Real estate agents who take on listings for a short sale or foreclosure should remember several points to protect themselves against potential legal action. Below are the top 5 tips:
- When taking on a short sale listing, the homeowner is known to be in financial distress. At this point, your primary responsibility is to the homeowner, even at the expense of your commission. To proceed with any other intention breaches your fiduciary responsibility, a phrase used again and again in lawsuits that basically amounts to a breach of trust.
- In taking a short sale listing, you will have obtained access to privileged financial information about the homeowner. Attempting to leverage this information for your own benefit leaves you vulnerable to fraud charges.
Not closing a deal due to a lack of commission, then simply informing your client that the lender wouldn’t accept the offer leaves you open to a host of lawsuits for one reason: Lenders record all negotiating phone calls. Should your client investigate the matter, their attorney will almost certainly subpoena these recordings. Additionally, the attorney will likely subpoena your notes and the preliminary HUD-1 Statement, which will contain your commission. - Filing “creative” paperwork with the title agent (who often might well be a friend) with the intent to close the deal and still land a commission is risky. When dealing with short sales, the paperwork should always be handled by an attorney.
- Many self-proclaimed “short-sale experts” have taken only a short course on the subject and may have never actually closed a short sale. Jumping into this arena shouldn’t be taken lightly–not being completely familiar with the process can leave the door open for clients to cry foul should the sale not go through, and ignorance is seldom a successful defense. Speak with experts, learn the finer points of short sales, then proceed with you best efforts to help the client. Above all else, if you’re unsure about the process, refer your client to an agent with the knowledge to properly conduct the sale.
Short sales are not like regular listings. Timing, pricing, the desperation of the client and the lender moving toward foreclosure all create many issues not usually dealt with in normal home sales. The best thing a real estate agent can do when dealing with a short sale is to get educated on the process; if you do not have experience with short sales, find an agent that does and work closely with them instead of tackling the sale solo, or turn the sale over to them altogether. Working with a real estate attorney can also help reduce liability, especially in situations where conflicts and moral dilemmas may already be present. These tips can help ward away many of the pitfalls from short sales.
Guest blog courtesy of Show Appeal Realty, an Arizona real estate brokerage selling Scottsdale Homes and helping homeowners with Phoenix short sales.