Charlottesville Short Sales and Listing Agents’ Responsibilities – Part 1

A question for Jim Duncan…regarding the possibility of a short sale, does the listing agent have any responsibility in determining if a listing could be REASONABLY be a short sale? Like asking the sellers about how much is owed on current liens, etc? If so, and it is determined that this may become a short sale, it should be noted in an MLS listing. If I were a buyer and saw potential short sale/foreclosure, I would probably move on to some other property given the amount of time I hear it takes to complete a short sale. Way too much interest rate risk the longer the process takes.

The short answer is, “yes” listing agents should be doing due diligence in order to try to determine whether a property could reasonably be in a short sale position. Additionally,

Some of the best advice for sellers: be honest. With your Realtor, bank & most importantly, yourselves.

The Charlottesville MLS now has a required field from which Realtors much choose one of the following when inputting a listing:

– Standard

– Lender Owned

– Short Sale (of 2323 active listings, 53 are noted as being short sales … this seems ridiculously low)

Short sales take longer – in everything, they take longer. Banks don’t know what they are doing. Neither does the market, thanks to the US Government’s constant intervention/meddling / interferenceinability to let the market work:

Perhaps another solution is in order. A novel idea not yet tried would be to do what other industries do to rid themselves of unsold merchandise. They hold a sale. Let prices fall until the goods find a buyer.

  

The question in the first paragraph was posted on a conversation at the Charlottesville Bubble Blog, and it is very pertinent question, particularly as short sales are becoming more and more a part of the Charlottesville* real estate market.

I asked for some insight over on my posterous site – and received some useful feedback from friends around the state and country.

The Virginia Association of Realtors has a fairly comprehensive page dedicated to short sales; we’re all learning as we go … that’s not a comforting thought, but it’s true.

But what about Sellers’ rights to confidentiality?

The Ethics Dialogue Group – a consortium of Virginia Realtor Associations – has put together a very informative site covering short sales in Virginia. Of particular note to today’s subject is the Confidentiality page: (bolding mine)

A Short Sale transaction presents different confidentiality issues from a regular transaction. The most important one is whether the Seller discloses the fact that the transaction could be a Short Sale.

It’s important to note that in accordance with the REALTOR® Code of Ethics and Virginia law, a Seller pursuing a Short Sale is considered confidential financial information. The Listing Agent MUST have the Seller’s permission to disclose such information and the permission should be obtained in writing.

A Short Sales situation may present an appealing financial opportunity to the Buyer, but there are some concerns. Consider the following:

  • Military or executive relocations buyers usually have a limited time to find a home and go through the negotiation process. A Short Sale may not be realistic for that type of buyer. Very few practitioners and even fewer Sellers are proficient enough in the process to have everything in order for a quick decision by the Lender. In the case where a Lender withdraws the approval, precious time is lost for both the Seller and the Buyer.
  • Short Sale Buyers should be diligent in uncovering liens. Sellers who can not make the mortgage payment may not be paying other debt obligations.
  • Remember that in most cases, contracts are ratified when there is a meeting of the minds. The “Third Party Approval” of a Lender is a contingency. It typically takes awhile for Lenders to approve such a sale. Buyer Agents would be wise to put language in the contract that ensures the Buyer’s contingencies (such as home inspections) do not begin until approval from the Lender to proceed at the current price. Otherwise they may be liable for settlement services, home inspector fees, etc…


* Charlottesville, Albemarle, Fluvanna, Greene, Nelson, Louisa

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10 Comments

  1. rfs March 29, 2010 at 14:52

    Jim, you are a man of your word. Since it was me that asked the question…
    I guess the takeaway for me is do an exhaustive title/lien search through county records. I can do it myself or have someone else do it and be paid for it. This is what most buyers IMO would try to avoid cause it adds expense. Sllers really should advise the listing agents that maybe this will be a short sale cause the proceeds will not be enough to pay off all liens. That in turn should go in the MLS. This would assist all Realtors trying to do their jobs.

    Reply
  2. Jim Duncan March 29, 2010 at 18:58

    Jim, you are a man of your word.

    And that’s enough for me. Thank you.

