball offers to the lender
  • Realtors® allowing home inspection contingencies after short sale approval.
  • Realtors® allowing an investor to negotiate the short sale
  1. When a Realtor® submits an unsigned offer to your lender YOU do not have a legal and binding contract. The buyer can walk at any point in time with no consequences to them! Does this benefit a seller in anyway? The answer is NO NO NO!  The Realtor® you hire should be looking to lock up the most qualified  buyer who stands the greatest chance of getting to the closing table.
  2. If you sign a low ball offer you stand an equally strong chance that the lender is going to reject your offer and send it back. If you accept an offer that is no where near the market value do you really expect the buyer is going to agree to the price the lender wants? Not likely and again you will be back at square one after being off the market for an extended period of time.
  3. Allowing home inspections after the short sale approval is another big mistake. Do you really want to have your home off the market for months, get a short sale approval from your lender and then find out the buyer wants to back out due to inspection items? Don’t let the blind lead the blind. There is no reason for letting a buyer have home inspections after short sale approval. I find most buyer’s agents think they are protecting their client by trying to save them from spending a few hundred dollars. WRONG – what the buyer’s agent is preventing is the buyer from negotiating a pricing discount if there were issues discovered. Lenders DO NOT negotiate home inspections issues after short sale approval.
  4. Letting a buyer negotiate for a seller is clearly foolish. The investor only cares about the seller if they get the terms THEY want.  An agent who lets an investor take over a short sale transaction is asking for a lawsuit. Realtors should not let investors negotiate a short sale!

Short sale negotiations

Massachusetts short sale RealtorThis is clearly an area where you will see most of the lawsuit’s against Realtors®. There are agents who are engaging lenders in the negotiations of short sale approval but don’t have the knowledge and understanding of either short sale debt release and/or short sale tax ramifications.

Who do you think will get sued if a seller receives a 1099-C or 1099-A at the end of the year or gets stuck with a deficiency judgment by their lender(s) at some later date in the future and they were not informed up front about it?

There are many Realtors® who have negotiated short sales that misrepresented to their client that the short sale approval letter removed the short sale deficiency when in fact it did not.

Realtors® are supposed to abide by the Real Estate Code of Ethics but clearly there are many who’s judgment is clouded by the almighty dollar.

The Code of Ethics clearly states:

Article 11  Realtors® are knowledgeable and competent in the fields of practice in which they engage or they get assistance from a knowledgeable professional, or disclose any lack of expertise to their client.

Article 13  Realtors® do not engage in the unauthorized practice of law.

Speaking of giving legal advice, there are Realtors® who are guilty of telling their client to stop paying the mortgage to complete a short sale. While this may be the proper advice in 9o-95% of most circumstances with short sales what if the sale falls into the 5-10% where stopping payment was not necessary?

Most major lenders may require payment stoppage but some of the smaller lenders do not have that guideline. Telling a seller to stop paying the mortgage could have serious consequences on their credit that could have been avoided. Again Realtors® should not be giving this kind of advice. It should come from a lawyer.

The take home message here is to make sure you do your home work when hiring a Realtor to represent you in your short sale!

I am successfully completing short sales through out the Metrowest Massachusetts area. As of this writing for almost four years, knock on wood, I have a 100% success rate for short sale approval! I work hand in hand with a local short sale Real Estate attorney who knows how to get short sales done! I will admit there is some luck involved in my success rate but the team I have put together does a stellar job.

If you are outside of the Metrowest Massachusetts area or even in another state and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and has an understanding of the short sale process! I have referred numerous short sales to other Realtors all around the country.


About the Author: The above Real Estate information on Realtor short sale lawsuits was provided by BillRE/MAX Executive Realty Metrowest Massachusetts Gassett, a Nationally recognized leader in his field. Bill can be reached via email at or by phone at 508-435-5356.

Have a home to sell in Metrowest Mass? I have a passion for Real Estate and love to share my marketing expertise!

For Massachusetts short sale Real Estate information see Massachusetts short sale. Want to have MLS access to beat other buyers to your dream home? Sign up with no obligation at my MLS Property Finder Site.

I service Real Estate short sales in the following towns in and around Metrowest Massachusetts: Hopkinton, Milford, Upton, Bellingham, Southboro, Westboro, Ashland, Holliston, Mendon, Northboro, Shrewsbury, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Franklin, Framingham, Natick and Douglas MA.


Building lasting relationships by helping people move in and out of Metrowest Massachusetts for the last 24 years.

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.


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Robert Smith
Preview Properties, PC - - Brighton, MI
SRES, Search for Homes Brighton-Howell-SE Michigan

Amen, Bill.  Too many consumers wait far too long to take action. I think those are the ones that are very desperate and end up with the first Realtor they talk with - sometimes with a poor experience or qualification fit. 

May 02, 2011 01:07 AM #149
Doug Bullwinkel
Envoy Mortgage, NMLS 6666 - Roseville, CA
Mortgage Loan Originator NMLS #281609

Your article clearly shows that there is a big difference between a normal sale and a short sale.  Unfortunately there are many agents out there that aren't aware of the difference.

May 21, 2011 06:48 PM #150
Tom Scott
Remax Advantage Plus - Shakopee, MN
Re/Max MN Realtors and Real Estate Agent

Most indeppth short sale post I have read. I now use an attorney to negotiate the short sales for my clients as they can advise them on the process. What do you do to find most of your short sale listings?

Jun 19, 2011 08:40 AM #151
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Tom almost all of my short sale business comes from short sale articles I have written. You can see all of them at Massachusetts short sales.

Jun 19, 2011 09:52 AM #152
Terry Gerling
Ultimate Realty - Saint Louis, MO

Very good reading.

