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Legal experts brief REALTORS® on trends, troubles in today's market

Wednesday, November 9, 2011

Even well-intentioned efforts on the part of state legislators to protect distressed sellers can have a backlash and ultimately contribute to stalling the short sales process, according to real estate attorneys.

Dave Hamerslough, a partner in the firm Rossi, Hamerslough, Reischil & Chuck in San Jose, recently told members of the Silicon Valley Association of REALTORS® that SB 931 and SB 458 may be causing a backlash. Both laws attempt to protect sellers from lenders seeking loan deficiencies after a short sale, but instead, they could be placing some short sales in jeopardy.

SB 458, passed this year, extends the protections of SB 931 to junior lien holders. It appears some junior lien holders are hesitating approving short sales because the new law prevents them from going after the borrower for the deficiency. This was a practice of some lenders before SB 458 was signed by Governor Brown in July. Hamerslough, who also serves as the local trade association's board attorney, told REALTORS® if the deficiency of their client's second loan is over $40,000, there is a good chance a junior lien holder could hold back on approving a short sale.

Even if they receive lender approval for a short sale, sellers should always seek a release of liability from the lender in writing, said Hamerslough. Some lenders can be quite vague and unresponsive, so Hamerslough suggests in the letter, the seller should confirm that the lender will not be seeking the loan deficiency from the seller after the short sale, that the seller has no further obligation to the lender of any kind, and that this would be the seller's understanding unless otherwise informed by the lender in writing within a specified period of time.

Multiple offers are back, but Vickie Naidorf, in-house counsel for Coldwell Banker Residential Brokerage, said claims can arise from these situations. Buyers get emotionally caught up in multiple offer situations that they waive disclosures and are willing to purchase the property as is. Naidorf said REALTORS® need to make sure they present buyers with the market conditions advisory and stress to buyers that major consequences can arise if they fail to conduct inspections and investigations.

The real estate attorneys also said they are seeing problems regarding the quality of disclosures. Although sellers are completing the required disclosure form, they are not explaining their disclosures thoroughly and some disclosures are designed to confuse.

Additionally, the real estate attorneys cautioned REALTORS® against lender fraud. They said they have noticed a sharp increase in internal investigations and even criminal prosecutions of agents and their clients.

"The federal government has found a wealth of people to sue," warned Naidorf.

The legal experts advise REALTORS®to always document all communications and actions.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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