SHORT SALE LEGAL INTERPRETATION
We are often asked by Realtors whether they can collect a fee for negotiating a short sale. When we tell them “No”, they ask whether they can call it “extra commission” or if there is any other “creative” way around this issue.
“On Aug. 10, 2009, the Florida Office of Financial Regulation (OFR) confirmed licensees’ right to conduct short sales when compensation involves commission only. The Florida Association of Realtors (FAR) requested an interpretation of section 494.00296 Florida Statues, created by the Florida Legislature. As part of the request, the Office was provided a copy of a November 20, 2008 letter from Attorney General Bill McCollum addressing an interpretation with regard to section 501.1377, Florida Statutes.
“The OFR is also in agreement with the Florida Attorney General’s opinion that the conversations between the real estate licensee and the lender on behalf of an existing client appear to be ancillary to services provided by a real estate licensee in the sale of his or her client’s property. The Attorney General’s opinion also notes that there would be no upfront or other fees for negotiating services. For example, in addition to not collecting an upfront or advance fee, a real estate licensee’s commission must be the standard commission for the area. The commission could not be set higher or be split more favorably with another real estate licensee based on the additional work involved in negotiating with the mortgage holder or its representative. In short, as long as the only remuneration sought is the standard commission for the area on the sale of the property and no other fees are collected for the dialogue with the lender,” the real estate licensee should not be prohibited from negotiating the short sale on behalf of his client.
In summary, both the Attorney General’s office and the Office of Financial Regulation have issued opinion letters stating that a Realtor can have short sale discussions with a Seller’s lender as long as the Realtor does not receive any financial compensation beyond the standard commission on the sale. Florida law allows law firms to negotiate short sales, and unlike a Realtor, an attorney can charge an upfront fee for its representation. While it may be ideal to have a law firm negotiate a short sale, the reality is that a short sale is time-intensive, and the majority of Sellers facing foreclosure cannot afford to hire an attorney to handle these negotiations.
A more cost-effective solution is for a Seller to hire a Realtor who will coordinate with a law firm and title company. The law firm can ensure that the Seller understands the legal implications of the short sale and can assist in the short sale negotiations in a limited capacity with the added benefit of protecting the Seller’s interests. Realtors can handle the day-to-day communications and negotiations with the lender, as long as they don?t charge or receive any additional benefits or compensation.