Real Estate Attorney with THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY

PRESENTING THE SHORT SALE ADDENDUM YOU CAN'T SIGN!   Agents hold on to your wallets as this could cost you big time!  This is just too big and important to let one blog article suffice.  And developments on this are occurring quickly.  The problem was pointed out in my re-blog Freddie Mac Short Sale Addendum - Item #13 - I DON'T THINK SO!!  on September 9, 2011.


On September 3rd there was a telephone conference call between ALTA (American Land Title Association) staff in Washington, DC and Freddie Mac’s Short Sale team to specifically discuss the addendum reproduced in Freddie Mac Short Sale Addendum - Item #13 - I DON'T THINK SO!! .  No resolution was then reached and as of today, none has been presented.


According to the below emailed alert to certain ALTA members (including our title underwriter), the problem with the document goes much further than even reported in my earlier blog article.  ALTA points out that (1) the document requires closing and escrow agents to certify information that is not available to them; (2) the document places a negligent misrepresentation standard on the escrow / closing agent that requires the escrow / closing agent to use reasonable efforts to determine if the transaction is arm’s length – without setting forth what those reasonable efforts would or could be; and (3) the document requires that the document be signed by the escrow / closing agent individually, without corporate protection, meaning that if there is a loss because of fraud or misrepresentation by any party to the transaction, the agent could be fully and personally liable. SINCE REAL ESTATE AGENTS ALSO SIGN THIS DOCUMENT, THE SAME LIABILITY AND RISK AFFECTS THEM AS WELL.


I am checking with my E&O carrier to see if they will cover such a claim.  If they don’t, then I cannot risk my own capital and family wealth for the meager fees of a short sale closing, and I suspect anyone who actually realizes what this document does, also will not close such a sale.


For any of you that think this is negotiable, here is a response I got today when I told a Bank of America negotiator on a Freddie Mac loan that I can’t sign if the E&O won’t cover the claim. “Thank you for letting me know.  Without the document we cannot proceed with the short sale and must decline the file.  How long do you think it will take for your E & O carrier to make a decision as to allow you to sign the document?  I cannot have any outstanding files, so should I decline the file at this time or do you think this is something that can be checked on quickly?


Fraud is a big problem with some markets of distressed property and I have written about it in several articles - often times with flipsters phoo phooing the concept as being fraud: SHORT SALE FLIP - QUESTIONABLE METHODSShort Sales and Title Insurance - Critical Look at Hybrid Closing SchemesIS SHORT SALE FLIPPING CRIMINAL ACTIVITY?.



ALTA is looking for examples where the Addendum is causing hardship to borrowers and consumers.  If you have any please send the information to Steve Gottheim, Legislative and Regulatory Counsel to ALTA at


Here is the information transmitted by ALTA:


ALTA Meets With Freddie Mac Short Sale Team About Troublesome Addendums
On Friday, ALTA staff held a conference call with members of Freddie Mac's Short Sale team about the industry's concerns over new short sale addendums. These addendums are intended to help prevent short sale fraud (which is on the rise) by requiring all of the parties involved in the transaction to sign an affidavit attesting that it is a true arms-length transaction.

The addendums present three concerns for the industry. First, the affidavit requires a closing or escrow agent to certify information that is not available to them, in particular whether the transaction is arms length. The relationship between the buyer and seller may not be evident from the public record information or their identification documents. Second, the affidavit places a negligent misrepresentation standard on the escrow agent. Unlike a "to the best of my knowledge standard" a negligence standard requires the escrow agent to use the reasonable efforts of an ordinary person to determine whether the transaction is arms length. Instead of laying out clearly what the escrow agent must do to release themselves from liability, the escrow agent is at risk of liability if fraud is discovered after signing the affidavit. Lastly, the affidavit requires the escrow agent to sign the transaction in a personal capacity as well as in a corporate capacity. Thus if fraud is discovered, then Freddie or the servicer can go after the escrow agent's personal property and monies in addition to going after the corporation.

Before signing any of these addendums, ALTA suggests escrow agents reach out to their attorneys to discuss the legal risks and whether the agent has the authority to sign the document. It might also be good practice to review your companies E & O insurance policy to determine whether these addendums are within the scope of that policy.

While the short sale team expressed sympathy for the title industry's concerns and were open to discussing potential solutions, Freddie's general counsel is not keen on removing the requirement all together unless the problem becomes a bigger issue. Over the next few weeks, ALTA staff will be working with interested parties to develop potential solutions. If you would like to learn more or have any comments please contact ALTA's Legislative and Regulatory Counsel Steve Gottheim at


Copyright 2011 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  New Website

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Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - I'll be watching this carefully, as I have a Freddie Mac short sale now in process.  I am also forwarding to my title agent.   Thank you.

Sep 14, 2011 10:53 AM #1
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Thanksfully there are those who can read, understand and interpret the red tape. I appreciate your posts, Richard.

Sep 15, 2011 01:41 AM #2
David Earle
Charles Rutenberg Realty - Maitland, FL
"Experience isn't expensive it's Priceless"

Hi Richard, As always your posts are insightful and well researched; reading your posts makes me so much more informed. But in this case more concerned when facing a Freddie Mac short sale. I can only imagine the bank is going to say as they do every time you voice a concern with language in an addendum; either sign it or the deal is dead. 

Good thing I haven't had to face this issue as yet; hopefully you will share the solution when one is found.


Sep 16, 2011 01:22 AM #3
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Richard - Do you have any updates on this? I was just presented with this Freddie Mac form.

Sep 21, 2011 02:09 AM #4
Richard Zaretsky
THE ZARETSKY LAW GROUP - Board Certified Real Estate Atty and AUTOMATED LAND TITLE COMPANY - West Palm Beach, FL
Florida Real Estate Attorney


My law office E&O underwriter attorney has recognized the issue.  She believed that if the matter of the use of these forms (now I have seen them from Bank of America and Wells Fargo in somewhat different formats from those from Freddie Mac), then it would be a matter of "common usage" and probably be covered.  But she can't speak for the underwriter, so...........

I have prepared a "due diligence investigational disclosure form" of sorts and the actual underwriters for my law office and for my title company are examining it along with the situation.  I expect an answer next week.

Sep 21, 2011 02:50 PM #5
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Yikes!  While they do little to work out the kinks in their systems, they want the right to go after everyone involved in these transactions.

Sep 28, 2011 04:41 AM #6
Zane Jacobs


Any update on this? I currently have two approved short sales unable to close and another one close to approval, also unable to close because of this affidavit. The lenders are Citi, GMAC and BofA. The two approved short sales are on the brink of falling through at this point, we've been 'at the closing table' for 3 weeks.

Sep 28, 2011 05:48 AM #7
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Any updates on this? I have two short sales scheduled to close with this addendum. Any updates on this?

Oct 19, 2011 08:50 AM #8
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Richard -- Did you ever get a resolution from your E&O about whether or not you had coverage, or what was necessary to have coverage?

Nov 21, 2011 11:24 AM #9
Ted Sassi


Nothing but complicates the transactions. I don't blame title agents for being concerned. There is no true way to know about anyone unless you’re conducting phase 2 background checks on all parties? Who really is going to be able to do all of that? For the amount of liability all parties are taking on is it worth the risk? The sooner these properties get back into individual hands the sooner we can stop hearing about all of this.

Feb 13, 2012 07:16 AM #10
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

It is now a middle of 2013 and i just received the request from BofA for all parties to sign  a Freddie Mac ADM. The property does not even belong to Freddie. The negotiator simply said: if we don't sign, the short sale would be canceled, such a nonsense....

Aug 02, 2013 04:03 AM #11
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