REO/Short Sales & "The Rules"
Distressed properties have become an increasing segment of the current real estate market. Currently, 35% of our MLS listings are either an REO or Potential Short Sale property. To ensure that Buyer and Seller Agents are complying to the rules, we have created a comprehensive chart of common infractions for distressed property transactions and the MLS Rule and/or NAR Code of Ethics Article that they might violate. In addition to citing the action and rule, we have also added notes that highlight exceptions or clarify potential infractions.
TOPIC |
ACTION |
MLS RULE |
CODE OF ETHICS
|
RESPA/ OTHER |
OK |
NOTES |
| Advertising | Advertising property not yet listed officially or non-existent | 7.5 |
Article 12 SOP 12-4 |
If no listing, than Code of Ethics prohibits advertising without authority. Listed property must be inputted into MLS within 72 hours after listing is signed or waiver signed by seller “not to list in MLS” submitted to MLS, all advertisements must present “true picture”. 1,2 | ||
| Advertising | Agent advertising other brokers’ REO/SS listings | 12.8 | Must have listing broker’s permission to advertise any listing; no exceptions for REO/SS listings.2 | |||
| Commission | Commissions on short sales without correct verbiage | 7.15.2 | Verbiage protects listing agent from paying amount published in MLS2 | |||
| Commission | Listing agent indicates short sale commission will be divided with third party negotiator. | 7.15.2 |
X |
X |
Only licensed brokers or corporations that perform work requiring a real estate license may be compensated by brokers; information is in addition to required verbiage indicating how the commission and possible reduction of offered commission will be split. 2 | |
| Commission | Commissions on net sales price | 7.12 | There can be no conditions on the commission offered in the MLS. 2,4,5 | |||
| Commission | Bonus offered in MLS | 7.12 |
X |
Provided a cash only bonus is not conditional on any event, it is combined with the amount offered in CSO box for total commission offered; must be entered in confidential remarks only 2 | ||
| MLS | No Supra lockbox Combo in remarks | 13.2 (a) | Supra lockbox required if any lockbox is to be used.2 Listing agent may note combo in confidential remarks only with seller’s written approval 2 | |||
| MLS | Not inputting pending status after seller accepts offer on short sale | 10.2 | Listings must be marked as “Pending Subject to Lender’s Approval” within 24 hours after seller accepts an offer that is sent to lender(s) for short sale approval.2 | |||
| MLS | Not inputting pending status after REO seller has verbally approved offer | 10.2 |
X |
Signature acceptance is triggering event for status update; listing agent is advised to note status in confidential remarks to insure accuracy and to maintain a “true picture”7 | ||
| MLS | Low price listed in MLS | 8.1 |
X |
List price must be authorized by seller in listing agreement. 2 Listing agent is cautioned that obligation to protect and promote interests of seller as required by Article 1 may not be served by suggesting a price lower than comparable sales. | ||
| MLS | Listing agent refuses to show offers to bank owner | 9.5 |
Article 1 SOP 1-6 & 1.7 |
Listing agent must continue to show ALL offers to seller unless specifically instructed by seller in writing or by other law/rule.1,2 | ||
| MLS | Not notifying buyers’ agent of updates after offer is submitted |
X |
There are no rules that require listing agents to communicate updates to agents that have submitted offers; however, professional courtesy promotes good will with other agents and the clients they represent. | |||
| Negotiations | Seller refuses to accept FHA/VA offers |
X |
Sellers may determine terms and conditions under which they are willing to sell as long as there is no discrimination of a protected class.8 | |||
| Negotiations | Listing agent discloses terms & conditions of buyers offer to other agents | 9.2 |
Article 1 SOP 1-15 |
X |
The Code of Ethics, Article 1, SOP 1-15 & MLS Rule 9.2 permit disclosure of terms & conditions of offers by listing agents with sellers’ approval. 1,2 | |
| Negotiations | Seller requires buyer to prequalify with or use specific lender |
X |
It is a term of negotiation 9 | |||
| Negotiations | REO seller requires buyer to sign addendum that negates CAR contract terms |
X |
It is a term of negotiation; however, agents should use REO Advisory and advise buyers to get legal advice for seller/lender prepared documents regarding enforceability of objectionable clauses. 10 | |||
| Negotiations | REO seller requires per diem costs for late close |
X |
It is a term of negotiation; however, agents should use REO Advisory and advise buyers to get legal advice for seller/lender prepared documents regarding enforceability of objectionable clauses. 10 | |||
| Negotiations | Buyers submitting multiple offers |
Article 2 |
X |
Risk management issues for agents and potential legal issues for buyers; Article 2: can’t conceal pertinent facts related to transaction. | ||
| RESPA | REO seller requires use of specific title co. |
Section 9 |
RESPA rule prohibits seller from requiring buyer to use certain title company unless they are paying for buyer’s title policy; does not pertain to escrow costs/fees.3 | |||
| Transaction | REO seller refuses to sign contract or addenda |
X |
Agent must take precautions. 11 | |||
| Transaction | REO seller refuses to provide required disclosures |
X |
Agent must take precautions. 5,12 |
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