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New Rules For Short Sales

Written by Posted On Monday, 12 August 2013 17:00

Negotiation of a short sale deficiency agreement or any other type of mortgage collection forbearance with a sellers's mortgage lender is not within the scope of a real estate license. This is the decision of the Maryland Real Estate Commisison, and accordingly there are now new rules governing how Maryland real estate agents can handle short sales. Such a determination by other State Real Estate Commissions could impact agents and brokers all over the United States.

Here's the Maryland background. On May 16, 2013, Governor Martin O'Malley signed into law the Maryland Mortgage Assistance Relief Services Act. Commonly referred to as MARS.

That law - patterned after the Federal Trade Commission's MARS Rule - is designed to protect homeowners in financial trouble. Whenever the economy falters, predators come out to prey on unsuspecting and worried homeowners by offering false mortgage relief services.

The FTC rule specifically prohibits any mortgage relief company - which now could include Maryland real estate agents - from collecting any fees until they have provided the homeowner with a written offer from their mortgage lender that is acceptable to the consumer. Additionally, anyone engaged in mortgage relief must disclose such matters as (1) they are not associated with any government, (2) the lender may not agree to the proposed plan, and (3) if the homeowner is told to stop paying the mortgage, they must also be told that they could lose their home and damage their credit rating.

Short sales are included in the definition of "mortgage relief", since the home is sold for less than the balance owed on the mortgage and the lender agrees to accept the sales proceeds. Two years ago, however, the FTC announced that it would not pursue the provisions of the Federal MARS rule against real estate brokers engaged in short sales, if they are licensed and in good standing under state licensing requirements.

The new Maryland MARS act changes this. The Maryland Commissioner of Financial Regulations - the agency authorized to enforce the law - has determined that "negotiation of a short sale deficiency agreement or any other type of mortgage collection forbearance with a seller's mortgage lender" is not within the scope of a real estate license.

"As short sales have become more prevalent," said Steven Long, Assistant Executive Director of the Maryland Department of Labor, Licensing, and Regulation, " questions have arisen as to which parties may provide assistance in executing short sales and how those parties may be compensated."

Maryland real estate agents may enter into contracts with a homeowner to market their house for a short sale, and may conduct a comparative market analysis (referred to as a Broker's Price Opinion). However, there are a number of restrictions and conditions.

On July 22, 2013, the Maryland Real Estate Commission issued guidelines for handling short sale transactions. Agents will have to comply with the MARS Act if they do any of the following:

  • collect any moneys in addition to the customary commission,
  • assist a seller in negotiating with the lender to obtain approval of a short sale,
  • represent to the public that they are "experts" in short sales,
  • make representations that they can obtain a short sale,
  • provide advise regarding the benefits of a strategic default, or
  • make predictions with regard to the likelihood of a deficiency or the payment of relocation costs involved in a short sale.

Does this also impact real estate agents other states? Unless the Federal Trade Commission changes its decision, they will not enforce the federal MARS act. However, all agents must take note of the decision by the Maryland Real Estate Commission that involvement in many aspects of short sales is outside the scope of the real estate license.

Accordingly, all real estate agents - wherever they are located - should comply with the various requirements of the MARS rule. For more information on the Maryland act (dllr.state.md.us), and on the MARS Rule (ftc.shortsale).

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

kasslegalgroup.com

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