REALTOR® Outlook

By Kay Wilson-Bolton

March 21, 2007

The training circuit for REALTORS® and real estate agents is heating up for another round of short-sale updates. There are numerous pre-listing and listing considerations that must take place, and the insurance providers for most real estate companies have issued new warnings and unique documents.

Simply stated, the owner of a home who owes more than the home is now worth negotiates with the lender to see if the home can be sold at market value with the lender agreeing to take less than the loan amount.

Licensees’ should be careful when marketing to attract sellers who need to sell and want to see if a  “Short Pay” will work for them.

Making certain representations can place the licensee within the definition of a “Foreclosure Consultant” (Civil Code Section 2945). No promises or guarantees should be included in any advertisements or flyers.  A broker should review all advertisements.

An agent should be careful when accepting referrals from credit counseling services. An agent should investigate the referral source to determine its ethics and business practices before taking any referrals.

When a short pay appears to be necessary, the CAR Purchase Agreement Addendum (form PAA 4/06 revision) should be used which provides language specific to the “Short Pay” Sale.  .

A seller must know the ramifications of a successful short-pay agreement with the lender.  An agent considering taking a listing on a short pay should advise the seller, in writing, to seek tax and legal advice before signing the listing agreement.

An unknown and overlooked element is that the seller will be obligated to pay taxes on any debt forgiven by the lender. The IRS considers debt forgiveness as ordinary income. Consequentially, the difference between the loan amount and the short-pay agreement will be taxed at the seller’s ordinary tax-bracket.  Honorable members of the real estate community must provide this disclosure to the Seller must be in writing.

A lender may handle a short pay in a number of different ways. It can report the loan as paid in full, which would have no adverse credit consequences. A lender may also report the loan as being “Satisfied” or “Settled”. Future Lenders and credit reporting agencies may consider satisfied or settled loans as being similar to a deed in lieu of foreclosure.

A seller should know that a lender would require detailed financial statements from the seller as a condition to approving a short pay. In the event less-than-accurate information from the seller was used to obtain the loan the seller now cannot afford, it may trigger accusations of fraud.

This may cause a seller to refuse to divulge accurate financial statements. An agent probably will want to refuse to take a listing in this situation. At the very least, a listing agent should add a term in the listing agreement obligating the seller to cooperate with the lender’s requests.

The listing agreement as well as the MLS information should show the property is subject to short sale. Both the Listing Agreement and the MLS should contain a statement that any sale is subject to Lender approval. This would apply to the commissions’ provision of the MLS as well as the Listing Agreement.

This is important information if a buyer has sold their home contingent on finding another. The short sale process takes some time and it could delay a timely, contingent closing.


Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and CENTURY 21 Ability. She brings a regional perspective to local issues. She can be reached at 805.340.5025. Her website is


About Kay Wilson-Boltonhttp://www.kaywilsonbolton.netWith a full-time career in real estate, I can add to your bank of knowledge, not only in real estate but in many areas of life that deal with people and relationships and choices. My real estate career has taught me many lessons about planning ahead and looking forward. I believe in helping along the way so that they can be the best they can be in any situation. I serve as a Fire Department Chaplain and Coordinator for the Many Meals Project which serves homeless and hungry families in my community. The event is far more than many meals. As a result of my work with the homeless population in my community, I received the Good Neighbor Award 2017 from the National Association of Realtors and named as a Champion of Homes in 2015 by the California Association of Realtors. I make pastoral visits to the inmates in the County Jail System and offer them what God says about "all things being new" and His remarkable plan for our lives. I have served my community as Mayor and in many volunteer capacities. I serve others by serving God first. My husband is involved in prison ministry and is a graphic artist. We live a simple life in Santa Paula with an office cat named Scout, three rescued poodles and a cat named Tony Diane at home.

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