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For the Good of the Order

Realtors are called on to list properties daily. That’s what they do. Every newspaper is filled with articles about subprime mortgages, impending foreclosures, and generally, property which is over-mortgaged for one reason or another. A significant percentage of the properties listed can never be sold without additional cash at closing because the total amount owed on those properties exceeds the value of the property.

We all know that good title can’t be transferred without paying off all mortgages, unless the mortgagee agrees. If a significant number of properties cannot be sold without bank approval, what is the duty of notice that a listing broker owes to the public and to his fellow Realtor?

The rule applicable to the Multiple Listing Service (MLS) is as follows:

“If a gross commission is subject to…lender approval, or is subject to reduction by a…lender,…the potential reduction in compensation payable to cooperating brokers…must be clearly communicated to potential cooperating brokers…prior to the time they produce an offer that ultimately results in a successful transaction” [MLS Rules Section 5, Note 5].

What this rule means is that short sale property should not be listed without including notice that a sale cannot occur without mortgagee consent. To do otherwise is to mislead the public and your fellow Realtors.

Many owners of property that cannot be sold without mortgagee consent understand that they will bring cash to a closing. Some cannot do that. Don’t forget that the listing contract requires the seller to pay the defined commission; the sales contract requires the seller to sell the property. Those two contracts together carry a very real legal burden for the seller. If a seller cannot come to closing with cash, and therefore cannot close without consent of the mortgagee, the contract should be clearly marked as a contingency contract.

I suggest that you misrepresent your listing if you do not disclose to one making an offer (and to other agents) that the status of the mortgages may create a problem for closing.

Please understand that there are owners who are not the least bit threatened by the fact that they must bring cash to closing. However, those owners might be concerned if they knew that their property would be publicly branded as “short sale” property in a multiple listing. If they have the funds to close, they certainly are entitled to be private about the fact that they will lose money at the closing table.

However, those owners who are not so fortunate need to tell anyone submitting an offer that closing will be a problem.

The Commercial Brokers Committee of the Emerald Coast Board of Realtors, has before it the following rules that should be considered, at least until the current mortgage crisis has dissipated:

1. The listing agent should know the remaining balance of all mortgages on a property. If a mortgage is currently in default, he (or she) should know that.

2. The fact that a listing price will require the consent of a lender in order to pay the promised commissions should be disclosed to other agents.

3. A Purchaser should not sign an offer without disclosure to the Purchaser that a contract at that price would require lender consent if the Seller cannot pay cash to close.

4. A seller should not sign a contract that cannot be closed without mortgagee consent without placing into the contract a contingency for the event consent is not given.

The Committee will appreciate any comments about the above “rules” now being considered.

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