MFRMLS SHORT SALE RULE

Tuesday 06 May 2008

MFRMLS was founded to provide an atmosphere of open cooperation where Brokers can easily share listing data and be guaranteed compensation for their participation in a sale. The MFRMLS Board of Directors feels that it is in the subscriber’s best interest to allow Short Sales to be listed in the MLS, in order to assist our members and their clients.

Short Sales are a controversial topic, and we understand the opinions regarding how Short Sales should be handled vary widely depending on an individual’s experience and which side of the transaction they represent. The spectrum of opinions within our own membership ranges from disallowing Short Sales in the MLS to not implementing policy regarding Short Sales.

What is a Short Sale?

A Short Sale has occurred if title has transferred for a sales price insufficient to pay the total of all liens and costs of sale; and the Seller was not required to pay additional sums at closing to fully pay all deficiencies.

Why is it important to disclose a Short Sale in the MLS?

MFRMLS considers it a best practice to disclose Short Sale circumstances on the MLS. Although the National Association of REALTORS® has deemed the MFRMLS rule regarding Short Sales “permissive,” we hope all subscribers will exercise it when appropriate.

Offers of Compensation in the MLS are Unconditional. Short Sales are no exception.

Compensation in a Short Sale is not subject to change by third parties.

The offer of compensation made by the listing Broker in the MLS is NOT subject to change by a third party.

An offer of compensation to cooperating Brokers which states that it may be adjusted after execution of a contract for sale and purchase by a third party without the consent of the cooperating Broker is not an unconditional offer of compensation, and is, thereby, in violation of the MFRMLS Rules and Regulations. It is not appropriate to provide notes such as “50/50” or “half of what the lender will pay” in any fields available in MLXchange. Moreover, it is against MFRMLS Rules and Regulations to discuss compensation in any field other than the designated “Compensation” field, and compensation must be listed as a dollar amount, a percentage, or a combination of both. MFRMLS will soon be sending Courtesy Notices to listings that do not comply with this important rule. Take a moment and ensure your listings are in compliance.

The listing Broker is responsible for the compensation to the cooperating Broker as listed in the MLS if the lender approves the contract and the sale is consummated. Under a properly disclosed and properly structured Short Sale, if the lender does not approve the sale, or refuses to pay the compensation, the listing Broker is under no obligation to modify the offer of compensation to meet the lender’s requirements. Under these circumstances a sale would not be consummated and the Listing Broker would not be obligated to pay the compensation to the cooperating Broker.

How to disclose a Short Sale on the MLS

If you decide to incorporate the permissive MFRMLS rule as a best practice, the rule has two provisions that you must adhere to:

The Short Sale condition will be disclosed by selecting the “3RD Party Approval Req” drop down item from the “Realtor Info” field in “Listing Maintenance” in MLXchange.

If the “3rd Party Approval Req” drop down item is selected to designate the Short Sale circumstance, the following disclosure must be included in the “REALTOR® Only Remarks” and the “Public Remarks” sections of the listing:

“Listing price may not be sufficient to cover all encumbrances, closing costs, or other seller charges and sale of Property at full listing price may be conditioned upon approval of third parties.”

The full language of the Short Sale Listings rule (Article 4.1-1C) can be found in the MFRMLS Rules & Regulations »

Guidelines for Handling a Short Sale

MFRMLS has compiled a comprehensive guide that addresses the nuances of handling a Short Sale for both listing agents and buyer’s agents.

Pending Status

Once a contract has been signed for a property in a Short Sale circumstance, even if the contract is subject to approval by a court, lender, or other third party, the status of the property listing must be changed to "Pending" within two business days. Because Short Sale properties may be more likely to fall through, we understand the temptation to keep a listing as "Active," but this does a grave disservice to your fellow real estate professionals that may continue to recommend your client's property, unaware that the property is under contract.

Disclosure of Short Sale Issues to Buyer

MFRMLS attorneys have created a “Disclosure of Short Sale Issues to Buyer” agreement that describes the terms and conditions that a buyer can expect to encounter when they place an offer on a property in a Short Sale circumstance.