How Much of the Seller’s Financial Situation Do We Disclose?


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

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4 Responses to “How Much of the Seller’s Financial Situation Do We Disclose?”

  1. Britt Argo Says:

    Very interesting information. When my buyers consider an offer, the first thing we do is check the Realist tax records to see what the sellers paid for the house and what their mortgage was when they bought it (hoping the most current refinance or LOE is also posted. If we know that the owner may be taking a loss (based on a lower list price) –I advise the buyer of some added risks. That they may pay for Loan Application, Appraisals, Inspections and come up with a seller side issue with “Short Sale” or “Pre-Foreclosure” deals. At least they will be prepared or as informed as we are–before jumping in. And we always put a special stip clause in that the buyer’s timelines (cashing of Earnest Money, paying Loan App, Inspection, Appraisals) will occur after the seller’s lender has approved the sale (in writing)-not just the seller’s binding signature. This protects the buyer too –in case the bank does not approve the short sale.

  2. Greg Barnum Says:

    Tax records may give you mortgage amounts, but they do not account for missed payments, penalties, late fees, etc. Mechanics liens are unknowns, as are past due HOA fees and penalties. Foreclosures wipe some ar all of these liens out, but short sales are much greyer in this regard.
    It may be a good idea for Buyer’s agents to question the Seller in writing as to the status and probable disposition of existing liens on short sales. Perhaps Metro Brokers could develop a questionnaire that does this.

  3. Brad Carlton Says:

    As a Full Service, Full Time, Professional Realtor for 16 years in the Atlanta market I feel obligated to my Buyer clients to insure they do not spend any more money, time or effort in the transaction of buying their new home. That being said, we all know that Georgia is a “Buyer Beware” state and we must do as much due diligence as possible on their behalf to insure they are making educated, thoughtful and informed decisions on their home purchase. This should include a written statement from the Seller indicating their financial obligations possibly affecting a “clear and marketable” title, but what if they are not completely truthful or they simply don’t know all of the information? I have had clients that simply were unaware there were mechanics leins on their property as well as HOA assessments and/or late fees. If the Seller does not know about these liens, how are the Listing agents supposed to know?

  4. Shelley Taylor Says:

    Brad, I agree with you for the most part, I don’t have as many years in the Industry as you. I Beg the Question however, and correct me if I’m wrong (learning experiance). Shouldn’t the “Authorization to Release Information Form” on a Short Sale, give us the authorization to ask all questions concerning the financial obligations from the Lender that could affect a clear title. I know in California they have Escrow Companies to check for a Clear title.

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