Short sales have become so common in the marketplace that we thought it prudent to provide a review of risk management procedures involved when acting as seller or buyer agent in a short sale transaction.  Many agents are finding themselves faced with a new set of challenges and are searching for guidance on how to successfully navigate  these transactions.  Both your state and national REALTOR® Associations have links, webinars, brochures, forms, and procedural checklists on their websites to provide the assistance you need.  Link to www.screaltors.com or www.realtor.org for information that is routinely updated.
 
Here is a review of some of the salient points of a short sale:
 
When using Form 220 (Exclusive Right to Sell Listing Agreement) provided by SCR, page 3 (#7-I) states that the owner agrees to convey marketable title to the buyer free from all liens. In a short sale, third-party approval may be necessary for the owner to comply with that provision.  The listing agreement should state that the seller's acceptance of any offer will be subject to the lender's approval of the offer without requiring that the seller bring cash to closing.
 
Offers to purchase the property would need the same caveat regarding lender approval.  This protects the seller against agreeing unconditionally to sell the property, only to have the lender disapprove the short sale.
 
Whether the owner or agent contacts the lender to find out if the lender will consider a short sale is a matter of office policy.  If the agent makes the contact, he or she should also request a list of documents that the lender will require. 
 
When entering property into MLS, it is required that the listing agent disclose the potential short sale.  This field is in the "features" section and serves as notification to the cooperating agent.  Disclosure of a potential short sale is a material fact in the transaction and should be disclosed to everyone.  If choosing "yes" to the short sale feature in MLS, additional comments may be included in the member remarks section regarding the apportionment of fees.
 
Remember that the owner of the property and the potential purchaser of the property are the actual "parties to the contract" in a short sale.  Bank approval of the short sale is a contract contingency, and should be written as such in the agreement between buyer and seller.  Serious issues arise when the buyer and seller enter into a purchase agreement where the seller requires bank approval to deliver clear title, but the buyer was not notified of the contingency in the agreement.  License law states that the licensee shall "ensure that all the terms and conditions of the transaction are included in the offer to purchase."  Failure to include this contingency as part of the offer to purchase can be seen as a license law violation as well as leading to dissatisfaction by the purchaser who thought a firm agreement was in place with the owner of the property.

Remember, also, that all offers must be presented to the owner of the property until closing, regardless of the offered price or owner instructions.  Illegal instructions, whether from the owner or the bank, do not change the license law.
 
The owner of the property is responsible for all the usual disclosures of material defects in the property and in most instances will be required by law to give the buyer the Residential Property Condition Disclosure Form prior to the buyer's writing an offer to purchase.
 
When the property is under agreement, it should be noted in the MLS as "contingency contract".  If the listing agent desires cooperating agents to present back-up offers, which should be stated in member remarks.
 
Regarding advertising short sales, be sure to keep Article 12 in mind.  This article of the REALTOR® Code of Ethics requires you to present a "true picture in your advertising and representations to the public".  Advertising a property as a short sale when it is NOT to generate interest in the property would be misrepresentation and a violation of Article 12 of the Code of Ethics.
 
Short sales present a variety of "risky issues" and should be handled with care and diligence.  The buyer must understand the timing issues involved, the necessity for third-party approval as a contingency, and the potential for the bank to ask for volumes of information from both seller and buyer.  Following guidance provided by your state and national associations will help reduce that risk.  In addition, advanced education in this area will help you gain the competitive edge.
 
We are offering two opportunities for members to gain more insight into the short sale procedure.  On September 30, we will have a lender panel discussion at the association office that is free to members.  On October 13, Cathy McDaniel, Georgia Educator of the Year and short sale expert, will be teaching a new six-hour class titled "Short Sale Specialist".  Click on www.WesternUpstateMLS.com/education.htm for more details or to register for either program.