PRFResidential

Real Estate • Financing • Investments

Introduction

This article on short sales is the first in a series of future articles to be presented by the C.A.R. Strategic Defense Counsel and Panel members.

Author

Nicole Briggs, Strategic Defense Counsel

Short Sales

Short sales are a fact of life again in California; therefore, it may be important for REALTORS® to become knowledgeable about them. Many sellers are currently unable to make their mortgage payments and are facing foreclosure and unfortunately, the market value of their properties, including costs, may be less than the amount owed on their mortgage loans.

A short sale is a sale of a property in which the lender consents to receiving a loan payoff of less than what is still owed by the seller on the note secured by the property. Lenders typically agree to short sales because they can save the lenders the expense of foreclosure proceedings and from having another REO property on their books.

REALTORS® involved in short sales may follow these guidelines to ensure the smooth handling of their transactions:

• Inform sellers about the short sale process. For example, sellers may be called upon to contact their lenders to negotiate short payoffs of their loans or to prove hardship by providing financial and other information showing that the sellers cannot repay their loans.
  
  
• Inform the seller that forgiveness of debt by the lender may result in taxable income to the seller, despite the lack of cash proceeds.  The seller may also owe capital gains tax on the sale of the property.  REALTORS® may use C.A.R.’s standard form Short Sale Listing Addendum (Form SSL) to inform sellers of the tax consequences of short sales.
  
  
• Inform the seller that, despite avoiding foreclosure or bankruptcy proceedings, a short sale may negatively impact a seller’s credit rating.  Again, C.A.R.’s standard form Short Sale Listing Addendum (Form SSL) may be used to inform sellers of the credit consequences of short sales.
  
  
• When entering into sales contracts involving short sales, REALTORS® acting as listing agents are encouraged to incorporate paragraph 5 of C.A.R.’s standard form Purchase Agreement Addendum (PAA) dealing with issues surrounding short sales.
  
  
• For a more information about short sales, please see C.A.R. legal articles:
  
  
  • Short Sale Advertising,  
  • Short Sales,  
  • Taxation of Foreclosures, Deeds in Lieu of Foreclosure, and Short Sales

In addition, it is always recommended that REALTOR®s advise their clients to seek legal and tax advice regarding the repercussions of selling their property under a short sale scenario. 

This special legal article is provided by the Strategic Defense Program at C.A.R.  We are committed to providing timely and important information to help REALTORS® with risk management and avoiding litigation.  To further protect yourself, consider the C.A.R. endorsed E & O insurance provided by A.I.G., offered through broker, Linsin, Sherman Associates at 415.479.9988 or speak with your American Home Shield (AHS) representative about C.A.R.’s Strategic Defense Program.

This is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit C.A.R. Online at www.car.org.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at 213.739.8282, Monday through Friday, 9:00 A.M. to 6:00 P.M. C.A.R. members who are broker-owners, office managers or Designated REALTORS®  may contact the Member Legal Hotline at 213.739.8350 to receive expedited service. Members may also fax or e-mail inquiries to the Member Legal Hotline at 213.480.7724 or legal_hotline@car.org.  Written correspondence should be addressed to:

California Association of REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020