Agents Sued Over Short Sales and Foreclosure Listings

by Peter Vernon on General

There has been an increase in litigation over short sales and efforts by homeowners to avoid foreclosure listings, according to Shannon Jones, main speaker at the meeting of the San Diego Association of Realtors in April. She also said the rise in loan modification efforts could also result in the filings of lawsuits in the future.

In California, the number of lawsuits related to disclosure issues is also rising as sales of bank owned properties increase and as foreclosure listings across the state increase.

In 2008 and in the first months of 2009, California foreclosures have put the state among the top states in charts of foreclosure rates and foreclosure listings.

As foreclosure listings continue to grow, more and more homeowners are turning to short sales to prevent their credit records from being dirtied by foreclosure listings.

According to Jones, founder of Danville-based Shannon Jones Law Group, his firm and other law firms are experiencing an increase in lawsuits over short sales involving real estate agents and brokers. She said some cases arise from agents’ attempts to provide legal advice, such as encouraging homeowners to undertake short sales rather than allow their houses to be added to foreclosure listings. Lenders later sue real estate agents because of deficiencies in the short sales.

Jones advised real estate agents to make records of all communications with clients in writing. She also told them to advise their clients to talk with a lawyer first before undertaking the short sale process as a way to preserve their credit ratings from being diluted by foreclosure listings.

Additionally, agents were also advised to use the short-sale supplementary form developed by the California Association of Realtors. The form includes termination agreements by the buyer and provides steps on how to manage short sale offers.

Notwithstanding the rise in lawsuits related to short sales, Jones said that nondisclosure cases still constitute the majority of cases against real estate agents. She related that 85 percent of lawsuits against real estate agents are due to nondisclosure. These lawsuits include cases where the agent did not tell the homebuyer that the home being purchased is near a freeway bypass project.

Nondisclosure lawsuits also include cases that involve issues related to water shortages, recent deaths and neighborhood troubles caused by problems other than foreclosure.