Short Sales Overview – California Association of Realtors®

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Certain exemptions to the licensing laws may apply. For example, a real estate license is not required if someone merely performs clerical or administrative services, such as assembling a short sale package as long as final determination as to its completeness is made by the broker (see 10 Cal. Code of Reg. § 2841 which lists other permissible clerical activities).
For other exemptions to the licensing laws, see C.A.R.’s Legal Q&As, Licensing Guide for REALTORS®, Licensing Chart for REALTORS®, and Unlicensed Assistants.

See also the Legal Q&A, Short Sale Negotiators.

Q 19. Can a licensed short sale consultant collect an advance fee?

A No, unless certain requirements are met. An advance fee is a fee charged upfront for services not yet performed. An advance fee is broadly defined to include a fee claimed, demanded, charged, received, collected or contracted from a principal for negotiating real estate loans (Cal. Bus. & Prof. Code § 10026). Among other things, no less than ten calendar days before collecting an advance fee, a real estate broker must submit to the DRE the advance fee agreement and all other materials to be used for advertising, promoting, soliciting, or negotiating the advance fee (10 Cal. Code of Reg. § 2970).
Furthermore, if a Notice of Default has been recorded against a property involving one-to-four owner occupied residential units, an advance fee is prohibited for foreclosure-related consulting services under the foreclosure consultant law (Cal. Civ. Code § 2945 et seq.). Note that advance fees are prohibited for loan modifications (Cal. Civ. Code § 2944.7, Cal. Bus. &
Prof. Code § 10085.6).

Q 20. If a real estate broker collects an advance fee, does it have to be handled in a special way?

A Yes. A real estate broker who collects an advance fee must deposit it in a trust account with a bank or other recognized depository. Amounts may not be withdrawn for the agent’s behalf until actually expended for the benefit of the principal or five days after a verified accounting as specified is mailed to the principal in compliance with Section 2972 of Title 10 of the California Code of Regulations. (Cal. Bus. & Prof. Code § 10146.)

, for a list of all the exemptions from the TDS requirement.

Q 22. Must other disclosures be given to a buyer (or seller) pursuant to a short sale?

A Yes. Short sales are treated just like any other sales transaction. See C.A.R. legal article, Sales Disclosure Chart, for a summary of the disclosure requirements.

Q 23. Suppose a distressed seller enters into a contract to sell his/her home to a buyer pursuant to a short sale. Should the listing agent inform the lender if and when other offers are made on the property?

A Probably. Although the lender is technically not a party to the real estate contract, lender approval is nearly always a contingency of the agreement. Therefore, REALTORS® should obtain the client’s permission to keep the lender apprised of any relevant developments, including the presentation of other offers.

Q 24. Should a listing agent working with a distressed seller attempt to negotiate a future listing agreement with the lender?

A No. Listing agents working with distressed sellers owe them a fiduciary duty. Since in a short sale situation a lender could choose to foreclose on the seller, the lender’s interests are potentially adverse to the seller’s interests. Attempting to negotiate a future listing agreement with the lender raises the issues of “to whom is the agent’s loyalty devoted” and “has the agent violated the fiduciary duty he/she owes the seller.” The safer practice is to avoid putting oneself in such a position.

and HAFA Short Sales Fact Sheet (note that HAFA servicers must relieve borrowers from any deficiency liability).

This legal article is just one of the many legal publications and services offered by C.A.R. to its members. Readers who require specific advice should consult an attorney.

CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, CA
90020

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The information contained herein is believed accurate as of May 3, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Revised by Sonia M. Younglove, Esq.

Copyright© 2011 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R.Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.