Don't Go to Jail for a Short Sale is the advice for Maryland real estate agents
The Greater Capital Area Association of REALTORS® has distributed this warning to its members: Don't Go to Jail for a Short Sale.
The Maryland Mortgage Assistance Relief Services Act (MD MARS) went into effect July 1, 2013 and requires a "mortgage assistance relief service provider" to comply with specific regulations.
Short sale transactions have become common when home owners need to sell their property but the market price will not fully satisfy the outstanding mortgage obligations. These transactions require the approval of the secured mortgage lenders. Some real estate agents have offered to handle the negotiations with the mortgage lenders in order to facilitate successful short sale transactions for their home seller and home buyer clients.
Real estate professionals that offer their services or provide their services for short sale transactions are being warned to limit the scope of their activities to avoid severe penalties and possible criminal charges. In the current environment, some listing agent will decide not to handle short sales because of the risks that may be involved. All are advised to carefully read the Maryland Real Estate Commission’s short sale guidelines that are included below.
You Need to Know
Negotiations or discussions over short sale issues are considered "mortgage assistance relief services" and are outside the scope of a MD real estate license. Those in violation of the new law can be liable for serious damages and criminal charges.
MD Real Estate Commission's short sale guidelines here.
The Office of the Commissioner on Federal Regulation information on short sale services here.
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Guidelines for Licensees in Short-Sale Transactions - Maryland Real Estate Commission
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Federal Regulation O and the Maryland MARS Act do not provide a specific exemption for real estate licensees. The Commissioner of Financial Regulation will forbear from taking any enforcement action for violation of the Maryland MARS Act, and any regulations issued pursuant to the Act, against real estate licensees who are acting within the scope of their license. However, since the scope of the real estate license is limited by definition to assisting clients in the purchase, sale or lease of real property, the Real Estate Commission and the Commissioner of Financial Regulation consider that negotiation of a short sale deficiency agreement or any other type of mortgage collection forbearance with a seller's mortgage lender or servicer falls outside of the scope of a real estate license. Real estate licensees who negotiate with a lender/servicer or other lienholder, or representative of a lienholder, regarding a client's residential short-sale must comply with the Maryland MARS Act. Below are some guidelines that licenses should follow when involved in a short-sale transaction.
I. A real estate licensee:
- May enter into a contract with a homeowner to market their house for a short-sale, list the property in the multiple list service, and market the property for sale.
- May conduct a Comparative Market Analysis (CMA), which a lender/servicer may refer to as a Broker's Price Opinion (BPO). The real estate licensee may communicate with the lender/servicer regarding the value of the proposed short-sale property, including topics such as neighborhood conditions and comparable sales within the community.
- May submit documents to the seller's lender if:
- The licensee informs the seller that the licensee is not conducting negotiations with the lender, but is merely submitting documents or other information requested by the lender in connection with considering the short-sale request;
- The licensee informs the seller that the seller must either personally negotiate with the lender or hire a Mortgage Assistance Relief Service Provider or a Maryland attorney to conduct the negotiation; and
- The seller voluntarily signs an authorization indicating the licensee may submit required short-sale or loss mitigation information and documentation on the seller's behalf.
- Must refer a seller to a tax advisor or tax professional to explain to the seller the potential income tax consequences of a short-sale and the applicability of the Mortgage Forgiveness Debt Relief Act of 2007.
- Must refer a client to a housing counselor for discussion about alternatives available to avoid foreclosure. Free housing counseling is available through the Maryland HOPE Program at 1-877-462-7555.
- Must inform the seller of, and refer to the licensee's broker, any requests from the lender/servicer for reductions in real estate brokerage commissions on a short-sale.
- May truthfully advertise or present to the public any training or achievements that reflect the licensee's experience in the field of residential short-sales.
II. A real estate license MUST comply with all provisions of the Maryland MARS Act if the licensee does any of the following:
- Collects any monies in addition to the real estate brokerage sales commission from a short sale client.
- Assists a seller in negotiating with the lender/servicer or other lienholder to obtain approval for a short-sale, release of lien, modification of a promissory note, waiver of deficiency, or to otherwise prevent or obtain relief from a foreclosure.
- Represents to the public that the licensee: (1) can assist in preventing foreclosure; (2) is an "expert" in short-sales; (3) can arrange refinancing; or (4) will contact creditors on the owner's behalf.
- Makes representations to a homeowner that the licensee can save the owner's home, stop foreclosure, or obtain a short-sale.
- Provides advice to a homeowner regarding the benefits of a strategic default.
- Makes any predictions with regard to the likelihood of the waiver of a deficiency or the payment of relocation costs in a short-sale.
None of the above-described actions or services in Section II come within the Maryland's definition of the provision of real estate brokerage services, and therefore a LICENSEE IS NOT ACTING under his or her license when taking these actions or providing these services to a client. The licensee must ensure that the client understands that these services are in addition to, and not part of, the real estate brokerage services that the licensee has agreed to provide.
Commission of Financial Regulation Advisory: Guidance For Individuals Providing Short Sale Negotiation Service
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