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Short Sales Pose Challenges for Real Estate Professionals


The economic downturn has unquestionably affected everyone, especially homeowners across the country who are facing foreclosures and short sales. One of the fall-outs from this is that law firms are seeing more lawsuits over short sales involving real estate agents and brokers. Some cases are as a result of agents attempting to provide legal advice, such as encouraging homeowners to undertake short sales in lieu of allowing their houses to be added to foreclosure listings. Lenders then sue real estate agents due to deficiencies in the short sales.

How can real estate professionals mitigate their exposure to this? First, make records of all communications with clients in writing. Advise your clients to speak with an attorney before undertaking the short-sale process as a way to preserve their credit ratings from being diluted by foreclosure listings. Also, use the short-sale forms provided by your state realtor’s association. These typically include termination agreements by the buyer and provide steps on how to manage short sale offers.

Although suits involving short sales are on the rise, typical lawsuits against real estate agents and brokers still involve nondisclosure cases. It’s estimated that 85 percent of lawsuits against real estate agents are due to nondisclosure. For example, this would involve an agent not telling the home buyer the home being purchased is near a freeway bypass project, or there are structural deficiencies. Nondisclosure lawsuits also include cases that involve issues related to water shortages, recent deaths, and neighborhood troubles caused by problems other than foreclosure.

Other types of suits include: fraud; beach of duty; breach of contract, negligence,

bodily injury and property damage; misrepresentation regarding the condition of the property; misrepresentation regarding the value of the property; discrimination exposures; etc.

Axis Insurance Services, LLC provide Errors & Omissions coverage for real estate professionals.

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Blogged on: October 18, 2011 by Mike Smith
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