Thanks for the post

Jun 22, 2011 07:45 AM #153
Lisa Wetzel
RE/MAX Realty Affiliates - Carson City, NV

This is a great article about the ins and outs of Short sales. We've all learned more than we ever wanted to know about this fact of life!  Thanks very much for the great blog!

Jun 28, 2011 03:27 PM #154
Joseph Alfe
Short Sale Processing Inc. - Chicago, IL

Great article.  I have been saying for years that unless properly trained, which does not mean a three hour webinar course, agents have no business doing short sales because of the liability.  Want proof, call up your E&O insurer and ask if you are covered if doing short sales.  The answer will be no. Always refer negotiations to a qualified and experienced negotiator and always have the seller seek legal cousel for further liability protection.

Jul 08, 2011 01:23 PM #155
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Terry, Lisa, Joseph - thanks for your compliments on my short sale article. Seller's need to understand that hiring a Realtor that has a track record of closing short sales is vital!

Jul 09, 2011 05:49 AM #156
Paddy Deighan JD PhD - Vail, CO
Paddy Deighan J.D. Ph.D

very good points and advice.  I see botched short sales every day. LA and orange aCouinty CA have many. many lawsuits against realtors in short sale negotiations...right or wrong, it is happening and my strong belief is that most E&O policies will deny coverage.  I hear improper tax advice, forclosure advice and deficieny comments

Jul 27, 2011 09:48 PM #157
Carol Barron Cross
Sunflower Homes & Equestrian LLC

Thanks for the post. Short sales are a part of our market. One must really know what they are getting into when listing a short sale. Good advise.

Aug 01, 2011 12:28 AM #158
Matt Robinson
Professional Investors Guild - Pensacola, FL

I've done well in excess of a hundred short sales, and have plenty of experience, but I don't begrudge the newbie as much as you do.  There was a time when you did your 1st one, right?  And I'm sure a few mistakes were made along the way.  It's such a big segment of today's market, there's no way agents are going to continue to refer every short sale they get to the "experienced" agent in town.

Other than that, I agree with most of the rest of your post, and certainly believe agents should get adequate training before taking on such a complex transaction.  They also must be very careful what they say, and not slip into providing legal or accounting advice when it comes to the deficiency or 1099 situation.

Aug 02, 2011 05:41 AM #159
Richard D. Chapin
Arizona Elite Commercial - Payson, AZ
PLLC - Commercial Real Estate

excellant post I don't think enough realtors realize some of the libility issues they open themselve up to just chaseing what seems sometimes to be the only opportunity for commission out there, like you said best to refer it out. Better to get a smaller percentage than make make mistakes that will come back later.

Aug 27, 2011 12:50 PM #160
Karen Crowson
Coldwell Banker Residential Brokerage - Rancho Bernardo, CA
Your Agent for Change

This is an excellent post Bill. The one aspect that I would challenge is the that volume makes someone a good short-sale agent. I've been the buyer's agent on a few where the listing agent talks about how many they've done, and then   really obvious issues come up that they didn't address early on. I believe an agent who is CDPE trained or SFR trained would be much better out of the gate that some of those who are 'experienced'. And when short sales first hit the scene, very few agents had ever encountered them before. Those agents learned on the job. Some did great with it, and others didn't. 

Sep 29, 2011 03:58 PM #161
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Karen I would agree that experience doesn't necessarily guarantee results or a smooth transaction. I will totally disagree with you on an agent passing a CDPE course as making them better - that is a joke along with most of the other credentials like GRI, CRS that many agents like to flaunt. CRS....could be can't remember #$%#!

In many cases it is still the same non college educated person with no business degree that passes one of these courses. That makes them better? I have seen some of the biggest mistakes made by Realtors that say they are CDPE.

In fact CDPE is taught most of the time by former Realtors. Up until a couple of years ago CDPE was teaching Realtors that a credit score was better in a short sale with missed payments than a foreclosure - completely WRONG!

Sep 30, 2011 12:33 AM #162
Luis Iniguez
Option One Real Estate - Fontana, CA
Search Inland Empire Homes For Sale - Short Sale Agent

Great post.  I also believe the law suits are on their way.

Dec 06, 2011 03:47 PM #163
Jark Krysinski *PREC (Personal Real Estate Corporation)

Excellent post! No wonder so many people conmment on your article. I couldn't agree with you more! I hope the law suits are taken action as soon as posibble.

Thanks for sharing this great article with us!

Have a great day!

Feb 21, 2012 01:59 AM #164
Andrew Capelli
Hoover Elementary - Hazel Park, MI

Bill: This is really an excellent post and should be read by any agent thinking about short sales.  The legal standard for negligence is pretty low.  There has to be a standard of care (not botching the short sale), and a breach of that care (botching it) which causes damages (foreclosure).  So, if there's any uncertainty at all, it is a very sound idea to let someone with experience handle the actual processing.  Thanks for sharing!

Jun 04, 2012 06:38 AM #165
Lori Mahaffey
Movement Mortgage, LLC - Clarksville, TN
Lori Mahaffey

Responsible Sales has the Same Fortitude as Responsible Lending. It Is What It Is. Thank You for Sharing.

Jul 06, 2012 02:21 PM #166
Marcus Rice
Equity First Realty - Richmond, VA
Your Richmond & Northern VA Real Estate Broker

Great Blog, Great information for Realtors, buyers and sellers. Thanks for sharing this detailed information about how real estate should be handled.

Jul 20, 2012 11:49 PM #167
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Guys thanks for all your compliments on the short sale article. One of my biggest pet peeves is Realtors listing short sales who have no business doing so!! These agent give our industry a bad rap. There are lots of sellers in financial dire straights who are being misled by Realtors that have no clue what they are doing.

Jul 21, 2012 01:26 AM #168
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