This week a California court just made short sales even riskier for conventional real estate agents and brokers, ruling in Holmes v. Summers that “sellers’ brokers can be held liable for damages and costs incurred by a buyer in a failed transaction” when the sale price of the property is less than the debt on the property. While in the case that went to court, the seller’s brokers failed to disclose three deeds of trust that created a total debt load of over a million dollars while the home sold for $749,000, thereby breaking the part of their contract with the buyer in which they promised to provide clear title, this ruling has serious potential for all short sales. The information on the deeds of trust was available on the preliminary title report and was public record.
Experts speculate that this ruling will likely “end the common practice of simply indicating ‘short sale’ in the [real estate] listing” of a property to make the property more attractive. Essentially, the ruling does not change the fact that in a conventional short sale, the broker needs to make it clear that a lender has to approve the short sale as well as the seller and the buyer, but now that buyers can actually sue sellers’ brokers for damages in failed transactions, it does lead to the possibility that some agents and brokers will steer clear of short sales, at least in California. The court reasons that entering escrow alone, even if the deal ultimately fails, costs the buyer money that they should not have to pay if they were not in possession of all information about liens on the property.
Do you think that this is fair? Should this be the seller’s broker’s responsibility, or the buyers?
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