Short Sale Lawsuits: Realtors Up Next?
Avoiding 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 our everyday Real Estate landscape.
On 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 five years, this is one of my biggest complaints! 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
Virginia 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 overprice or underprice
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 underprice 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. Let’s
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
- 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.
- 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 nowhere 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.
- 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.
- 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
This 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 homework
when hiring a Realtor to represent you in your short sale!
I am successfully completing short sales throughout the Central
Virginia area. 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.
About the author: The above Real Estate was
provided by Rob Alley, a leader in his field. Rob can be reached via email at roballeyrealtor@gmail.com or
by phone at 434-964-8369. Rob has helped people move in and out of many Central
Virginia towns for the last 8+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Central VA: Charlottesville, Keswick, Scottsville, Ruckersville, Stanardsville, Crozet, Ivy, Greewnwood, Albemarle, Louisa, Orange, Nelson, Fluvanna, Amherst, Bedford, Campbell, Lynchburg, Waynesboro, Fisherville and Augusta
Realtor/Owner of Virginia Real Estate Solutions at RE/MAX Realty Specialists
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