It’s Not a Short Sale

As the dynamics of the real estate marketplace continue to change rapidly, new issues seem to keep arising. The current one is when selling a property short is not a  “short sale”.  As property values have fallen more and more, sellers are satisfying their loan obligations without going to the bank to forgive the difference.

Why Disclose When There is Nothing to Disclose?
It seems to be a challenge convincing buyers and their agents that just because the sellers owe more than the current market value, the listing is not a distressed sale. If the seller will be paying off the loans in full prior to the transfer of the property to the buyer, and the cooperating broker will be receiving the compensation represented in the MLS, there is nothing to disclose.  

The only time a listing must be disclosed as a “short sale” is when the contract negotiated  for the sale, as well as the listing agreement, and therefore the commission, is subject to lien holder or court approval.

According to section 1.9 of the rules and regulations of the Midwest Real Estate Data LLC dated January 26, 2010:

“Listing brokers must communicate to potential cooperating brokers by selecting “C”(Court Approval) or “S”(Short Sale) in the SCI field that gross commissions established in the Exclusive Brokerage Agreements are subject to court approval “C” or short sale “S” and that compensation payable to cooperating brokers may be reduced if the gross commission established in the Exclusive Brokerage Agreement is reduced by a court or pursuant to a short sale. In such instances, the fact that the gross commission is subject to court approval or pursuant to a short sale, and either the potential reduction in compensation payable to cooperating brokers, or the method/amount by which the potential reduction in compensation will be calculated, must be clearly communicated and agreed to by the potential cooperating brokers prior to the closing.”

In a market with many challenges, the sellers ability to close when there is none seems to be an obstacle that agents and their clients are creating when it is not there. Yes, you should ask the question after doing your research on the property. If the answer is the seller will be responsible for paying off their obligations and will be meeting the terms of the contract by the close of the transaction, then why argue? It does not matter how the seller is meeting those obligations, the only thing that counts at the closing table is that they are.

Comments

[Jeff Parise]

Several weeks ago I posed this scenario to Andrea. We are fortunate that she has provided this commentary to help clarify these difficult short sale listings.

In my scenario, a client who with whom I had a personal friendship told me in no uncertain terms that he owed substantially more on his loan than the estimated value for his condominium and considerably more that our listing price. [Note that I did not represent him in his purchase several years ago.] Being a "friend," I had heard of the change in his financial position and job change and mounting debts for over a year. When we put the property for sale we were very clear in our discussions about the impending short situation, getting the eventual contract approved by the lender, and the potential long term effects on his credit. This, along with my own research on his loan situation, backed up with the documents he showed me, left me with the clear impression that unfortunately, this was going to be a short sale.

In hindsight I realize that I did not have anything in writing from the seller indicating that this was a short sale except several informational references in various emails back and forth with the owner. I was relying on the personal relationship and our many, many conversations about his financial situation. Months later, when we received an offer, in the course of our negotiating discussions I used the words "short sale." The seller was shocked and became upset, telling me that he never told me that this was a short sale. He was very upset that it was listed as a short sale believing that it brought him a lower offer price. I informed him of our obligation to do so for the reasons outlined here by Andrea. At that point in the listing was the very first mention that he intended to (somehow) pay off the short amount so that this was not necessarily going to be a short sale.

The lesson is to clearly have this information in writing from the seller so that there is NO confusion in the situation, and to make sure that if the situation changes during the listing that the seller informs you of the change so you can adjust the listing accordingly. This is a lesson which I will remember for my own use in every listing I take from now on.