I have just heard of the first legal problems for real estate agents for advising (or not advising) about possible negative implications of a clients short sale.
Here's what happened. 
- The lender did not absolve or relieve the debt as the client claims they were not advised.
- The seller recieved a 1099-S for the deficit of the short sale amount.
The seller is suing the brokerage for that amount claiming that :
- The broker gave legal, financial and tax advice.
- Acted ethically and fraudulently outside the scope of their area of expertise.
- Credit Score was adversely affected to reflect the short sale deficit as unrepaid loan.
This may (remember people still may sue) have been avoided had the agent had a Short Sale Addendum signed.
Let me know if you are hearing anything happening like this in your area.
and , whether you are a real estate agent of a seller, make sure you read and.
Don't Forget the short sale Addendum
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James Wexler Phoenix | Scottsdale area Real Estate
Im in the investment business and we have to be very careful not to make recomendations in any specific area except stocks and bonds even though we are able to sell mortgages and other real estate related products
Almost every customer that contacts me or asks my advice about short sales and how to get bank approval I first advise them to talk with a real estate professional versed in that area. Most importantly be aware of the 1099-S you will most likely receive from the bank.
Take a look at the new AAR Short Sale Addendum - it clearly outlines and discloses risks, implications, expecations, it is a good document if you are acting in any capacity , buyer, seller or agent with Short sales and/or REO's
NICK--You will always be responsible to the 1099 on forgiven debt irregardless of the lender sending it to you or not. In the case of your primary home, the 1099 in negated by IRS form 982 (I believe) which needs to be submitted in order for the IRS to disregard the forgiven debt for the following tax year.
To be safe, every conversation starts with the "I'm not a lawyer o accountant" disclaimer. Here in Florida, we use a Short Sale Disclosure and a Short Sale Addendum, both of which explains the entire process to everyone involved, including the buyer and their agent. Very effective.
There is great training that has been recognized by the California and Florida Association of Realtors. Their program includes the eduction of how to properly process the Short Sales, but more importantly it gives you all the necessary disclosures that will protect you from the event James has written about. Check them out. (www.CDPENOW.com)
I agree. The best thing we can do if we are acting outside of our scope, is to refer the client to an attorney or CPA. It is the best thing for our client and ourselves.
I always refer people to specialists. I think the addendum is important so that it is in writing.
GINA-The only thing specialists have is information. You can get that same information and become the specialist.
Is it better to refer, or to be referred to?
Sidney, you are right. And this is a great time to take advantage of using more free time then we would like to educate ourselves.