According to a letter sent to the Florida Association of Realtors (FAR) by Attorney General Bill McCollum, the new Foreclosure Rescue Fraud Prevention Act does not prohibit Florida real estate agents from being involved in a short sale, as long as the only compensation they seek for their services is the commission on the sale.
The new law, which took effect Oct. 1, 2008, is designed to help protect homeowners who are facing the possibility of foreclosure from individuals who would seek to prey on them. FAR had asked the AG's office for an advisory explanation because many individuals were interpreting the new law's guidelines as putting real estate agents at risk for fines for being involved in a short sale transaction. According to McCollum, "as long as there is no upfront or other fee for the negotiating service other than the normal real estate fee charged for the sale of the property, participating in a short sale would not appear to fall under the provisions of the new Act."
In their announcement on Friday, FAR also included the following:
McCollum's interpretation is based on the following scenario: "...A licensee secures a listing agreement on a home for sale, ascertains that the fair market value of the home is less than the loan amount, and lists the property at the lower amount. If a buyer agrees to pay less than the loan amount, the licensee then asks the lender to accept the lesser amount in order to avoid foreclosure...".
The question is whether or not this interpretation will hold up. Things are known to change rather quickly in Florida and we've seen more than our fair share of reversals on information coming out of Tallahassee. In addition, there are more than a few individuals in our area who are making some noise about the way short sales are being handled by some agents in general.
One of these individuals recently made an interesting observation regarding "short sale" listing prices and fraud on the public. If you notice in McCollum's statement above, "...ascertains that the fair market value of the home is less than the loan amount...", this particular complaint might just carry some weight. Specifically, the complaint is about the practice (at least in our area) of some agents listing "short sales" at values they know the lender will not accept. How do they know this you say? Well, because in many instances, they are appending a very recent appraisal to the listing that is typically thousands of dollars above the current "short sale" asking price. If you list a short sale property for $100,000 but have a recent appraisal for $200,000, how can you say the asking price is at a "fair market value?" Anyone with half a brain knows the lenders will get their own appraisal to help them ascertain the property's true value. And, what impetus would they have to sell the property at a price that is "well below" what the current market conditions will bear? In our experience, none.
So, while McCollum's interpretation "may" put to rest the question of whether Florida real estate agents can be involved in a short sale transaction under the Act, our guess is this will not be the last issue we see with regards to how "short sales" are being handled by some in our industry as we move forward from here.