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Disclosure of Short Sales and Loss Mitigation Fees in MLS

Disclosure of Short Sales and Loss Mitigation Fees in MLS

Due to the recent economic climate, lenders now appear more willing to consider short sales over foreclosures than they were just a few years ago. While short sales have the potential to be more favorable than a foreclosure for both the seller and the bank, short sale transactions are complex and present their own set of challenges on both sides of the transaction. The distinct nature of this type of transaction requires approval from a third party lender which can often delay responses to offers or complicate the negotiation and closing of a transaction.

Short sale scenarios can also present challenges in how the listing is input and maintained in the MLS and how the short sale information is communicated to cooperating participants. In some cases the listing broker or lender retains the service of a loss mitigation specialist whose fees must be paid by the buyer at closing. Providing this type of information to MLS as soon as it’s known by the listing agent helps ensure cooperating agents are not surprised after an offer has been submitted.

Another short sale MLS issue relates to knowing when to change the listing status from active to pending. A seller may have accepted a buyer’s offer, but the parties then have to wait to hear back from the lender to learn whether the lender has approved the offer. In the meantime, the lender may require the seller to continue to solicit other offers. However, once an offer has been accepted and signed by both buyer and seller, a contract has been formed and the listing must be placed in a pending status. The contract is contingent upon approval of the lender, but there has still been “acceptance” by the parties to the contract which is what triggers the requirement to change the status of a listing in the MLS from active to pending. While this requirement can be frustrating for the parties involved in a short sale, it is the most accurate representation of the status, as there is an accepted offer in place for the property. Listing brokers/agents may use the “Pending Continuing to Show” status and the listing will continue to be displayed on HAR.com, Realtor.com and other public websites where HAR members’ listings are shown.

Because of the challenges related to short sale transactions, it is important that cooperating agents be informed up front of potential short sale situations or loss mitigation fees that a buyer may incur at closing. There have been a number of rule changes over the past 18 months intended to better inform all participants of listings that are potential short sales by requiring listing agents to disclose in the MLS, information related to potential short sales and loss mitigation fees.


1.27 Disclosure of Potential Short Sale Listings: In instances where the listing broker becomes aware that the list price may not be sufficient to permit a seller to fully satisfy all encumbrances and pay seller’s closing costs, including the listing broker’s compensation (a “Short Sale Circumstance”), the listing broker must clearly and promptly disclose the Short Sale Circumstance to all cooperating brokers and, when and if appropriate, disclose that the sale of the listed property may be conditioned upon the approval of a court, a lender, or other third party. Such disclosures must occur at the time of MLS input, if known, or within one (1) business day upon receipt of such knowledge. Such disclosure should be made in the MLS by selecting “Short Sale” in the “Disclosures” field and must also be included in the Agent Remarks. The following disclosure must be entered at the time of input, if known, or within one (1) business day upon receipt of knowledge: “List price may not be sufficient to cover all encumbrances, closing costs, or other seller charges and sale of Property may be conditioned upon approval of third parties.” 

1.28 Disclosure of Loss Mitigation Fees: In instances where the listing broker or seller engages the services of a loss mitigation firm that requires the buyer to remit fees at or before closing, the listing broker must clearly and promptly disclose this circumstance and the amount to the buyer and to all cooperating Participants. Such disclosures must occur at the time of MLS input, if known, or within one (1) business day upon receipt of such knowledge. Such disclosure should be made in the MLS by selecting “Loss Mitigation=Y” and providing the amount of fees due buyer in the appropriate MLS field. The following disclosure must also be entered in the “Agent Remarks” field at the time of input, if known, or within one (1) business day upon receipt of knowledge. “Buyer will be responsible for paying loss mitigation fees in the amount of [enter $ amount or % of sales price here].”

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