On August 20, Freddie Mac confirmed in writing that its servicers are not allowed to renegotiate short sales commissions. According to the policy, as a condition of the servicer’s acceptance of a short sale offer, servicers cannot renegotiate the sales commission below the amount agreed to by the real estate broker and the seller/borrower. However, if the negotiated commission exceeds 6%, servicers are required to limit it to 6%.
This Freddie policy is consistent with Fannie Mae’s policy. NAR has asked Freddie to establish an appeals process for cases when servicers refuse to comply with Freddie Mac’s policy.
Updated as of December 03, 2009-The above change only applies to first lien holders and may not be used in cases where there is a 1st and 2nd mortgage as second lien holders are not bounded by the regulation. What’s important to note is that if you are the listing agent of a short sale transaction, asking for a seller to sign off on a 6% commission should not prevent you from obtaining the listing. If a seller has an opportunity to list with one agent offering 5% commission versus 6%, they should not be as concerned with the commission percentage as this is a number that is negotiated with the listing agent and the bank/mortgage company at the time for short sale negotiations.
This information comes from GUCAR, the Greater Union County Association of Realtors. Visit GUCAR’s website here.
Sellers: When choosing a short sale listing agent, you should look for an agent that has experience with closing short sales. The average time frame for negotiating a short sale can be 3 to 13 months, depending on a number of factors: your personal hardship situation and inability to qualify for a loan modification; your property’s marketability; your short sale listing agent’s follow-up skills and ability to keep buyers motivated in a short sale transaction considering the home condition and time frame for closing. Since the time frame for short sale closings can be un predictable, a buyer is likely to not wait and become impatient. Oftentimes, sellers want to know whether or not they are responsible for the short sale difference or how will the difference affect them. In some cases, a short sale results in
a. The seller being responsible for bringing money to closing for short sale difference or deficiency or a portion of difference.
b. The seller may be required to hold a side note, which becomes an unsecured trade line/line of credit in which a seller makes interests free installment payments until the debt is paid off.
c. The short sale debt is forgiven and reported to the seller’s credit as debt settle for less. You lender will issue a 1099C, which is then treated as taxable income. The good news is that there are some exceptions for the years 2007 to 2009. To learn more, see “Income Tax Liability in Short Sales and Deeds in Lieu,” visit our other post on short sales tax consequences.
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