    It’s a conundrum. Think about the seller who is close to being a short sale – if he starts as a short sale, he’s likely to get vultures, but not the “regular” buyers …

    Part 2 is coming Thursday …

    Reply
  3. Judy Savage March 29, 2010 at 19:28

    Jim,
    I was amazed at how many agents weren’t having the discussion about how much they owed and even more amazed that many were afraid to ask. That’s why I implemented a mandatory net sheet be turned in with every listing that is signed by the seller.
    It’s our responsibility to make sure our clients and the pubic know where they stand in todays market. I should have known you’ld be on top of it.

    Judy

    Reply
  4. rfs March 29, 2010 at 21:31

    I always liked the word conundrum. Good usage… To Judy’s comment…a mandatory net sheet on the surface is a good idea, but it still does not answer the question. Mandatory net to a seller may not always be congruent with mandatory net to a lienholder or lienholders. An even more fundamental question for seller with a short sale is if they are underwater does the depth even matter? Afterall, I would think its the lienholder(s) that decide on a selling price on a short sale, yes?

    Reply
  5. Ray Caddell March 31, 2010 at 04:45

    I’ve been thinking about this whole issue again recently. I spearheaded the campaign that at the very least provides that agents disclose short sale situations to other agents in the listing. Unfortunately my effort was weakend to in the AGENT NOTES ONLY. Why isn’t the buyng public aware as well? Would we need the sellers’ cooperation in this…sure, but why wouldn’t they? By definiton of the short sale they are receiving zero anyway. Remember, caar.com does not show agent notes and thereby short sale notification. Misrepresentation, period. My office policy now calls for an actual payoff statement for listings so at least we’re not sandbagged on the issue.

    Reply
  6. rfs March 31, 2010 at 11:39

    Hmm. I detect a little difference of opinion between Ray and Judy. And whats up with caar.com only showing short sale in agents remarks? So all agents can see a sellers possible confidential personal financial situation but it does not have to appear on the public MLS…interesting. My takeaway is do your diligence in a title/lien search – or perhaps the buyers agent should do this. Now that would be value added.

    Reply
  7. Jim March 31, 2010 at 11:51

    My takeaway is do your diligence in a title/lien search – or perhaps the buyers agent should do this

    Tomorrow’s post comes at this from the buyer’s agent’s point of view.

    And regarding the confidentiality … that is something that is long held (accurately, in my opinion) as one of the differentiators of the MLS from public sites – there often remarks that the general public shouldn’t see, such as “mom home with 2 kids during the day, please give two hours’ notice” and “show anytime, as owners are away for the week” … there are plenty of other examples of why this shouldn’t be open to the public.

    On the short sales – yep, the rules currently state that this has to be in the agents’ remarks only.

    Here you can filter short sales somewhat accurately …

    there’s a somewhat accurate tool on my site, but it’s admittedly difficult unless you also search the public records simulaneously to match what they paid and what they owe …. now there’s an idea!

    Reply
  8. rfs March 31, 2010 at 12:41

    I totally understand the personal remarks about showing the house, etc are really for other agents and thus are part of the agents internal notes. To me, and I may be wrong, but that is different than stating possible short sale. I guess the more I think about it, the only true way to see if a transaction might be a short sale is to look at public lien records at the county courthouse. That would give atleast a good indication that this might be or become a short sale. So my next question is…who does this? The buyer themselves which I would imagine is quite time consuming, a title searcher which will cost someone some money, or the buyers agent?

    Reply
  9. Ray Caddell March 31, 2010 at 14:44

    Public liens would in most cases not help at all in determing the existence of a short sale situation. All that generally shows up there is the original principal loan balance. If it showed up in liens, judgements, etc. it’s probably too far gone and into foreclosure.
    Generally only a payoff statement from the lender or the seller’s credit report could give you the information you need with any sort of accuracy.

    Reply
  10. rfs March 31, 2010 at 21:02

    To Rays point –

    That does make sense as there could be an equity line that has gone unused. So can payoff statements be obtained by the listing agent? if so, does that agent have any responsibility to a potential buyer whether the transaction could reasonably be a short sale? Because what Jim wrote here : Short Sale (of 2323 active listings, 53 are noted as being short sales … this seems ridiculously low) is bothersome.

    Reply

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