As most of you may know, especially if you’re reading this article, short sales are steadily increasing in the world of real estate. More importantly, these kinds of transactions, where homeowners are finding themselves having to sell their property for less than what they actually owe on their mortgage are being executed by real estate licensees as opposed to those specifically licensed to negotiate terms outside of the standard purchase or sale of a property.
Please remember that as a realtor, it ‘s always vital to understand the ways in which these transactions are different from other real estate proceedings especially given the fact that Maryland laws now regulate the activities of all professionals who assist homeowners under these particular set of circumstances.
What A Real Estate Licensee Should Do
When it comes to short sales, real estate licensees need to always make sure that their clients are referred to the correct professionals:
Refer your clients to a professional licensed under the Credit Services Business Act to assist with any negotiation pertaining to deficiencies or relocation allowances. Remember, you may only act merely as a conduit of information, nothing more.
Refer your client to an Accountant or CPA. An accountant can educate them on any potential tax issues or consequences in connection with a short sale. There may be tax relief available to them, such as insolvency, and a CPA can address those. You may also recall that under the Mortgage Forgiveness Debt Relief Act certain canceled mortgage debt that results from qualified principal residence mortgage debt may be exempt from income tax. The Mortgage Forgiveness Debt Relief Act was just extended through December 31, 2016. All items a short sale candidate should discuss prior to pursuing the short sale.
Refer your client to a Housing Counselor. A housing counselor will give them information and alternatives available to avoid foreclosure. If this is a service the client would not be able to afford, they may call 1-877-462-7555 for free counseling through Maryland HOPE Program.
Any requests from the lender/servicer in regards to real estate brokerage commissions must be referred to the licensee’s broker.
One thing that a real estate licensee can do independently is conduct a Comparative Market Analysis (CMA) for the client. This can help to not only justify the value of a property but also the offer being presented to the mortgage lender.
What a Real Estate Licensee Should Not Do
Doing any of the following is against Maryland law and could result in your license being revoked.
Besides the real estate brokerage services commission, you should not accept any additional payments thru the sale of one of your short sale transactions. The only way this would be acceptable is if you hold an additional license through the MCSBA. Also, at all costs, avoid assisting your seller in negotiating with their lender/servicer whether that includes them trying to negotiate a loan modification, a short sale, any promissory note terms that may be offered in regards to deficiency balances and most importantly any advice as to preventing foreclosure.
In general, giving advice to the client is not advised. Don’t mention how a strategic default may be useful in their situation. Don’t try to predict how their credit may take a hit as a result of the short sale. Don’t suggest how likely they are to receive a waiver of deficiency judgment and again don’t tell them that you can likely help them to avoid foreclosure, get a short sale, or save their home.
In short, if you do not have the state required license from the MCSBA to negotiate short sales, you do not have any business giving financial advice. It’s a harsh truth but it Is THE truth.
We all have the best intentions for our clients but when it comes to liability we need to remember that opinions can be easily worded to sound as specific directions and oftentimes these directions can lead people to make the wrong decisions.
In an effort to help not only your client but also yourself, please remember to never go above your role and that is to act and serve within the course and scope of your license. As a licensed realtor, you’re the one the homeowner needs to rely on to help them create an atmosphere that others envy, help them to find someone willing to take on their previous investment and make it their own. You’re the one at the end of the day who these clients need to keep them steady and to keep them from giving up. Short Sales are sadly not short and you’re the glue throughout this process that helps keep things together.
Lakeside Title Company: Service for Realtors, Builders and Lenders
At Lakeside Title Company, we’re dedicated to providing a swift service that is completed with not only compliance but with the perseverance and ability to get the job done in a courteous and timely manner.
Short sales are one of the many complex transactions that we’ve been very fortunate enough to execute and bring closure to homeowners whom have had to endure this oftentimes, trying process. We’re able to offer top notch services for title insurance, title search, 1031 exchange and more all throughout the Maryland, DC, Northern Virginia, and Southern Pennsylvania area.
Visit our homepage to learn more and to get in touch.
If you have any questions or would like to discuss this topic further with an attorney, please contact Lakeside Title Company’s affiliated Law Firm, Deardorff, Rath & Pichon, LLC.