3rd Party Short Sale Negotiation or In-House?? This has certainly become a contemptuous issue…so much so that it is almost political!! LOL I participated in a blog discussion about this last week and the opinions were strong on both sides. Soooo, I thought that we could have a discussion on here to view each other’s opinions. I will present the pros and cons and hopefully others will comment so that we can have a discussion.
I personally feel that neither the listing agent nor buyer agent should negotiate the short sale. There are two legal reasons and two practical reasons for this. I will discuss the legal issues today and the practical issues tomorrow.
The first legal reason is that despite what many have heard, lenders prefer negotiations from a 3rd party. Think about this logically. Would you rather see an offer and negotiations (as a lender) from someone which has a vested interest in the outcome negotiate the sale, or a neutral third party. I work for lenders and I can tell you that they prefer the third party negotiations. I work with investors and home owners on foreclosure defense and my experience is that many third party firms are really good at this and utilizing them strips all emotion and appearance of impropriety from the transaction. Virtually all of the fraud that we have read about comes from too many people with too much financial interest in a property – all working together in a fraudulent manner.
The second legal reason is that negotiating a short sale is outside the scope of your real estate license. Few attorneys or regulators will argue with this. One of the reasons is that when licensure was established in all states, short sales were unheard of and not even considered. The issue was not part of the established guidelines. Perhaps this will change, but for now, it is outside the scope of your license.
One of the problems with this is that your Errors and Omissions policies can void coverage!! Virtually all such policies contain provision that enable a carrier to deny coverage. There are catch-all phrases such as complying with all laws, rules and regulations and if the carrier can illustrate that you acted outside of your licensure, you will be personally liable for the claim defense and any loss associated with it. This is happening today!! I am in Orlando on a foreclosure defense hearing for a client and I saw an ad on television last night that stated what I have said is coming for years…”did you lose your home in a foreclosure auction?? Did you have a real estate professional negotiate your short sale?? You may have a claim for damages.”
Also, realize that your broker will not be pleased either as he or she will be a named defendant as well. The irony is that their liability insurance coverage may protect them but you may have no coverage as discussed above.