Short Sales in Arizona: What You Need to Know
Nagle Law Group
With home values continuing to plummet in our state, more underwater homeowners are seeking assistance with short sale transactions; as a result, there are a number of Arizona agents and brokers who now offer short sale negotiation services. At the same time, numerous new regulations governing short sale transactions have been enacted. Perhaps most important is that a broker must comply with the Federal Trade Commission’s Mortgage Assistance Relief Services (“MARS”) Rule, which applies to
any person that provides any “mortgage assistance relief service,” including short sale transactions.
Not surprisingly, there are a number of questions from real estate professionals; here are some of the most common:
What licenses are required to negotiate a short sale?
Arizona law defines “short sales” as “real estate transactions in which the sales price is insufficient to pay the loan encumbering the property in addition to the costs of sale and the seller is unable to pay the difference.” A real estate license and/or or a loan originator license is required for individuals who assist homeowners in negotiating with lenders to accept less than the full amount of the mortgage loan.
Can a real estate broker receive additional compensation for negotiating a short sale in addition to receiving a commission on the sale?
Yes, but only if the licensee is also licensed by the Arizona Department of Financial Institutions (“DFI”) under Title 6, Chapter 9, which covers loan originators, mortgage brokers and mortgage bankers. The general rule is that additional compensation requires an additional license. According to the Arizona Department of Real Estate, if a real estate broker assists the seller in negotiating with the lender to accept the short sale price as a customer service and does not charge or expect additional compensation such as an increased commission, the real estate broker does not need a separate license from DFI. See more info from ADRE at: www.azre.gov/PublicInfo/ Documents/Short_Sale_Negotiator_Regulations.pdf.
Can a listing broker charge a non-refundable retainer fee in a short sale transaction?
No. Any fee (refundable or not) that a broker requests or receives from a consumer to negotiate, obtain or arrange a short sale, in advance of an executed agreement between the consumer and lender, violates the MARS Rule.
Does short sale paperwork need to be reviewed by an attorney?
Yes. In fact most lenders require it. Even if they do not, you should not take on the liability of a short sale without attorney guidance. Short sale transactions can not be handled like regular listings – there are a number of critical issues you don’t normally come across. In addition, there have been a number of revisions to contracts and forms this year and an experienced attorney will be aware of those.
The best thing you can do when working with a short sale client is to refer them to a real estate attorney – especially one that does not charge fees contingent on completion of the short sale. An issue many brokers have reported is that, on top of consultation fees, some law firms charge a percentage of the transaction amount at closing– some as much as 1.5 percent. It is questionable whether this is an appropriate business practice for a law firm in this context.
Robert Nagle is a partner with Nagle Law Group, P.C., focusing on residential transactional and debt management matters. Nagle Law Group does not charge contingent fees on short sale transactions. He can be reached at 602-595-3156 or firstname.lastname@example.org.