Maryland Real Estates Licensees in Short-Sale Transactions

 

The scope of the real estate license is limited by definition to assisting clients in the purchase, sale or lease of real property.  According to the latest regulations, the negotiation of a short sale deficiency agreement or any other type of mortgage collection forbearance with a seller's mortgage lender or servicer falls outside of the scope of a real estate license.  Real estate licensees who negotiate with a lender/servicer or other lienholder, or representative of a lienholder, regarding a client's residential short-sale must comply with the Maryland MARS Act.

 

When it comes to the negotiation with the lender/servicer or other lienholder to obtain approval for a short-sale, release of lien, modification of a promissory note, waiver of deficiency, or to otherwise prevent or obtain relief from a foreclosure, a real estate licensee MUST WORK WITH AN ATTORNEY or mortgage assistance relief service provider (unless the licensee/broker has a credit services business license).

 

The following is excerpted from the Maryland DLLR website:

(Visit http://dllr.maryland.gov/finance/advisories/advisory-shortsales.shtml for more information.)

 

Federal Regulation O and the Maryland MARS Act do not provide a specific exemption for real estate licensees. The Commissioner of Financial Regulation will forbear from taking any enforcement action for violation of the Maryland MARS Act, and any regulations issued pursuant to the Act, against real estate licensees who are acting within the scope of their license. However, since the scope of the real estate license is limited by definition to assisting clients in the purchase, sale or lease of real property, the Real Estate Commission and the Commissioner of Financial Regulation consider that negotiation of a short sale deficiency agreement or any other type of mortgage collection forbearance with a seller's mortgage lender or servicer falls outside of the scope of a real estate license. Real estate licensees who negotiate with a lender/servicer or other lienholder, or representative of a lienholder, regarding a client's residential short-sale must comply with the Maryland MARS Act. Below are some guidelines that licenses should follow when involved in a short-sale transaction.

 

I. A real estate licensee:

• May enter into a contract with a homeowner to market their house for a short-sale, list the property in the multiple list service, and market the property for sale.

• May conduct a Comparative Market Analysis (CMA), which a lender/servicer may refer to as a Broker's Price Opinion (BPO). The real estate licensee may communicate with the lender/servicer regarding the value of the proposed short-sale property, including topics such as neighborhood conditions and comparable sales within the community.

• May submit documents to the seller's lender if

1. The licensee informs the seller that the licensee is not conducting negotiations with the lender, but is merely submitting documents or other information requested by the lender in connection with considering the short-sale request;

2. The licensee informs the seller that the seller must either personally negotiate with the lender or hire a Mortgage Assistance Relief Service Provider or a Maryland attorney to conduct the negotiation; and

3. The seller voluntarily signs an authorization indicating the licensee may submit required short-sale or loss mitigation information and documentation on the seller's behalf.

• Must refer a seller to a tax advisor or tax professional to explain to the seller the potential income tax consequences of a short-sale and the applicability of the Mortgage Forgiveness Debt Relief Act of 2007.

• Must refer a client to a housing counselor for discussion about alternatives available to avoid foreclosure. Free housing counseling is available through the Maryland HOPE Program at 1-877-462-7555.

• Must inform the seller of, and refer to the licensee's broker, any requests from the lender/servicer for reductions in real estate brokerage commissions on a short-sale.

• May truthfully advertise or present to the public any training or achievements that reflect the licensee's experience in the field of residential short-sales.

 

II. A real estate license MUST comply with all provisions of the Maryland MARS Act if the licensee does any of the following:

• Collects any monies in addition to the real estate brokerage sales commission from a short sale client.

• Assists a seller in negotiating with the lender/servicer or other lienholder to obtain approval for a short-sale, release of lien, modification of a promissory note, waiver of deficiency, or to otherwise prevent or obtain relief from a foreclosure.

• Represents to the public that the licensee: (1) can assist in preventing foreclosure; (2) is an "expert" in short-sales; (3) can arrange refinancing; or (4) will contact creditors on the owner's behalf.

• Makes representations to a homeowner that the licensee can save the owner's home, stop foreclosure, or obtain a short-sale.

• Provides advice to a homeowner regarding the benefits of a strategic default.

• Makes any predictions with regard to the likelihood of the waiver of a deficiency or the payment of relocation costs in a short-sale.

 

None of the above-described actions or services in Section II come within the Maryland's definition of the provision of real estate brokerage services, and therefore a LICENSEE IS NOT ACTING under his or her license when taking these actions or providing these services to a client. The licensee must ensure that the client understands that these services are in addition to, and not part of, the real estate brokerage services that the licensee has agreed to provide.