The real estate downturn has dramatically increased the number of sellers who need to pursue a short sale. A short sale occurs when the sale of your home does not generate enough money to pay off the loans against the home. For sellers in a difficult financial situation, a bank may agree to release their loan for less money than they are owed.
Short sales are notoriously complex and time-consuming transactions, and many sellers will seek professional assistance to help get their home sold. Given the specialized expertise necessary in short sales, real estate agents may use professional short sale negotiators to assist in the process. The Washington Department of Licensing and Department of Financial Institutions have released guidelines that must be followed by short sale negotiators. As a seller or buyer of a short sale property, it is helpful to know what state regulations must be followed when a short sale negotiator is in place.
Washington short sale negotiators must be licensed
In order to negotiate a short sale in the state of Washington, a person must have either a mortgage originator license, a real estate license or be an attorney licensed to practice law in Washington. The requirements here are very clear, but were put in place because there were so many entities out there negotiating short sales who were not licensed in any way. If you are using a short sale negotiator to sell your home, ensure that they are licensed. If you are buying a short sale property, also make sure of the same, particularly if you are being asked to contribute money to short sale negotiator fees.
Rules on how short sale negotiators may be paid
Anyone receiving compensation for negotiating short sales in Washington must be licensed. If you are using a real estate broker to negotiate a short sale on your behalf, then that broker must also be providing real estate brokerage services to help market and sell your house. Mortgage originators and attorneys may charge a fee for their services, but special rules apply for real estate brokers. A real estate broker may not charge any additional fee above the normal and customary commission to provide short sale negotiation services. So, if your real estate broker is charging 3% commission to sell your home, they cannot tack on a $5000 short sale negotiation fee on top of that commission.
Short sale scams to avoid
The wild world of short sales has given rise to a number of schemes and scams that buyers and sellers need to avoid. Here are some common ones to watch out for:
- A real estate broker makes an offer on a financially distressed property and negotiates a short sale payoff with the seller’s lender. Once the broker knows what the lender will accept, they turn around and market the property at a higher amount and try to flip the property with a simultaneous close to another buyer. Unless all facts are clearly disclosed to the buyer and their lender, this is deceptive to both the seller’s lender and potential buyer and is a big no-no.
- Short sale agents or negotiators may promise compensation to the seller when a short sale has closed. Lenders will not allow sellers to receive any proceeds from a short sale, since they are taking a loss. Any scheme which hides compensation to the seller is illegal.
- Properties must be marketed at a fair price. Short sale properties may not be listed at greater than market value to discourage buyers from presenting an offer or for far less than market value to convince a lender that the property will not sell for a higher amount. Brokers have a duty to deal honestly and in good faith with all parties to a transaction, even the lenders who own the mortgage on the home.
- Real estate brokers who negotiate a short sale are paid a negotiation fee by the buyer. This fee is offset by a seller’s closing cost concession. This is not legal. Brokers cannot charge in excess of the normal and customary commission for short sale negotiation services. This scheme is also deceptive to the lenders if it is not fully disclosed.
Seek professional help on short sales
There are professionals who can be of great assistance when completing a short sale transaction, whether you are a seller or a buyer. Finding the right one is key to your success, but there are plenty of vultures out there looking to relieve you from your money. You should look for experience in these sorts of transactions and insist on licensed professionals, as required by law. You should also make sure that they do not advocate schemes intended to deceive or defraud lenders in the process. Here are two great links from the Department of Licensing outlining their requirements: