Listing Brokers have a duty to disclose short sale, court rules

Real estate brokers working with distressed homeowners have the same responsibility as the seller to reveal if a home is underwater, according to a ruling from a California appellate court.

The court ruled this month that a seller’s broker can be held liable for damages and costs incurred by a buyer in a failed transaction if it was not disclosed that the existing debt on the property exceeded the sales price, according to a report on RISMedia.com.

In Holmes vs. Summers, a home being sold for $749,000 had three deeds of trust for a total debt of $1,141,000, and the seller’s real estate brokers did not inform the buyer that the home was “upside-down,” RISMedia reported. Even though the information was readily available via an examination of the county tax record or a title report, the court reasoned that the buyer might not have even proceeded to open an escrow and spend money on inspections and an appraisal had they been made aware of the actual circumstances.

The court also ruled that the duty to disclose facts about the desirability and marketability of the property outweighed the seller’s right to confidentiality of financial information, RISMedia reported.

I have to agree.

Having been on both sides of a short sale, it’s critical information for the buyer to know before they even make an offer. Distressed properties bring lower prices because of the uncertainty, elongated timeframe and difficulty involved, while standard sales inherently have more competition and higher selling prices.

Not to mention the Grand Canyon-like chasm that exists between the best and worst short sale listing agents, which the buyer and their agent must be allowed to vet.

Unless the seller is bringing cash to close for the difference, it’s an ethical misstep for a broker to conceal these crucial details, to effectively bait a buyer into escrow and then spring a short sale on them. And the case example is a good reason why … the deal didn’t go through and the buyer spent money they may not have spent had they known the facts.

I’ve already heard agents grumbling about this ruling making short sales even more risky for a broker. Look, hiding material facts from a buyer is risky behavior for a broker in any transaction. It’s unethical and a good way to lose your license.

(Brian Bean is a real estate broker and ambassador for Helping A Million Homeowners, a nationwide organization that is committed to helping alleviate the financial stress that so many homeowners face today. He can be reached directly at Brian@DreamBigRealEstate.com.)

Brian Bean
Real Estate Professional
www.DreamBigRealEstate.com
www.IEShortSalePros.com
www.HelpingAMillionHomeowners.com

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