I saw an article published by RISMedia (Real Estate Information Systems) last week which made me pause. It concerned the necessity and advisability of disclosing the dollar amounts of all liens filed on a listed property if those liens “may make it difficult to close escrow on a property or impede the transfer of free and clear title”.
The “necessity and advisability” comes as a result of a lawsuit in California (where else?), Holmes v. Summers (October, 2010) in which a court ruled that the Listing Broker could be liable and responsible for costs and damages incurred by a buyer in a failed deal when the existing liens on the property exceeded the sales price. The logic seems to be that buyers who spend money on inspections, appraisal and any other due diligence activity are damaged if the Listing Brokers fail to disclose that the property seller is “upside down”, “underwater” or other euphemisms for in a bad financial position and the sale fails to close because of the seller’s bad financial position. That makes sense to me.
The article then states that disclosing “short sale” in the listing information is NOT sufficient. This doesn’t make sense to me.
Does this mean all the Remarks in MLS listings will be clogged with a recitation of, “Seller owes $________ to First Mortgage Lender, $_________ to Second Mortgage Lender and has a HELOC of $____________”?
Some things to consider:
- Outstanding mortgages, tax liens and other liens are a matter of public record and easily discoverable by potential buyers. The California court still felt that it was the seller’s and Listing Broker’s duty to disclose “that the purchase price would need the approval of Seller’s lender(s)” in the listing.
- Would buyers’ potential damages extend to include any lost opportunity to offer on another property which was available at the time of Binding Agreement, but was no longer available when the original deal fell apart? Or what if the buyer had to pay more for the alternative property later?
- What about listings for which the seller may be “upside down” but for which the seller has or states he has additional assets to bring to closing to fully satisfy all liens? Would buyers be leery of offering on this property, fearing the not-so-short short sale process, not knowing that the seller has the means to convey good and marketable title? If the seller can and will cure any deficiencies at closing, is the lien information on the property anyone’s business (other than the closing attorney)?
Of course, Listing Brokers do not want to misrepresent the availability or terms under which a property may be offered for sale. This is why our local MLS’s have kept up with the times and added fields specifying that a property is a “Potential Short Sale” (liens exceed the asking price but the seller’s lender(s) have not granted approval for a short sale yet) or an “Approved Short Sale” (seller’s lender(s) have agreed to accept a full-price offer). This is also why the Georgia Association of Realtors has promulgated a detailed Special Stipulation to be included in offers on Short Sale listings.
Selling agents, what do you and your buyer clients/customers need to know before making an offer on a property? Is the disclosure that the property is a “Potential Short Sale” enough of a clue for you to check the tax records?
To read the article, go to http://rismedia.com/2010-10-28/upside-down-homes-create-new-pitfall-for-real-estate-brokers/.
Tags: ann bone, atlanta, atlanta real estate, Better Homes and Gardens Real Estate Metro Brokers, Buyers, California lawsuit, Foreclosures, georgia, Holmes v. Summers, Metro Brokers, mortgage lien, mortgages, Real Estate, real estate agent, Realtor, rismedia, seller, short sales, tax lien